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AXEON N.V. Group C4: Anat Bar Pinchas Mahesh Adhegaonkar Gloria Marmol Acitores Aranya Wangkaongtaveerauj BEHAVIOURAL MANAGEMENT CONTROL.

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Presentation on theme: "AXEON N.V. Group C4: Anat Bar Pinchas Mahesh Adhegaonkar Gloria Marmol Acitores Aranya Wangkaongtaveerauj BEHAVIOURAL MANAGEMENT CONTROL."— Presentation transcript:

1 AXEON N.V. Group C4: Anat Bar Pinchas Mahesh Adhegaonkar Gloria Marmol Acitores Aranya Wangkaongtaveerauj BEHAVIOURAL MANAGEMENT CONTROL

2 The Company  Large Dutch chemical company.  Headquartered in Heerlen (the Netherlands).  Extensive product line of industrial chemicals.  24 factories.  Subsidiaries in three countries: Saraceno (Italy)- 8% sales Hollandsworth (UK)- 14% sales KAG Chemicals (Sweden)- 6% sales  Management style: High degree of decentralisation and autonomy in decision-making.

3 What do you feel about the initial analysis? Was there anything wrong with it?  Ian’s Proposal: Evaluation seems realistic. (Sales, Costs). Final value of the plant after 7 years can be lower. Lack of scenario analysis (Price variations, Inflation).  Axeon’s Analysis: New technology is not considered. Plant will operate at full capacity. (No room for capacity fluctuations) Considering the shipment of AR-42 from Netherland at a cost of £ 2060 per ton, the NPV is £ 1,326,678,000 which is HIGHER than Ian´s proposal £ 916,000,000.

4 Is the construction of the new factory in the UK in the best interest of Axeon? NO (Ian´s proposal has LOWER NPV.)  Considering the shipment of AR-42 from Netherland at a cost of £ 2060 per ton, the NPV is £ 1,326,678,000 which is HIGER than Ian´s proposal(£916,000,000).  Manufacturing in the Netherlands : Economies of scale and synergies: Variable costs:from £ 1900 to £ 1860 Overhead costs: from £ 600 to £ 360 Immediate market penetration. Workers are already trained (learning curve). Estimated variable cost of mfg & shipment to UK - £ 2060 per ton.  Then, why didn´t Axeon sell AR-42 in the UK before?

5 Why did Mr. van Leuven behave as he did? Lack of information about capacities and costs that took time for evaluation of the project. Considering £ 2060 per ton transfer price, the NPV is £ 1,326,678,000 which is HIGER than Ian´s proposal (£916,000,000).  Mr. van Leuven’s strategy can be…: Extra Capacity utilization. Integration of operations.  Problems: Incoherence with strategy of decentralization. Axeon’s analysis of proposal for manufacturing in the Netherlands was done too late. Lack of motivation and morale of subsidiary management.

6 Discuss what transfer price should be established if AR-42 is supplied from the Netherlands to the UK. Transfer price method: Negotiated transfer price. (Max- £ 2,060 & Min- £ 2,000)  Both player has bargaining power. Maximum transfer price should be £ 2060 (NPV will be £ 1,326,678,000)-Why UK should pay more? Minimum transfer price should be £ 2000 (NPV will be £ 1,391,896,000)-Why UK should have more benefits? Even if Axeon sells at £ 2000 per ton,it will be beneficial to cover fixed costs and utilise extra capacity. Its strategic decision and thats why negotiation is reqd.

7 What is Axeon’s corporate strategy?  Acquiring companies in different geographical areas to enter other markets.  Having an extensive product line of industrial chemicals.  Having high degree of decentralization.  Giving autonomy to subsidiaries: To decide what to sell and produce in their territories. To bargain and reject products. To propose the development of new products and build their own manufacturing plants.  Indirect control by having a managing director as a board member of subsidiary.  Projects should get approval first by the subsidiary and then by Axeon board of directors.

8 What do you believe to be the critical success factors in Axeon?  Extensive product range.  Use of external knowledge by acquiring specialized companies in different regions.  Hiring people with high expertise and experience.  Independence between the sales in different regions (diversified risk).  Encouragement of the development of new products (R&D) in all the subsidiaries.

9 What do you believe are the key recurring activities in Axeon?  Assessment of new project proposals.  Acquiring new companies in other countries as subsidiaries.  Production of industrial chemicals.  R&D activities.  Negotiating with the subsidiaries for selling Axeon products.

10 Discuss Axeon in terms of its centralisation/decentralisation.  Formal strategy: Decentralization Result of the company’s fast growth by acquiring other companies. Motivation to make changes by giving autonomy to subsidiaries.  Real situation: Centralization. Benefit from economies of scale, synergies. Achieve higher integration. Avoid competition between subsidiaries and Axeon. Have a centralized process concerning the approval of projects.  Conclusion: Axeon should be coherent between the definition and the real implementation of its strategy in terms of centralization. Eventually, Axeon is still a centralized organization.

11 What should Mr. van Leuven do?  AR-42 should be supplied from Netherlands with negotiated transfer price.  Review the strategy in terms of autonomy, encouraging subsidiaries to propose new projects and the development of new products but centralizing the final approval of proposal.  Develop personnel control systems to avoid demotivation if a subsidiary’s proposal is rejected.  Pre-study phase of the project should be approved by Axeon and then, subsidiary should be given independence to plan the project and submit it for Axeon’s approval before execution.  Should design Reward system for subsidiary management executives according to market share responsibility even though the product is produced at Axeon.

12 Thank you!


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