Reference no: EM13879002

SHB is a retailing company which has numerous retail outlets distributed throughout the United Kingdom selling a wide range of goods to the public. These goods include furni- ture and food, although primarily it sells clothes. It has also diversified its functions to include financial services such as credit cards and loans and insurance. Stores vary in size, with a number of medium-sized central town developments and 20 superstores nation- wide. It has also, as part of its expansion programme, opened a number of new outlets in Europe. In the UK it has recently begun to develop smaller stores on out-of-town ‘dis- count' shopping parks which it uses to sell last season's fashions and designs at reduced prices. This strategy has so far proved very successful as demand for product is high, rents relatively cheap in comparison with many of its traditional stores located in town centres and staffing costs low. It is also currently looking at establishing more of these outlets but selling food.

The stores operate with a managerial framework which gives considerable local autonomy to managers, allowing them to make local decisions appropriate to local needs. It retains a number of head office functions for such activities as purchasing, accountancy and audit, legal services and human resources management. Store man- agers deal with the recruitment and dismissal of store staff but consult with central head office on corporate human resource policies and complex issues such as trade union matters. The head office is responsible for corporate decision making. Store managers are expected to have worked in head office and at store level before they can manage a superstore.

The corporate head office is sited in Birmingham as it represents the best location given the distribution of the company's stores. There are, in additon, a number of satel- lite offices which provide local contacts with the stores on a number of central support issues, but excluding corporate strategy, IT and legal advice. The continental operation is managed directly from Birmingham in terms of central office functions although store managers on the Continent have the same roles and responsibilities as those in the United Kingdom. The head office deals with all financial services and related products.

The cost of the head office and regional support offices in the last year (2004) was as follows:

Head office expenditure in the previous two financial years was £23,400,000 and £22,000,000, respectively. The major overspend on the legal budget in 2004 is concerned with a legal case against the Inland Revenue over the interpretation of tax legislation under European Union law.

The staffing compliment for each section was last formally agreed in January 2002.

These numbers are as follows:

The majority of the staff over the agreed establishment are on fixed term contracts expiring in September 2005. Head office management staff at team level can employ these staff without formally increasing the establishment and with limited need for higher authorisation.
The central office is supposed to be driven by the needs of the stores, but costs have to be recharged. At the moment these are done simply on a staff time analysis based on ‘actual' time spent on each location by each function when the accounts are being closed in readiness for publication. ‘Actual' time is recalculated every three years when a staff timesheet for a section is completed by the manager of a section. These section returns are ultimately aggregated by function (e.g. Human Resources). This detailed information is not disclosed to the shareholders but is used by managers after the year end to monitor store performance. No information is provided during the course of the year, although head office costs are supposed to be controlled within the annual budget. Some stores have started to employ their own specialists such as in accoun- tancy and audit under their discretionary budget powers. Store managers have also expressed some concern over the company's central buying policy as the quality of clothing has deteriorated and styles are seen as old-fashioned. Store managers are held responsible for any unsold stock and not central buying. Central buying is done by the Corporate Strategy division at head office. Finally, the costs of financial services and related operations are separately identified together with the income on those products and allocated to the regional superstore nearest to the client's home address to give a geographical picture of where business is generated. Marketing campaigns, for example, are then directed based on such information.

1. Critically assess the above system of allocating head office costs to stores from both a head office and store manager's point of view. Discuss the advantages and disad- vantages of the system from both points of view.

2. Discuss any possible alternatives available, including their advantages and disadvantages, from both the head office and store manager's perspective.

3. What are the main features of any alternatives and how would you go about imple- menting them? Cover both qualitative and quantitative issues.

4. Prepare a report for management incorporating your critical analysis with recommendations on a way forward.