Incomplete OBJECTIVE: To evaluate the current organizational structure and management control system of Birch Paper Company, particularly on the decentralized operations of its divisions in relation to its overall performance. PROBLEM: What effective management control system(s) should the Company adopt, to achieve maximum profitability, not only of the respective operations of its divisions, but also of that of the Company as a whole? AREAS OF CONSIDERATION 1. Company Background Birch Paper Company is a mid-sized, vertically integrated paper company, producing white and kraft paper and board. It has four production divisions and a forestry division which supplied part of the company's pulp requirements; each division operates independently, led by its respective division heads. Division managers at Birch were normally free to purchase materials or inputs from any supplier they chose, and even sell within the company; divisions therefore had to respect the market price if they wished to do business. Earlier this year, its Northern division designed a special retail display box in collaboration with the Thompson division, which was equipped to manufacture the box. Thompson, one of Birch's four production divisions, converted its cardboard production to corrugated boxes. He also printed and colored the exterior surface of the boxes. Birch's Southern Division will supply the corrugated board and corrugated backing to the Thompson Division should the latter receive the order for Northern.2. Policy of Decentralization The company observes the practice of decentralization where the responsibility and authority in all decision making regarding the operations of the divisions rests with its respective divisional heads, except those relating to the overall policy of the business. For several years, senior management believed that the concept of decentralization had been successfully implemented and that the company's profits and competitive position had significantly improved.3. Performance evaluation The performance of each division was judged on the basis of its profit and return on investment over several years. This practice creates competition between the company's divisions because each ensures that it is more profitable than the others. In this case, there was a good chance that one division would make profits at the expense of the other(s).4. Cost StructureThere was no cost structure defined by senior management for each division. For Northern's retail display project in collaboration with Thompson, the two had only an informal agreement that the former was to reimburse the latter for the costs of its design and development work..