Behavioural Management Control Seminarquestions The Aexon Case Group D2

1. Behavioural Management Control Seminarquestions The AexonCase Group D2 Group members: Susanne Atrops 860304-A164 Kathrin Schäfer 811219-A328 Fabian Schmidt 850127-A137 Christian Stäcker 840214-A116 Sebastian Trebing 851005-A215

2. Question 1: What do you feel about the initial analysis? Was there, in your opinion, anything wrong with it? • First, the analysis seems to be a good business idea • Big market potential for AR-42in the UK (800tons) • Actually no sellings from Aexon in UK • Estimations seem to be overoptimistic • Is it realistic to cover half the market after three years? • Are production difficulties considered properly? The Aexon Case

3. Is it realistic to cover half the market after three years? • Totally unknown on the new market (0 tons sold actual) • Covering quarter of the market value in the first year • Estimated growing rate of 50% per year • Target of 400tons per year reached in third year. • 400tons just in UK by 600tons in the rest of the world market. The Aexon Case

4. Are production difficulties considered properly? • The analysis mentions no production difficulties • No comment on technical challenges • Mr Oosterling mentions complications in production process • ``…even with trained workers, who have long experience´´ • Experienced workers can be called in from Netherlands • Lack of information to validate the question The Aexon Case

5. Question 2: Is construction of the new factory in the UK in the best interest of Axeon? Working Capital in the NL lower than estimated in UK If NL produces for the UK market: 160 vs. 190 (in UK) NL production obviously not at its capasity maximum: AR-42 for the UK market can additionally be produced in NL Fixed costs per ton in NL decrease with higher output Variable production costs in NL lower than in UK Higher than in UK when including shipping and duty Unknown fixed costs in UK disable complete comparison Preferred method: Enlarge production in NL

6. Question 3: Why did Mr van Leuven behave as he did? Some quotiations by Mr van Leuven during the case: ``…the decision seems to be clear.´´ ``…seemed (just) to sit there and listen.´´ ``…did not back me up…´´ ``…key importance for the whole company.´´ The Axeon Case

7. Passiv: • Does not make the decisions for the other managers • but shows the company’s direction and • supports the development of ideas • Without making decisions, he does not take the responsibility, so the other managers cannot lean back and refer to his decisions when problems appear • They are supposed to find agreements on their own The Axeon Case

8. Question 4: Discuss what transfer price should be established if AR-42 is supplied from the Netherlands to the UK. You have to consider the short and the longterm The Axeon Case

9. Short term: • Just consider the variable • plus shipping and UK import • Fix costs are sunk costs. It is already invested. • Long Term: • Including fix costs and mark up • Price per ton = 2060 + 360 + X 2060£/ton The Axeon Case

10. Negotiated Price: • Transfer pricehastobenegotiated • Withoutproducing, Hollandsworthhas still thepromotioncostsandwant a markup • Promotion costs after thirdyear: 250£/ton • Market price: 3700 £/ton • Total costs: 2670 £/ton • Negotiationbasis: 1030 £/ton • Mark upsorlowerpricetoincreasemarketshare The Axeon Case

11. Question 5: What is Axeon‘s corporate strategy? diversification into headquarter and 3 subsidiaries related business (producing chemical products) Manager are free to decide with products they offer → Rivalry between products within company Managers are encouraged to develop new products and establish plants → investment in their own markets must be justify The Axeon Case

12. interdependence among the subsidiaries should be high competition between subsidiaries → not effective Managers has to communicate with each other to avoid business competition → Ian takes no active part in the discussion between the managers, because they have to unify each other The Axeon Case

13. Question 6: What do you believe to be the critical success factors in Axeon? Axeon: Effective and efficient positioning of subsidiaries on the market Hiring of capable managers for the subsidiaries (PC) Maximization of economic profit Enhancing market share Entering new markets By acquisition The Axeon Case

14. Hollandsworth Proposal: Reaching the Target of 400 tons sold AR-42 per year All calculations of the proposal are based on this Without it payback time will never be reached New project else wouldn‘t fit Axeons yield demands No need for an additional brand with fewer sellings New Plant must be able to produce the aimed amount AR-42 Oosterling brings up problems in the Dutch plants Even experienced workers have problems Dutch workers could help their UK colleagues The Axeon Case

15. Question 7: What do you believe are the key recurring activities in Axeon? annual planning and budgeting process profit sharing for the subsidiary managers transfer price negotiation The Axeon Case

16. Question 8: Discuss Axeon in terms of its centralisation / decentralisation. • Defintion Centralisation: • Decision making • Most decisions are made by the top management • Top managers have reputation of being “detail oriented” • Managers often tend to reserve for themselves many of the most critical decisions that fall within their authority • Impossible to centralize all critical activities The Axeon Case

17. Basically: • Style of Axeon’s top level managers was to emphasize a high degree of decentralisation -> Subsidiary managers had considerable autonomy • Little attempt to rationalize the company production • Mr Ian Wallingford had considerable freedom • after the Board-Meeting all these thesis were satisfied • Dispute between Parent and Subsidiary The Axeon Case

18. Influence of: • Report of Director of Manufacturing • Report of the vice president finance • Result: • The Point that Mr. Leuven has the power to decide if the project will be allowed or not, shows a high grade of centralisation in the company • However there is a big difference between the predetermine company structure and the actual practise The Axeon Case

19. Considering advantages and disadvantages: Pro: To satisfy the company’s philosophy (decentralisation) Keep the worker-motivation on a high level Mr. Ian Wallingford is very important for the company because of his experiences, knowledge and abilities To promote new ideas and innovation extension of the company Question 9: What should Mr van Leuven do? The Axeon Case

20. Contra: Financial point  believing in the knowledge of VP Finance and Director of Man. Overhead costs and variable costs too high Cheaper possibility is available Plant in Netherlands is max. on 60% of capacity The Axeon Case

21. Result: Mr Leuven has to decide what is more important: Following the companys strategy of decentralization, he should build up a plant in UK Regarding the actual capacity used, he should produce in Netherlands. If he decides so, he has also to change the company‘s philosophy, due to authenticity The Axeon Case

22. Our Recommendation: Considering probably difficulties of production start Using of free capacity in Netherlands and Interrest of company development due to decentralized philosophy First enlarge production in NL and export to UK While building plant and ramp up production in UK carefully Win-Win-Situation The Axeon Case