BookBazaar: A Budget Nobody Owns
BookBazaar runs six stationery and book stores in the Chandigarh tricity. The annual sales budget is ₹4.8 crore, ₹80 lakh a store. Actual sales were ₹4.35 crore. Store-wise variance against budget: A +12%, B −22%, C −9%, D −4%, E +5%, F −18%. The accountant prepared the budget centrally and managers were simply informed on 1 April. Managers say their targets ignored local conditions: a large online retailer opened a warehouse nearby and a competitor opened opposite store F. Staff incentives are paid only when a store crosses 100% of target; weekly stock reports from B and F stopped coming three months ago, and B was out of stock on its three best-selling titles for 11 days. The owner sees only a monthly sales total and reacts by scolding the lowest store.
1. Identify the weaknesses in BookBazaar's control process step by step.
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Setting standards: the budget was prepared by the accountant alone, with no store input, so managers have no ownership of it. A uniform ₹80 lakh target ignores the warehouse closure and the new competitor opposite F - standards that are not attainable stop being motivational.
Measuring performance: only a monthly sales total is measured. Stock availability, footfall and returns are not tracked, and weekly reports from B and F lapsed three months ago without anyone acting - a measurement gap that hides the cause.
Comparing: variances exist (A +12% to F −18%) but are not analysed. The headline ₹4.35 crore against ₹4.8 crore (−9.4%) conceals a 34-point spread between best and worst store, so the average is meaningless.
Corrective action: scolding the lowest store is not corrective action. The 11-day stock-out at B is a specific, fixable failure producing direct lost sales; nobody has been asked to fix it, and F's target has not been reviewed.
Management by exception is being applied to the wrong exception - the lowest number rather than the largest cause.
2. What corrective action is appropriate for stores B and F, and what should be measured in future?
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Store B (−22%): the 11-day stock-out on the three best-selling titles is the probable main cause, not weak selling. Restore weekly reporting immediately, set reorder levels on A-class titles, and check whether the buyer's credit or delivery terms broke down. Estimate sales lost during the stock-out before judging the manager at all.
Store F (−18%): the cause is external - a competitor opened opposite. Here the standard, not the effort, is in question. Either reset the target to a realistic figure or change the mix towards school contracts and stationery, and do not penalise staff for an event they do not control.
Measure comparably: contribution per square foot, sales per staff member, stock availability percentage and report punctuality, rather than absolute rupees against a flat target. Separate what a store controls (availability, display, staffing) from what it does not (competition, seasonality).
Every corrective action should name an owner and a review date - otherwise the next report repeats the same discussion.
3. Should the incentive scheme be changed? Give reasons.
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The present scheme pays only on crossing 100% of target. That is a cliff: once B and F judged their targets unreachable, the marginal reward for any extra effort became zero. The likely reason they stopped sending weekly reports is that there was nothing to gain and something to hide.
Change it on four lines: graded slabs starting around 85% (part payment at 85–99%, full at 100%, extra above 110%); part of the payout tied to controllables such as stock availability and report punctuality; a small store-team element so staff do not hide information from each other; and targets reset after consultation and a market review, especially for F.
The scheme must stay simple enough for a shop assistant to compute her own payout - otherwise it stops directing behaviour and becomes a source of grievance.
Judgement: incentives do not fix a stock-out; they only make people report it. Fix replenishment at B first, then adjust the scheme so accurate reporting is rewarded rather than punished.