Marshall School of Business University of Southern California
Purpose of Case This case was written to illustrate a basic control system choice. Two young and inexperienced MBA graduates purchase a small aviation company that is in financial trouble. If the company will survive, it will do so only with tight management of cash and new accounting and control systems. The company also needs to make better operating decisions. However, the new owners do not know the business well, so they cannot either centralize authority or be very prescriptive to the line managers as to how to run their operations. As a consequence, they design a new control system that makes each operating department a profit center.
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These numbers show that the company is losing about $100,000 on an annualized basis. This analysis can also be done on a cash flow basis. This analysis shows that the company’s cash needs are approximately $100,000 every 4 months, to finance operating losses and reductions in payables. With $515,000 in the bank, there should be no panic. Cash control is important, certainly, but it is not the all-consuming crisis that is implied in the case. Whichever way you look at the results, AirTex needs a new control system. The company is not performing well. The most important focus needs to be on profitability. What is Important in this Company? (Key Recurring Decisions) Early in the class, it is useful to clarify what is important in managing this business. We like to develop this idea by assembling a list of “key recurring decisions” that must be made well. The question that should be asked when trying to judge the completeness of the list of decisions identified is, “If the company makes all these decisions well, is there a good chance that the company will succeed?” If the answer is yes, then the list of decisions is (near) complete. Students can also be asked to identify who is responsible for each of these decisions before and after Ted and Frank take over. This discussion should lead to a creation of a chart such as that shown in Figure TN-2. This