Read this case study and solve listed questions.

Discussion Questions

1. Do you think Preserve would benefit t from

employing an activity-based costing system?

Explain.

2. Do you think implementing a formal corporate

governance policy is appropriate for Preserve?

Why or why not

When John Lively, director of operations at Preserve,

arrived for his fi rst day on the job ten years

ago, there wasn't much to see. The company, which

makes housewares and personal care products from

recycled plastics, was just getting started. There

were about three or four people in one room doing

whatever it took to get the company off the ground.

It's hard to believe, but in 1999, the whole idea of an

information technology (IT) department and all the

organizational tools to which we've grown accustomed

was still new. Larger companies certainly

had systems in place, but those tools were merely

something a four-person start-up company hoped to

acquire someday.

"My original mandate for Preserve was to come

in and look at their customer relationship management

database," Lively recalled. His charge was

not to manage customers, but to look at the data

the company had accumulated and come up with

a way to use it to improve effi ciency. It was not

an easy task. At the end of six or seven months,

however, he had trained the staff to print shipping

labels.

Just when everyone started to get acclimated to

Lively's newly effi cient system, Wal-Mart called.

"Growth happens," Lively said. "But you're always

hedging, saying, 'I'm not really sure that's gonna happen;

maybe we won't get that big account.' " That year

Preserve experienced a remarkable 75 percent growth

in revenue, yet Lively was running the entire administrative

part of the company with only a few eager,

but inexperienced, offi ce mates. Instead of anticipating

staffi ng and infrastructure needs as it should have

been doing, Preserve was hiring folks to recover from

the large infl ux of business. "Looking at it and saying,

'How could we have done better?' has defi nitely

resulted in some hierarchy of management," Lively

admitted. Up to this point, Preserve had been a very

fl at organization. It was time for some real reporting

structure.

IT systems and accounting continue to be the

most important factors in improving Preserve's organizational

performance. Lively is constantly working

with his crew to forecast and project sales, profi t, and

expenses. Making each department accountable for

its day-to-day spending ensures accurate balance

sheets and profi t and loss statements. "It's a large

undertaking to understand where we need to be

and look around process-wise to get those actuals in

the books quicker," Lively lamented. Preserve now

employs two controllers, freeing Lively to work on

the big picture.

Forecasts show sales aren't going down anytime

soon, and Preserve has reacted by asking more from

its vendors and manufacturing partners. The factory

responsible for manufacturing its most popular

product, the Preserve Toothbrush, now handles all

the inventory management and shipping on behalf

of Preserve. When it comes to quality control, the

factory implements its own systems and standards.

Preserve works with them initially to set the standards,

then it steps back unless problems arise.

The choice to outsource adds value in the form of

reduced cycle time and improved service to the

customer.

Preserve's total quality management approach

results in cost savings and improvement in accuracy

and efficiency in all aspects of Preserve's

business. As the company grows, even stricter

financial and manufacturing controls will no

doubt result in a more hierarchical structure.

Although this poses some threat to Preserve's

casual and open culture, all recognize that it is a

necessary part of growth. A smoothly run organization

means the folks at Preserve can get back

to doing what they do bestcreating innovative,