in february 2005 herbert waters was appointed 640553
For the exclusive use of K. Tuttle BUSINESS SCHOOL 9 105 010
REV: AUGUST 12, 2004
JAMES W. CULLITON DAVID F. HAWKINS JACOB COHEN
Superior Manufacturing Company
In February 2005, Herbert Waters was appointed general manager of the Superior Manufacturing Company by Paul Harvey, president. Waters, 56, had wide executive experience in manufacturing products similar to those of Superior. The appointment of Waters resulted from management problems arising from the death of Richard Harvey, founder and, until his death in early 2004, president of Superior. Paul Harvey had only four years’ experience with the company, and in early 2005 was 34 years old. His father had hoped to train him over a 10 year period, but his untimely death had cut this seasoning period short. The younger Harvey became president when his father died and had exercised full control until he hired Waters.
New Management Paul Harvey knew that during 2004 he had made several poor decisions and noted that morale of the organization had suffered, apparently through lack of confidence in him. When he received the income statement for 2004 (see Exhibit 1) showing a net loss of $688,000 during a good business year, he knew he needed help. He attracted Waters from a competitor by offering a stock option incentive in addition to salary, knowing that Waters wanted to acquire a financial competence for his retirement. The two men came to a clear understanding that Waters, as general manager, had full authority to execute any changes he desired. In addition, Waters would explain the reasons for his decisions to Harvey and thereby train him for successful leadership upon Waters’s retirement. Upon taking office in February 2005, Waters decided against immediate major changes. Rather, he chose to analyze 2004 operations and to wait to see results for the first half of 2005. He instructed the accounting department to provide detailed expenses and earnings statements by products and departments for 2004 (see Exhibit 2). In addition, he requested an explanation of the nature of the company’s costs including their expected future behavior (see Exhibit 3).
Company and Industry The Superior Manufacturing Company made only three industrial products: 101, 102, and 103. They were sold by the company’s sales force for use in the processes of other manufacturers. All of the sales force, on a salary basis, sold the three products but in varying proportions. Superior sold
Professor James W. Culliton prepared the original version of this case, HBS No. 156 004. This version was prepared by Professor David F. Hawkins and Jacob Cohen, Affiliate Professor of Accounting and Control at INSEAD. HBS cases are developed solely as the basis for class discussion. The company mentioned in the case is fictional. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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This document is authorized for use only by Kenneth Tuttle in Summer 2014 Strategic Cost Management (Online) taught by Yingxu Kuang from May 2014 to November 2014.