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and energizing classroom discussion.
Marshall School of Business
University of Southern California
Kooistra Autogroep
Teaching Note
Purpose of Case
The Kooistra Autogroep case describes a company that has expanded significantly from a small
owner-run automobile retailer to a top-20 player in the Dutch car dealership market. To handle
the growth, management is making an important transition from a primarily centralized
organization to one that is becoming increasingly decentralized. This transition allows the case
organizational decision authority, in particular.
The case also provides some details about Kooistra Autogroeps early experiences with the new
organizational structure and management control system design, thereby providing opportunities
for students to suggest possible improvements, or even to consider abandoning the current pay-
for-performance system, as some in the case suggest.
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useful discussions about cross-cultural differences in the provision and effectiveness of
incentives.
The Kooistra Autogroep case can also be used in conjunction with the Puente Hills Toyota case
study, also included in this textbook. Kooistra Autogroep and Puente Hills Toyota both are
Suggested Assignment Questions
1. Did Kooistra Autogroep management go too far in decentralizing the organization? Did
they not go far enough? Or did they get it just right? Why?
2. Evaluate the budgeting, performance measurement, and incentive systems used at Kooistra
Autogroep. What changes would you recommend, if any?
3. (When used in conjunction with Puente Hills Toyota.) When comparing the use of
Case Analysis
Kooistra Autogroep was a family-owned automobile retailing company founded in 1953. Over
the years, Kooistra grew from a small company that sold and serviced cars of only one or two
brands from a single location to a top-20 player in the Dutch car dealership market. In early
2007, it owned and operated 13 dealership locations selling 10 brands of automobiles and
Decentralization
To address Suggested Assignment Question 1, instructors can ask the students to list the
advantages and disadvantages of decentralization.
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The advantages of decentralization include:
Freeing up top management time, allowing top management to focus on the most important
decisions
Enhancing the ability for growth by developing the management team
The disadvantages include:
Is top management willing to give up authority?
The answer seems yes, as Tom thought that the dealership managers should have
substantial authority for the critical decisions in their business, including the hiring, firing,
Are the dealership managers salesmen who lack the experience to be managers?
Is there a potential loss of economies of scale in key functions?
Not likely. One could argue for economies in advertising, but advertising is brand-specific
Can some tough cost allocation problems be settled, such as for corporate overhead
support functions?
Currently not an issue as the dealerships key performance metric, net profit, was defined as
revenues minus controllable expenses and, thus, most corporate overhead allocations
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
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Will the dealership managers become too entity-focused and lose sight of the companys
interests?
Any change in organizational structure needs time to become fully operational. It is
important to watch for signals suggesting control failures. These can occur in essentially
Is this too complex with unnecessary coordination issues?
This mainly depends on whether or not good control systems are in place (see below).
Overall, the evaluation of the decentralization at Kooistra Autogroep should be quite
favorable. The disadvantages/risks seem limited whereas the advantages/benefits of being
Performance Reporting
The measurement focus in this company for incentive purposes was on net profit for the
dealership managers (see below). However, for reporting purposes, the company developed
what they call a balanced scorecard on a weekly basis as well as monthly reports with more
detail (line items). These reports included both financial and nonfinancial information.
There is not much to be commented on regarding these performance reports, other than that the
reports were used as instruments to communicate the companys most important objectives to
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Instructors can also note that the measures in Kooistras so-called balanced scorecard
primarily include financial measures (sales and profits) and productivity measures. Do these
measures provide a good indication of value creation in the car retailing business? The answer is
Budgeting
Kooistra Autogroep also introduced a formal budgeting system, the main purpose of which was
to set annual net profit targets for the dealerships. Budgeting was intended to be bottom-up, but
due to the lower-level managers lack of experience with budgeting and their lack of formal
business training, top management seemed to have the last word when it came to setting the
Incentive Plans
Finally, Kooistra Autogroep expanded its existing bonus plan for salespeople and introduced a
Salespeople
Of the 45 salespeople at Kooistra Autogroep, only 25 were bonus-eligible because some of them
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A bonus-eligible salesperson earns 18.50 per car sold. When the salesperson meets his or her
monthly sales target (in terms of number of cars sold), the bonus amount is doubled to 37.00
per car for the month. On average, bonus payments are about 25% of salary for salespeople who
meet their targets.
This bonus plan encourages sales, in units; not profitable sales. Is this consistent with the
companys objective of maximizing net profits? The target feature even exacerbates the focus
Managers
Target bonuses for dealership managers were set between 10 and 20% of annual salary. Target
bonuses for department managers were set at 8% of annual salary. For dealership and
department managers, the bonuses were based on the extent to which the managers met their
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
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Instructors may also raise the following questions. Are the bonus potentials large or lucrative
enough to have impact? Is net profit the right measure? Should some portion of the bonus be
In summary, Assignment Question 2 asked to evaluate the budgeting, performance
measurement and incentive systems used at Kooistra Autogroep. Based on the above analysis,
the answer to this question is mixed at best, and on some dimensions even poor, for the
following reasons:
The performance reporting may not be paying sufficient attention to a critical driver of
performance in this business customer satisfaction. And neither does the incentive system.
Early Experiences
The last section of the case quotes a dealership manager who opines that the company should
abolish the bonus system for (department) managers, as he believes that the bonuses dont make
the managers work hard(er). But he also mentions that it might be due, at least in part, to the
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With these opinions and facts in mind, Assignment Question 3 was designed to motivate a
discussion of whether incentives drive employees to perform at their best. Instructors can either
have this discussion with reference to Exhibit 3 in the case or by specific reference to the Puente
Hills Toyota case study.
Beyond national culture differences, there are other possible drivers of the observed differences
in pay-for-performance practices across both companies (countries). Instructors may solicit
from the students what they think these might be. The list could include differences in income
taxes, laws and regulations, unions, and industry practices; the influence of compensation
consultants; or perhaps just fundamentally different views of model of man, such as whether
employees are viewed or treated as stewards or agents.68
Finally, and specifically with respect to difference between the bonus plans of the two
companies, instructors can note that the bonus plans for managers at Puente Hills Toyota is akin
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To conclude, instructors can point out that incentive pay can serve any or several of many
purposes, including:
Attraction/retention of employees. Paying employees only guaranteed salaries tends to
attract risk-averse employees. Paying performance-dependent compensation tends to attract
