18 pages
Word Count
4148 words
ESSEC Business School
Course Code
Management control

mngt control

March 9, 2020
Blackhole with stocks (industrial company)
James Thriftless was the head of financial control at the industrial company Blackhole, a small
company that manufactures a single part used in the automobile industry, and had held this
position ever since the company was formed. He had always had the full confidence of the
company’s founder and manager Mr Blackhole. When the business was set up, it was the first to
use an ultra-durable polymer for the product it made: when blended with rubber, this made the
part more hardwearing. In fact he called his product the Stamina, and for a long time it was the
only one of its kind on this market. But in recent years other competitors had seized on the same
manufacturing process, slowly eroding Blackhole’s sales and profits.
On November 15, year N, Mr Blackhole announced that his son Harpagon would succeed him as
chairman of the company from January 1 the following year. Harpagon, an engineer by training,
had rounded off his education with an MBA from Boston and then spent several years with a
large strategy consulting firm. During their discussions, Mr Blackhole had warned his son about
the company’s commercial and strategic difficulties; however, Mr Blackhole showed little
interest in financial matters and James Thriftless was given great autonomy in such areas. It was
true that for a long time, the company’s healthy profits had spared Mr Blackhole any cash flow
When Harpagon joined the company on December 16, year N, he looked at the internal
management reports and observed that Blackhole had no cash budget, and financial planning was
rather succinct. Harpagon expressed his concern about the situation to James Thriftless. James
replied that Blackhole was managed under a set of decision rules that worked perfectly well, and
that as a result no cash budget was necessary: when the financial position became tight, Mr
Blackhole transferred money from his account to the company’s account. Harpagon reacted
immediately and firmly: “My father is a millionaire but I am not.”
When Harpagon asked James to introduce a budget for the coming year without delay, James
looked uncomfortable; he said he knew little about budget management and that he would
certainly need to hire an assistant to establish a budget.
Harpagon then decided to call his old friend Henry Knowledge. Knowledge was working on
several major budget management projects in a consulting firm, and Harpagon knew he was
considered an expert in the field for small and medium businesses. Fortunately for Harpagon,
Knowledge was not too busy and he came round to Blackhole that very week.
He spent two days in the company’s offices examining the accounts, memos and all available
reports. On Friday morning, Harpagon found the following note on his desk:
“Dear Harpagon,
I had to leave last night for Pittsburgh. During the two days I’ve spent at your company, I’ve
noted the following:
1. You have no budget or control system.
2. James Thriftless is a good accountant.
3. Thriftless knows nothing about basic management rules, and is not interested in production,
strategy or sales.
I’ll be back on Monday morning to talk things over with you. I recommend that you contact
Penny Pincher, a financial controller I know. I’ve left her contact details with your secretary.
Regards, Henry.
Harpagon was perplexed by this note and decided to find out who Penny Pincher was. He
telephoned her. She explained that she had a MS (Master’s degree) in management and had
worked for several years in a small company where she had set up the entire management control
system. It was all running smoothly now and she was in fact planning to look for another job.
Henry Knowledge arrived on Monday morning as promised. Swift as ever, Henry told his friend:
“You must hire Penny as your financial manager, you’re heading for disaster. What's more, I
think she can come and help straight away. James has got to go, he’s too expensive for what he
does.” And that very afternoon, James was dismissed with an indemnity. The same evening,
Penny agreed to work for Harpagon. She could start next Monday after negotiations with her
current employer.
When she arrived the following week, Penny set to work without delay. Constructing a budget
from scratch was not easy, but that did not worry Penny unduly.
She began by an interview with Mr Blackhole senior, who was still working in the company. He
explained the company’s past and present context: the market for the Stamina product, the main
competitors and the main customers. She collected further information by reading about the
automobile market and the automotive companies, which were Blackhole customers. Then she
talked to Harpagon, who explained the strategy he intended to adopt: in his opinion, the product
was a good one but not sufficiently differentiated from competitors’ products. He was
considering two areas for action: production cost must be reduced in order to restore margins, and
meanwhile, other outlets must be found to boost sales. This type of part could, for example, be
used in the railway or aeronautic industries, but these markets had never been approached.
For the time being, Harpagon gave Penny a forecast for the number of parts that could reasonably
be sold in the coming month:
Actual sales: Estimated sales
October N: 1,500 units December N: 1,800 units
November N: 2,300 units January N+1: 2,000 units

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