5-183-059
August 16, 1982
Assuming Control at Altex Aviation (A)
Teaching Note
I. Purpose of Case
Two young and inexperienced MBAs purcfhase a small company that is in financial trouble.
It is not clear whether they can survive. If they can, they believe it will only be done with tight cash
management and new accounting and control systems. They design a new system in which each line
of business is treated as a profit center and managed in a decentralized fashion. Operations during
their first nine months are described and documented. Follow-on cases [ALTEX AVIATION (A) (9-
80-53) and (B) (9-80-54)] describing and documenting the next eight years of the company's growth
can be used for another one or two days of class, if desired.
ASSUMING CONTROL AT ALTEX (A) can be taught as a case in entrepreneurship or
corporate strategy, but its primary purpose is as a stand-alone case in the design of accounting and
control systems for small companies. In this setting it can communicate the following points:
1. The type of control system that will best serve an organization must be closely
matched to the specific challenges (in this case illiquidity and negligible profitability),
the nature of the company (in this case several very different lines of business), and
the personality of the managers (in this case young and inexperienced).
2. Assuming that a decentralized control system is indicated, how do you design one?
How do you handle
a. transfer pricing,
b. department manager autonomy,
c. granting of credit and collection of receivables,
d. purchasing and payment to suppliers, and
e. allocation of administrative costs?
The students have an opportunity to see that the design of each of these issues is, like the
choice of system, dependent on the nature of the specific challenge, the business, and the
personalities of the people.
1
, 183-059 Assuming Control at Altex Aviation (A)
II. Teaching Strategy
Assignment Questions
This case is so rich in detail that, unless the class is carefully structured, discussion tends to
focus on the "color" and quickly strays into the entrepreneurial area. Thus, to achieve the teaching
objectives, it is better to ask specific questions of the students in advance to guide their preparation
and to keep the resulting class discussion focused on answering those questions. One possible set of
questions is
1. Did Altex need a new control system at the time of the takeover?
2. Evaluate the control system that Frank and Ted implemented. Should anything have
been done differently?
For entrepreneurship or strategy classes, this case can be followed by ALTEX AVIATION (A)
and (B) which tell what happened to the company over the following eight years and discuss the
issues of long-range planning and making the transition from entrepreneurs to big company
managers.
Time Management
The following represents one possible set of questions the instructor can ask during class and
the amount of time that might be allocated for the resulting discussion.
Question Time
A. Did Altex Need a New System?
1. Did Altex meet their acquisition objectives? 5 minutes *
2. What are the most critical problems facing Altex at the takeover? 15
3. What does Ted see as the purpose of a control system? 10
4. Did Altex need a new system? (summary) —
B. Evaluate the New System.
1. What did Ted do? 30 **
2. Why no budgeting? 10
3. What kind of manager will Ted be? 5
4. What next? —
C. Breaking the Disguise 5
TOTAL 80 minutes
Each of these subtopics will now be covered in detail.
Did Altex meet their objectives?
Most students will agree that Altex met the criteria outlined on Page 2 of the case. Exhibit
TN-1 shows the kind of chart that is useful to elicit from the student discussion. It is relatively easy to
fill in the "pro" column. It is more instructive to get the students thinking about the possible mistakes
Frank and Ted made from the very beginning. The two major mistakes were:
* Spend more time if taught as a strategy case.
** Spend less time if taught as a strategy case.
2
August 16, 1982
Assuming Control at Altex Aviation (A)
Teaching Note
I. Purpose of Case
Two young and inexperienced MBAs purcfhase a small company that is in financial trouble.
It is not clear whether they can survive. If they can, they believe it will only be done with tight cash
management and new accounting and control systems. They design a new system in which each line
of business is treated as a profit center and managed in a decentralized fashion. Operations during
their first nine months are described and documented. Follow-on cases [ALTEX AVIATION (A) (9-
80-53) and (B) (9-80-54)] describing and documenting the next eight years of the company's growth
can be used for another one or two days of class, if desired.
ASSUMING CONTROL AT ALTEX (A) can be taught as a case in entrepreneurship or
corporate strategy, but its primary purpose is as a stand-alone case in the design of accounting and
control systems for small companies. In this setting it can communicate the following points:
1. The type of control system that will best serve an organization must be closely
matched to the specific challenges (in this case illiquidity and negligible profitability),
the nature of the company (in this case several very different lines of business), and
the personality of the managers (in this case young and inexperienced).
2. Assuming that a decentralized control system is indicated, how do you design one?
How do you handle
a. transfer pricing,
b. department manager autonomy,
c. granting of credit and collection of receivables,
d. purchasing and payment to suppliers, and
e. allocation of administrative costs?
The students have an opportunity to see that the design of each of these issues is, like the
choice of system, dependent on the nature of the specific challenge, the business, and the
personalities of the people.
1
, 183-059 Assuming Control at Altex Aviation (A)
II. Teaching Strategy
Assignment Questions
This case is so rich in detail that, unless the class is carefully structured, discussion tends to
focus on the "color" and quickly strays into the entrepreneurial area. Thus, to achieve the teaching
objectives, it is better to ask specific questions of the students in advance to guide their preparation
and to keep the resulting class discussion focused on answering those questions. One possible set of
questions is
1. Did Altex need a new control system at the time of the takeover?
2. Evaluate the control system that Frank and Ted implemented. Should anything have
been done differently?
For entrepreneurship or strategy classes, this case can be followed by ALTEX AVIATION (A)
and (B) which tell what happened to the company over the following eight years and discuss the
issues of long-range planning and making the transition from entrepreneurs to big company
managers.
Time Management
The following represents one possible set of questions the instructor can ask during class and
the amount of time that might be allocated for the resulting discussion.
Question Time
A. Did Altex Need a New System?
1. Did Altex meet their acquisition objectives? 5 minutes *
2. What are the most critical problems facing Altex at the takeover? 15
3. What does Ted see as the purpose of a control system? 10
4. Did Altex need a new system? (summary) —
B. Evaluate the New System.
1. What did Ted do? 30 **
2. Why no budgeting? 10
3. What kind of manager will Ted be? 5
4. What next? —
C. Breaking the Disguise 5
TOTAL 80 minutes
Each of these subtopics will now be covered in detail.
Did Altex meet their objectives?
Most students will agree that Altex met the criteria outlined on Page 2 of the case. Exhibit
TN-1 shows the kind of chart that is useful to elicit from the student discussion. It is relatively easy to
fill in the "pro" column. It is more instructive to get the students thinking about the possible mistakes
Frank and Ted made from the very beginning. The two major mistakes were:
* Spend more time if taught as a strategy case.
** Spend less time if taught as a strategy case.
2
