Ciba Geicy
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Ciba had strong Swiss/German roots and was a highly centralized company
with most management functions performed either at corporate headquarters
or in large country organizations. Corporate headquartersand the country
organizations had large groups that provided common services to the
operating units.
Operating units were evaluated based on direct contribution and little
effort was made to allocate centralservices costs to the various lines of
business. This organization structure provided limited line-of-business
information.
In 1983, Ciba-Geigy used a matrix organization. Oneside of the matrix was
seven product divisions (divided into a total of 41 strategic business units).
The other side of the matrix was 120 group companies responsible for a
specific geographical area.
In largecountries there were multiple group companies. Many group companies
had responsibility for sales and production and the larger group companies
also controlled their own research and development.
At the time of their merger in 1971, Ciba and Geigy chose accounting methods
that they thought best presented their true economic picture.
photograph of Novartis human resources building de...
English: Ciba Geigy
English: Overgrown watercourse and CIBA-Geigy plan...They felt that
the merger would reduce resistance to new accounting methods since the merger
required some changes anyway.
They decided to use "Current Cost Accounting" for fixed assets and inventories.
They felt that current cost isolated "fictitious profits" resulting from
subtracting historical costs from current revenues in the income statement.
They also used direct costing that included only variable production costs in
inventory and cost of goods sold. Fixed production costs were charged directly
to the income statement. They preferred directcosting because profits varied more
directly with sales. Also, net income cannot be manipulated by build-ing or
depleting inventories as it can be in full costing. For divisions, Ciba measured
division performance by contribution and a contribution-based performance factor.
All of a division's variable expenses were subtracted from revenue to give
divisionalmarginal contribution. Transfer...