Madden International is a large ($7 billion sales), successful international pha

Question

Madden International is a large ($7 billion sales), successful international pharmaceuticals firm operating in 23 countries with 15 autonomous subsidiaries. The corporate office consists of five vice presidents who oversee the operations of the subsidiaries. These five vice presidents report to two executive vice presidents, who in turn report to the resident of the firm.
The 15 subsidiaries specialize by pharmaceutical type and in some cases by country. The pace of innovation in this industry is very fast. In addition, each country has its own elaborate regulatory environment that controls new drug introduction, pricing, and distribution. Each market has its own peculiarities concerning hospital drug purchases. It is an understatement to say that Madden International operates in a very complex world that changes daily.
The corporate office requires each subsidiary to maintain an elaborate, detailed budget and control system. The following points summarize the budget and control systems in each subsidiary:

-One, three and five-year budgets are prepared each year
The vice president overseeing the subsidiary looks for three and five year budgets that stretch the subsidiary

Explanation / Answer

a) The strengths of the budgeting and control system at Madden International are as follows: 1) The subsidiaries have a well defined budget making and approval process. 2) The Budgets are first approved at the subsidiary level and then at the corporate level. This ensures that the budgets gets a high-level review before finally moving to the headquarters. 3) Frequent visits of Corporate Vice President ensures the oversee of the budget making process at the subsidiary. Further, the corporate vice president, can discuss with the senior managers for not meeting the targets and what more could be achieved. 4) The appraisal system does not review performance based on meeting budget targets. This ensures that senior managers do not take aggressive call while performing their operations to meet the target. The weaknesses of the budgeting and control system at Madden International are as follows: 1) There is no Ten - year budget. Having a budget of maximum 5 year period is too short sighted. 2) The corporate vice president doe snot review the 1 year budget. Ideally, they should review 1 year budget as well to ensure that short run operation are on tract. 3) Variances are reconciled every quarter. Ideally, this should be done monthly, so that corrective measures can be taken early, to improve performance in the remaining two months of the quarter. 4) Corporate vice president must not have personal contacts with senior managers. They might not be able to excercise independent judgment while evaluating the performance of the senior managers. 5) Compensation of the Senior managers should be marginally linked to meeting the budgets as it will motivate the managers to match the budget expectations. 6) As per one of the managers comment, it seems lot of time is being taken on reporting purposes. Company should established adequate financial systems to ensure that the time spent in reporting is minimum. b) A company having operations in so many countries should have a formal financial system to ensure accurate collection of data, real time reporting of information, automatic variance analysis etc.

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