Airtex Aviation Case

Case: Airtex Aviation

Introduction

This document describes the findings and solutions from the Airtex Aviation case of the book Management Control Systems, Performance Measurement, Evaluation and Incentives. This case basically is a summary of an implemented MCS by two businessmen. It comprises of problems they encountered and how they changed the management function of the new business they bought. This document will therefore, according to chapter six in the book, describe a thorough evaluation of the problems and MCS responses & outcomes that are described in this case.

Changing the old management system step by step

What appears to be the problem at Air Tex is linked to the overall business culture which in term is linked with the state of mind of the employees: there is a lack of motivation. Probably because the company didn't adapt to a changing environment and the low employee turnover. Now, the company is on the verge of bankruptcy because of Sarah Arthur's accounting system. We think that it is a problem because of the self-interested behaviour of Sarah Arthur in the company. There is no control on the accounting task of the business and it is done by only one person which is very error prone. Additionally, the several departments don't cooperate in a synergetic way which leads to unskilled employees and managers. Decision-making is centralized and departmental managers weren't involved in the decision making process making them have motivational problems.

Step 1: Changing the structure & culture

As chapter six states: In order to know what needs to be controlled, you need to have an understanding of what the desired actions or results are. Ted & Frank immediately recognized the corporate structure and lack of openness between departments as a major liability for the company. The key desired result in that matter is better profitability of the departments and clarity of accounting statements. The desired actions lie with the departmental managers and the owners. Decision choice number one as is described in the book, would then be to choose which types of control would be appropriate.

To address these control problems Ted & Frank came up with a new horizontal, decentralized corporate structure which gives departmental managers more responsibility, but most importantly, the accounting statements were made public so everyone could look into results. Accountants now were very limited in their power. This is a kind of Cultural Control Ted & Frank choose at first to build trust among employees and is also referred to as Open Book Management. Trust is not build by just changing the structure but it is also about the culture, therefore Ted & Frank also implemented new management styles that would fit the new structure.