Incomplete OBJECTIVE: To evaluate the current organizational structure and management control system of Birch Paper Company, particularly on the decentralized operations of its divisions with respect to its overall performance. ISSUE: What management control system or systems are effective should the Company adopt measures to achieve maximum profitability not only of the respective businesses of its divisions but of that of the Company as a whole? AREAS OF CONSIDERATION1. Company BackgroundBirch Paper Company is a medium-sized, vertically integrated paper company producing white and kraft paper and paperboard. It has four manufacturing divisions and a lumber division that met some of the company's pulp needs; each division operates independently under the leadership of their respective division managers. Birch's division managers were normally free to purchase materials or inputs from any supplier they wished, and also on sales within the company; thus the divisions were expected to meet the current market price if they wanted the business. Earlier in the year, its Northern Division designed a special retail display in collaboration with the Thompson Division, which was equipped to make the box. Thompson, one of Birch's four manufacturing divisions, has converted its paperboard production to corrugated boxes. He also printed and colored the outer surface of the boxes. Birch's Southern Division will supply the cardboard and corrugated backing to Thompson's Division if the latter receives the order from the Northern Division.2. Decentralization Policy The Company observes the practice of decentralization whereby responsibility and authority in all decisions relating to division operations rest with the respective division managers, except those relating to overall corporate policy. For several years, top management felt that the concept of decentralization had been successfully applied and that the company's profits and competitive position had significantly improved.3. Performance Evaluation The performance of each division was judged over several years on the basis of profit and return on investment. This practice creates competition between the company's divisions because each ensures that it is more profitable than the others. This being the case, there was a high possibility that one division would profit at the expense of the others.4. Cost Structure There was no cost structure defined by top management for each division. For Northern's retail storefront project in collaboration with Thompson, the two had only an informal agreement that the former reimburse the latter for the out-of-pocket expenses of his design and development work.