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220 MANAGING KNOWLEDGE WORK AND INNOVATION

since the buyout two years ago and the minor restructuring which took place
then, the basic quality of Oakland’s products has enabled it to break even on
annual sales of around £15–20 million. This represents about 10 per cent of the
relevant UK market. Moreover, there are indications that if lead times could be
improved and stock levels reduced, the firm could move to healthy profits and be
well-set for growth, especially with the introduction of new ranges.

>> CHRIS DUNCAN: FINANCIAL DIRECTOR

In a few minutes, you will be attending a meeting of a working group chaired by
Alex Rheingold (your MD) to discuss the possible adoption of an ERP system
in Oakland. The meeting will include a consultant’s presentation. You joined
Oakland Furniture not long after the management buyout had established the
company’s independence. Not being part of the original buyout team means that
you sometimes feel left out in the cold in decision-making. However, as a fully
qualified accountant, you are the company’s expert on the turnover (currently
around $15–20 million) and profitability of the firm and the capital investment
in the machinery. Oakland has just returned to an operating profit since the buy-
out. Normally, one would expect profits in the industry to be running at some 6
per cent of sales. Prior to the management buyout, funding had been a mixture
of inter-company loans from the holding company and bank borrowings. When
Oakland was purchased by its management from the parent group that had owned
it, the financial structure of the company was altered with the introduction of
outside finance. The existing management purchased the ordinary shares in the
company assisted by a specialist finance institution. This institution also provided
dividend preference shares and arranged both new overdraft facilities and a term
loan. Fortunately interest rates are currently favourable. However, the strength
of UK sterling is further squeezing Oakland’s exports and profit margins.
You are always interested in anything that can improve the present situation,
characterized, as you see it, by an endemic lack of control, but not at any price.
You have to be very tough on the payback of proposals, especially given the
recent disappointing performance of the company. At present, despite improv-
ing their performance since the buyout, the company has no scope for funding
investments and is scarcely breaking even. They have major cash-flow worries.
Long and uncertain lead times presently result in delays of nearly a year in many
cases between paying for the raw materials and the receipts for the final goods.
You are consequently rather suspicious of any significant new control system
unless it is going to be under your own personal control. Currently, you have
established a control target of $60,000 worth of production every day to keep
the company on an even keel financially. You believe that simple payback within
two years is a perfectly adequate criterion. If an investment proposal requires any
fancy number-juggling, then clearly it cannot be that good. In particular you are
rather concerned about a recent deal that Rowan Gregory, the Chief Designer,
managed to swing. This involved the purchase of a very sophisticated machin-
ing centre. This was partly because of the initial buyout conditions (Gregory

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