This case study deals with the use of Texas Eastman Co. of a new computer system that gathers financial data and observations. It looks into the relevance of the gathered data and its role in a company that is updated on its extensive processes and products.
Robert S. Kaplan
Harvard Business Review (190039-PDF-ENG)
October 06, 1989
Case questions answered:
- Describe the quality management program initiated at Texas Eastman Co. What role does the information system play in the quality program?
- Identify the strength and weaknesses of the existing financial reporting system? What was the value of period departmental cost sheets in the information-rich operating environment of Texas Eastman Co.?
- What were the information requirements for the new report? Which factors changed daily, and which data stay the same day by day? And why?
- How have the operations in Briley’s 3B Cracking plant been using the new daily income report? Why is the report useful to them?
- What should Pat Kinsey, the chief accountant, do next? How should the reporting environment in the Texas Eastman plant be modified in light of the experience in the 3B Cracking Plant? What role should be played by the central accounting and finance group?
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Case answers for Texas Eastman Co.
1) Describe the quality management program initiated at Texas Eastman Co. What role does the information system play in the quality program?
With the increased focus on products with high quality due to a rise in competition, Eastman Chemicals division has staunchly implemented Total Quality Management and Statistical Process Control. The Quality Management program at Texas Eastman Co. is fabricated on the ‘Triangle model,’ encompassing Statistical Process Control, Teamwork, and Performance Management.
The teamwork module, which is implemented through Quality Management Teams, is deeply rooted in work-life quality, employee participation, and job enrichment.
For smooth flow of communication, teams are associated hierarchically with every person in at least one group. With its seven specific steps, the Performance management leg formulated through psychology and reinforcement enforced key result areas and their measures.
The third leg, Implementation of Statistical Process Control, redefined the existing means. The initial step was to determine upper and lower control limits for every process variable, and SPC charts were outlined and examined manually.
Taguchi methods were applied to further reduce the process variation. However, the main limitation was the enormous data that had to be collected timely, analyzed thoroughly, and deposited manually.
The role of Information systems is to reduce the burden of the operator for data collection and analysis. Initially, the operators supposedly collected enormous data of about 30,0000 to 40,000 observations on process parameters such as temperatures, pressures, and many more. The department managers reviewed the data a day after to detect any adversarial trends, but it would be too late to be taken into consideration and for further implementation.
This next-day inspection conflicted with the company’s emphasis on quality. Therefore, Texas Eastman Co. installed a Manufacturing and Technology system in 1986 to store data and execute the statistical analysis, which reduced data collection.
It has been further upgraded with advanced software packages which provided statistical summaries of each department’s performance and its analysis.
2) Identify the strengths and weaknesses of the existing financial reporting system? What was the value of period departmental cost sheets in the information-rich operating environment of Texas Eastman Co.?
The existing financial reporting system ensured that the data is collected in four weeks by the operators and then analyzed by the accountants in 12-15 days and is further given to department managers for transformation into action.
Some of the strengths and weaknesses of the existing financial reporting system are…