Light Seating Canada produces recliners, the device inside car seats that allows the seats to recline to a position comfortable to the driver but prevents the seat from trapping the driver in the case of a front crash. The company has always been associated with high-quality, expensive products, but this has limited their sales to manufacturers of sports cars.
About one year ago, the production manager, Bill Jones, identified an opportunity for Light Seating Canada to enter the low-cost, high-volume segment of the market. Up to that point, Light Seating Canada had used expensive materials assembled automatically using a special-purpose machine. Jones, considered a competent manager, felt certain a new, cheaper machine with intensive use of direct labour would allow for the manufacture of an inexpensive recliner, enabling the firm to enter the low-cost, high-volume segment of the market. Jones vocally championed this idea and eventually received permission to purchase one of these machines to begin stamping recliner parts and assembling them manually on a trial basis. If the trial were successful, about ten more of these machines would have to be purchased for Light Seating Canada to be an effective competitor.
The test machine had been installed approximately eight months ago, and it was time for senior management to review its performance and consider the decision to make the additional investment necessary to enter this new market segment. To aid in this review the vice-president of operations asked Emily Chang, the assistant controller, to conduct a post-audit report on the operations of the stamping machine and manual assembly.
Chang collected information from numerous sources in the preparation of her report.
Her efforts unearthed a number of items that were in contrast with the original estimates provided by Jones to justify this investment. For example, the amount of time necessary to train production staff on the use of the stamping machine and manual assembly was more than four times greater than the one month originally forecast. Even then, with Jones describing the
staff as now fully competenton the stamping machine and assembly process, the quality of the output was far below the acceptable level, and scrap rates were running double from the orig inal plan. In addition to scrap rates, the throughput volume had failed to meet the levels expected. Chang concluded the report by describing all of these issues as significant and clearly sufficient grounds to reconsider the viability of the new initiative that would redirect the firm's market strategy.
As was standard practice at Light Seating Canada, Chang's report was reviewed by the Controller, Paul James, in advance of its presentation to senior management. The day after James had received a copy of Chang's report, he approached her to discuss its findings. James and Jones had both been with Light Seating Canada for many years, and James was Jones's brother-in-law. He explained to Chang that he had reviewed the findings of her report with Jones. He explained that while she had certainly identified some disappointing events in the past, he was unconvinced that these items warranted the cautionary tone of the report. He raised the issue of training delays and suggested that this entire item could be dropped from the report, as it was unlikely that training delays would persist since some staff were now familiar with the stamping machine and assembly process. Additionally, he asked Chang to rewrite the sections of the report dealing with scrap rates and throughput, as they were quite negative, and Jones believed that both of these items were likely to improve with more organizational experience with the machine and manual assembly process.
Finally, James mentioned that Jones was widely seen as the champion of this new initiative. He suggested to Chang that perhaps she should be particularly cautious in producing a report that might reflect negatively on Jones and impact his career and subjective portion of the bonus. James reminded Chang that at Light Seating Canada all managers and employees have an annual bonus that is mostly subjective and determined by his or her immediate superior.
1. Put yourself in Emily Chang's position and consider the governance dimensions of the \ situation in which you find yourself. How would you resolve this situation?
2. Which levers of control need to be activated at Light Seating Canada?