a) List the controls that Al Fiorini used to control his business both before and after he went back to school. Classify each control as a results, control, or personnel/cultural type of control.
Before he went back to school
i. Al monitored the activities of his loan officers by tracking the number of credit inquiries each requested. (Merchant, pg.23)
ii. Al closely monitored the loan application/lead ratio depending on the skill of the loan officer. (Merchant, pg.23)
iii. Al refused Wilbur’s request to have signing authority on company checks written against AHL’s main bank account. However, as a sign of good faith, he left 4 blank checks (only to be cashed with ...view middle of the document...
vi. Al sent in a friend to AHL office to fire all employees on his behalf but the employees refused to leave. He had also sent a letter to all AHL clients whose loans were in process that they company had to drop their applications due to “no longer being able to service your application”. (Merchant, pg. 26)
Before he went back to school
i. Al’s incentive structure in place was to give the telemarketers $10 performance bonus in addition to their hourly wage for each lead produced. (Merchant, pg 23)
ii.AHL paid the loan officers 40 % of the total loan revenue on loans that AHL originated, and 60% on loans the loan officers themselves originated by generating their own leads. (Merchant, pg.23)
iii. Al had agreed on the written partnership & licensing agreement that Wilbur would receive commission payments at 100% on all loans closed less a monthly licensing fee of $5000 or 10% of all revenue, whichever is greater. (Merchant, pg.24)
ii. Were the problems described in the case caused by failures in the company’s strategy or control system, or both?
The problems described in the case were caused by failures in the company’s control system and not by its strategy. The company had a cost leadership strategy where it offered clients to borrow money at wholesale rates (Merchant, pg. 22), this was still AHL’s goals and objectives before and after the problems had occurred.
The series of problems at AHL after Al went back to school had resulted from poor management controls in place at AHL. Moreover, the agency problems that Al had experienced with both Joe and Wilbur, made the situation even worse. Al was no longer managing the day to day operations of the company yet continued to monitor AHL’s operations closely - daily, or as soon as the information was available. At this point, Al was only overseeing the operations of the business and fully entrusted its best interests to Wilbur. He gave full control to Wilbur without limiting his authority on certain aspects of the business. This arrangement not only gave the perception to AHL employees that Wilbur is now in charge, combined with the absence of tighter controls, had caused a negative chain of events to occur that led to Wilbur’s takeover of AHL.
iii. What did Al do wrong? Include a discussion of the effectiveness of the controls that Al implemented.
Al did not seem to have done a thorough background check on Wilbur prior to reaching a formal partnership agreement. There was no mention of Al doing a reference check on Wilbur to confirm his accomplishments and/or past performance. Al made the quick judgement of putting Wilbur in charge on the basis of that “he was smooth”. Perhaps receiving an objective feedback from Wilbur’s previous employments would have allowed Al to make a well-informed decision regarding the partnership.
Based on the controls in place and listed above, Al did not seem to have taken a hands-on approach in managing AHL. Most...