Behavioural Management Control

SeminarAxeon N.V. Case study

Group D5• Alberto Abugaber• Giuseppe Amenta• Jeremy Laborde

1. What do you feel about the initial analysis? Was there anything wrong with it?

• There’s no scenario analysis. Just 1 scenario.• There’s no detailed information about fixed and

overhead costs• They didn’t analyse the possibility to buy the AR-

42 to the Dutch plant: comparison of the both possibilities.

• Big expectation on market share and quantity for very few time. No supporting data for such sales numbers.

2. Is construction of the new factory in the UK in the best interest of Axeon?

• No:– There are no direct benefits for the plant in

Netherlands.– They are spreading the knowledge between their

subsidiaries– There is a risk of too much independence in the future– The proposed project doesn't seem to be the best of all

the possibilities– AR-42 process is complex and Axeon prefers to keep it

under control

3. Why did Mr. Van Leuven behave as he did?

• First, when he learned about the new project, Ian Wallingford was so enthusiastic and subjective that Mr. van Leuven had not the time to really think about the impacts of this project, in terms of costs and risks.

• Then, he got the point of view of different managers of the company and was more aware about the negative effects of such a project.

• Maybe there are more unspeakable reasons for this refusal:– The leak of knowledge from Netherlands to the UK could be a risk

for the company– A new plant could become a new competitor for Axeon in the

future, even if they belong to Axeon for now.– The headquarters of Axeon still wants to keep the control on the

subsidiaries and refuses to give such a lot of autonomy on the others managers.

4. Discuss what transfer price should be established if AR 42 is supplied from the ‐ Netherlands to the UK

• Axeon’s Variable cost would be £1860 per ton• If fixed costs are distributed, it’s £360 per ton• Shipping + Customs = £200 (Unavoidable)• Transfer price range £ 1860 to £ 2220 (+ £ 200)• Hollandsworth total costs = £ 2000• Total Difference Min + £ 60 | Max + £ 420• Agreement needed to accept the deal Bargain• Ideally, transfer price = £ 2220 (+ £ 200)

Actual New Savings per ton NL Savings WW Savings

NL Production 600 tons 1000 tons

NL Fixed Costs £ 360,000 £ 360,000 £ - £ - £ -

Fixed costs per ton £ 600 £ 360 £ 240 £ 144,000 £ 240,000

NL Variable Costs per ton £ 1,900 £ 1,860 £ 40 £ 24,000 £ 40,000

Total Cost per Ton £ 2,500 £ 2,220 £ 280 £ 168,000 £ 280,000

5. What is Axeon’s corporate strategy?• EXPANSION

– Over the years, Axeon acquired some companies in order to enter new markets.

• DECENTRALIZATION– The responsibility for the sales is assumed by each subsidiary

company– The subsidiary managers have autonomy to decide what to sale

in their territories– There’s no clear strategy as a single group

• BONUS PLAN– Axeon provides rewards for managers based on the performance

of each subsidiary.– Rewards as a results control given for individual accomplishment:

This improves the efficiency of the managers and the performance of the company

6. What do you believe to be critical success factors in Axeon?

• Presence in all Europe through subsidiaries

• Expertise in the local markets by the subsidiary

• Allow the subsidiaries to manage their own product mix

• “Free” allowance of creation of new products

• Decentralization with decision making to save time

• Retained strategical control from Axeon’s board

7. What do you believe are the key recurring activities in Axeon?

• Managerial key recurring activities• Well sequenced meetings• Involvement of all parts in big projects• Rewards system for managers based on the

performance of each subsidiary.

8. Discuss Axeon in terms of its centralization / decentralizationThe apparent strategy of Axeon is to emphasize high degree of decentralization, however it’s not completely true.There’s a big control based on some decision taking and transfer prices / product making.–Pros:

• Delegate responsibilities• Saving times in the decision taking• Taking advantage of the of the geographical position since the

subsidiary companies know better their own markets

–Cons:• There are not really strategies as a single group• Every subsidiary pursues its own interests• Competition between subsidiaries (cannibalism)• Risk of losing the control of the subsidiary companies• Big projects (like this case) are more difficult to achieve• Complicated communication

9. What should Mr. van Leuven do?

• Think in the group wellness• He has the final word• Consensus reach• Loss minimization – Benefit maximization• Try to achieve win-win situation• Reject the original project• Argue Axeon’s true reasons• Expose the benefits to both parts of the

alternative project• Manage a Bonus / Incentive to Hollandsworth• Clarify the rules of the game to avoid future

disputes

Original Project• IRR = 19.691%• Payback time = 4.5 years• NPV = £ 916,000• Sum Net CF after tax @ 7 yr =

£2,600,000• Market share for Zero NPV =

28.7%

Alternative Option (with transfer price = £ 2060)• IRR = 120.3%• Payback time = 1.5 years• NPV = £ 1,233,320• Sum Net CF after tax @ 7 yr =

£1,950,000• Market share for Zero NPV =

17.3%

Facts about the project