Zumwald Ag Essay

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Zumwald AG 1. The Situation Zumwald AG (headquartered in Germany) produced and sold medical diagnostic imaging systems and biomedical test equipment and instrumentation. The company was organized into six operating divisions with slightly more than E3 billion in total annual revenues. The company ran on a highly decentralized basis and the managers of each division had considerable autonomy as long as their performances were on track. Performances were evaluated and the management bonuses were assigned based upon each division’s achievement of the budgeted targets for return on invested capital and sales growth. Division managers were allowed to source their components from external suppliers instead of the company’s internal suppliers if they chose to do so. In August 2002 a pricing dispute arose between the managers of three of the divisions. The divisions involved were as follows: * Imaging Systems Division (ISD) sold complex ultrasound and magnetic resonance imaging systems, typically selling for E500,000 – 1 million. * Heidelberg Division that sold high-resolution monitors, graphics controllers, and display subsystems. Half of its sales were made to outside customers but ISD was one of Heidelberg’s major internal customers. * Electronic Components Division (ECD) sold application specific integrated circuits and subassemblies. ECD managers were given profit center responsibility. ISD had designed a new ultrasound imaging system called the X73. Heidelberg engineers were involved with the design and were compensated for the full cost of the time that they had spent on the project. The dispute arose when ISD accepted an outside supplier’s bid for materials needed to produce X73 components (display systems) instead of contracting internally with Heidelberg. 2. Questions Why was Heidelberg not chosen to supply the display systems?

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