It’s outrageous! A few weeks ago I asked John [Harp, Director of the the Design and Engineering Division] for a bid to build the Central Artery exhibit. His bid was $7,000 more than a bid I got from a local construction firm.
Jan Sweeney, Director of the Urban Projects Division of White Hills Architects, Inc., was referring to a recent incident in her efforts to prepare an exhibit for a presentation to a major client. She continued:
Despite the $7,000 difference, it seems that Mike [Sampson, the firm’s managing director] wants me to use John’s Division anyway. Why should I have to do that?
White Hills Architects, Inc. was a medium-sized architectural firm located in northern California, just outside San Francisco. It had earned a national reputation for being environmentally conscious in its projects, and it had been enormously successful in attracting a wide range of clients.
Recently, under Mr. Sampson’s leadership, the firm had been organized into profit centers, and Ms. Sweeney's division had been designated as a profit center. As such, she was encouraged, but not required, to “purchase” all design and construction services for her division’s scale models from the firm’s Design and Engineering (D&E) Division, a service center that also was a profit center. Both managers—as well as all other profit center managers—had the possibility of earning annual bonuses based on the profits of their profit centers.
The services of the D&E Division ranged from the construction of relatively simple three dimensional models to the design and manufacture of rather complex scale models. Some of the recent models the division had developed included a miniature waterfall and an artificial windstorm.
Because of the complexity of the demands made upon it, and the resulting need for a wide variety of technical skills, the D&E Division needed a rather large staff. Since the firm was too small to fully utilize its staff, however, the division also sold its services to other organizations, including several smaller architectural firms located within a radius of about a hundred miles from While Hills. At the moment, because it was a slow period for most firms, the division's staff was not fully utilized. This was not an unusual situation. . . .
- What is the impact on the firm’s profit of each of the two possibilities?
- Should Mr. Sampson intervene in this decision? Why or Why not?
- If Mr. Sampson intervenes, what should he do? Please be specific. For example, should he tell Ms. Sweeney to purchase the work for the exhibit from Mr. Harp? If so, at what price?
- If Mr. Sampson does not intervene, what do you think will happen? Is this good or bad for the firm in the short term? In the long term?
- What other advice would you give Mr. Sampson, Ms. Sweeney, and Mr. Harp?