Case Hcc Industries
08
Fall
08
Fall
1. Evaluate the decision to use “minimum performance standard “ (MPS) targets instead of “stretch” targets.
We evaluate the decision to use “minimum performance standard” targets by looking at how good this new target system achieves the four purposes of planning and budgeting processes.
First of all, planning and budgeting processes have to enhance management control. Derived from the case, we think corporate managers have too much control on the targets. General managers give corporate managers an estimate of the targets they can achieve but in all the divisions, targets were adjusted. The CEO always has the last call on the targets and in the case of Sealtron we see that this isn’t good. No one believes Sealtron can achieve a PBT of 1milion $ and still the CEO wants that target. For the general manager of Sealtron this was very discouraging. So indeed, management control on targets has increased but maybe too much. On the other hand, division managers now have more control on the bonus pool, they can decide which subordinates share in the bonus pool. That isn’t good either because of the grade of subjectivity. If you’re not in good graces with the general manager, you will not achieve any bonuses. Bonuses are not based on how good you actually work but on how good the general manager believes you work. So maybe the control on targets has to be reduced a little bit and the control on the bonus pool has to be made more objective.
Secondly, the planning and budgeting processes have to engage in long(er)-term thinking. In the system of “stretch” targets, some divisions achieved their goals, some not but the company as a whole was consistently missing its targets. In the MPS system they want to improve this. The problem however with the MPS system is that there is too much focus on operational planning, targets are set on short term. Targets are the main focus of the company, even if you have to take measures that are disadvantageous
Fall
08
Fall
1. Evaluate the decision to use “minimum performance standard “ (MPS) targets instead of “stretch” targets.
We evaluate the decision to use “minimum performance standard” targets by looking at how good this new target system achieves the four purposes of planning and budgeting processes.
First of all, planning and budgeting processes have to enhance management control. Derived from the case, we think corporate managers have too much control on the targets. General managers give corporate managers an estimate of the targets they can achieve but in all the divisions, targets were adjusted. The CEO always has the last call on the targets and in the case of Sealtron we see that this isn’t good. No one believes Sealtron can achieve a PBT of 1milion $ and still the CEO wants that target. For the general manager of Sealtron this was very discouraging. So indeed, management control on targets has increased but maybe too much. On the other hand, division managers now have more control on the bonus pool, they can decide which subordinates share in the bonus pool. That isn’t good either because of the grade of subjectivity. If you’re not in good graces with the general manager, you will not achieve any bonuses. Bonuses are not based on how good you actually work but on how good the general manager believes you work. So maybe the control on targets has to be reduced a little bit and the control on the bonus pool has to be made more objective.
Secondly, the planning and budgeting processes have to engage in long(er)-term thinking. In the system of “stretch” targets, some divisions achieved their goals, some not but the company as a whole was consistently missing its targets. In the MPS system they want to improve this. The problem however with the MPS system is that there is too much focus on operational planning, targets are set on short term. Targets are the main focus of the company, even if you have to take measures that are disadvantageous