Birch Paper Case

1064 Words Mar 29th, 2013 5 Pages
Birch Paper Company Individual Case

Strategy & Key Success Factors: Birch Paper (BP) company is structured in such a way that it is decentralized, and each division acts as a profit centre. Furthermore, it uses vertical integration with examples such as Timberland division supplying pulp, and the Thompson Division (TD) providing printing and colouring. This strategy, which composes of decentralization along with the design of profit centres indicates a profit maximization strategy, which involves keeping costs low through obtaining multiple bids. This strategy is reliant on several key success factors: goal congruence among all divisions. Although managers from each division have the right to choose the supplier they
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If taken further, it can lead to a company culture defined by divisional tension and distrust. As a result, teams may be afraid of being forced to accept higher transfer prices in the future. The key to preventing this outcome is clear communication among each division.

The most significant discussion involves identifying whether the problem is a one-time event, or if the problem is systems-related. Upon examination, the circumstances reveal a systems related issue joined with goal incongruence. The current structure of BP promotes profitability among individual divisions. As a result, divisions will be inclined to pick projects that are most profitable for them. However, as outlined in this case, this structure is not ideal as the optimal decision may be different for the company and the division. Therefore, there is a flaw in the system, not in the division managers. This brings up the question as to whether the system should be changed. Taking into consideration that this transaction accounts for only 5% of overall volume, it would make most sense for the company to not change policy. The costs involved in drastically modifying the system do not outweigh the benefits provided. However, this is not to say that BP should do nothing; BP can implement measures in place to prevent situations where divisions take on unprofitable projects.

Management

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