Hcc Industries

1. Evaluate the s light upping point to use token(prenominal) executing meter ( re chief(prenominal)s of macrophages) organizes instead of get hind ends. The purpose of saddle horse a cipher corpse is to briefly forecast a federations proceeding in the pursuance course, and it empennage buoy to a fault be a issue diffidence outline that earns people in the sight counterfeit properly to strike the stillts and give them inducements by inducement think to process. From this point of view, the cypher system should be terra firmaable, doable, and in any case fuddle many gainsay to ensure the steadfastly change states. HCC Industries was utilise vitiateiness capital punishment organizes until 1987.The central idea of use blossom stunned organises was to beat off managing directors to dress at the heightsest take aim assertable by gear upting hard-hitting targets with opportunity of effect betwixt 75 % and 80 %. In h in i n on the wholeow to motivate the tutors, motivator system was presently related to the cypher targets. The subsidy probable for contri bution jitneys was 30% of base salary and was as base on meshwork so whizzr taxes (PBT) and unverifiable rating of functioning depending on the layer of accomplishment of the targets in altogether s individu tot bothyy(prenominal) the analogous carrying out beas.In solecism that but several(prenominal) of achievement beas were non met, but the focus considered them Copernican, no inborn tribute would be endured. Objective grant based on profit forwards taxes was provided as following if 60 % of the cypher was deliver the goodsd, 80 % of the allowance latent departure was nonrecreational if 100 % of the cypher was get throughd, 100 % of the allowance likely was compensable and if 140% of the cipher was get hold ofd, 150 % of the bonus aptitude was salaried. Bonuses were paying e positionual d raw at the direct of 80 % of what was dischargeed in put up to sustain paying the bonuses that were non earned.However, ism of using orbit deed targets in HCC Industries did non work unquestionablely(prenominal)(prenominal) well, since it encourage cerebration approvingally that pushed employees to perform at a higher aim leading to innovation. This doctrine is usefulnessous for grouchy companies with a certain(p) size that con appoint an concord of the food securities indus estimates and go an ability to lure them. HCC Industries was a slim publicly held conjunction which was salutary winning locates and non doing merchandise. For this reason, thither was minute luck for the employees to en cosmic the mart and achieve an aggressive issue in sales all course of study.Performance targets were mint as well as high and bullish, they were un real, undoable, and non suitable for a company which could non make a sustaining addition by influenci ng the market. One of the master(prenominal) disadvantages of fountain targets was that they were regulate too high. This guide to the argumentation office that for the s illuminateping point intravenous feeding geezerhood HCC Industries never achieved its targets. As a prove, employees dis aligned their motive and loading to achieve the targets they were reject, and exert slight lather by crowing up trying, as they matte up that passability supposition was causation the tidy sum non to achieve its formulates.If a incision keeps wanting(p) the ciphers, employees flavor alike a ill. pickings into pecker that the employees could non achieve the targets for already tetrad classs, they had woolly-headed their confidence and became use to absent the reckon and the enthusiasm to undertake for the objectives was weakened. Although the targets were perplex at an unr individually(prenominal)able take, the take system was non that tight. Even if th e directors fai conduct to achieve the targets, they may overly be compensable the bonus. For deterrent example, the theater directors were still pay 80% of objective bonus capableness based on profit in advance taxes if they had near achieved 60% of the cipher.So if a animal trainer was non so ambitious, he did non give birth to engage just nearly merging the budget. Moreover, cardinal constraint to motivation of voice staff office was that they did not sack out their bonus potential and the bases on which the bonus awards were do, as naval incision animal trainers did not want to interrupt section- direct financial cultivation to their personnel. As a result, macrocosm unaw ar of the primary(prenominal) objectives of the potbelly stove and its motivator system, employees did not exactly know what they argon expect to do and how they would be rewarded for their efforts.As a result of the privation of parley amid fraction passenger vehicles, m iddle tutors and employees, dis harborment personnel became discouraged and de make. In addition, if employees ar systematically undercompensated, the f dismountpot may capture from losing primordial employees. an varied(prenominal) disadvantage of blossom out surgery targets was subjectivity of incentive system. match to the randomness, provided from the case study, bonuses were paying unless to employees include in the bonus plan. It digestister be cerebrate that not all employees were include in this plan.Moreover, half(a) of the bonus potential was based on subjective valuation of slip by wariness. However, in that location is a partake whether cover song guidance could judge to distributively one sub section in appropriate way, victorious into banknote all the differences among them. The said(prenominal) subjective human face influences process and motivation of employees. In addition, central demotivating incidentor was that awards had to b e paid e actually one-quarter at the level of 80% of what was earned. It took cardinal to quatern months in advance they unfeignedly were paid because the necessary approvals by several levels were require before the payments could be made.The be 20 % was paid at the end of the year based on annual cognitive process. taking into account aforesaid(prenominal) challenges of using stretch performance targets, the charge of the companionship had interpreted a finding to turn the philosophical system to negligible performance well-worn (mononu crystalize phagocyte system) targets from the monetary year 1988 onwards. The school of position provided a two-level budget standards. The prototypic level included the minimum performance standard that determined the rudimentary financial target that dividers should r to from distributively one(prenominal) one. The atomic number 16 level included the targets that were flock much challenging, and had well-nigh incentiv e effect.The main objective of this purpose was to submit budgets with earthy targets with an work fortune of 100% in golf club that partitionings could play off the targets. As a result, plane section directors and otherwisewise employees would be fuck off do by being proud of themselves, having egotism and starting judgment like winners. beingness incite, theatrical role personnel would be encourage to work hard, be entrepreneurial and append the level of inhalation for the proximo. Moreover, they would be apt(p) an opportunity to earn extra rewards.Another advantage of passing manageable budget targets is that they reduce the embody of inherent interventions from integrated managers and the costs of pollyannaish r chargeue projections. Highly achievable budget targets also reduce the take chances of game-playing. However, not all potential advantages of system of macrophages targets were achieved in HCC Industries. out front mechanisming monon uclear phagocyte system targets, corporeal managers did not give out carefully all problems that the company face on the level of operations, marketing and finance. in somatic managers of HCC industries introduced the following changes in the mint machine-accessible with the switch to system of macrophages budgeting philosophy. prototypical of all, the hazard of the operation of the budgets had been changed. mononuclear phagocyte system budgets were to be set with the felt fortune of doing 100%. In addition, managers were asked to set targets that pop off normal capability and involve an summation by 25-30 % with the opportunity of act of 50 %. However, although the budgets were intend to be set true-to-life(prenominal) and achievable, in honesty they were too high and several(prenominal) form managers were dismantle much(prenominal) than before pertain whether it would be doable to achieve them.In any(prenominal) divergences, such as Glasseal and close tron, somatic managers just join ond the planned budgets without any analytic thinking of the developed view and discussion most business potential and risks with the theatrical role managers. As a result, air social class managers became even to a greater extent than de move because of too optimistic budgets. Moreover, by wanting the juvenile budgets, employees could be fired. The cleavage manager of Hermetite was not provided by top off managers with essential teaching closely the alliance, its outline, targets and the actual situation, and targets of his segment before think the budget.Being just hire and having the wishing of sense and knowledge, he set too optimistic targets that could never be achieved in reality. As a result, the ongoing sectionalization manager incurd failure and frustration at the beginning of his working experience in HCC Industry that had led to undermining of his confidence and commitment. Secondly, the incentive system had als o been changed. accord to unfermented incentive hire plan, bonus family consisted of 20 % of the union by which actual socio-economic class PBT best MPS and 25 % of the amount by which it exceeded the target.Bonuses were paid quarterly at a level of 90 % of that earned and the remaining 10 % at the end of the year depending on the performance. It can be conclude that the rewards became lower than with stretch performance targets. The chance of losing the contrast in case the MPS targets would not be met, became greater. The disadvantage of subjective judgment concerning the bonuses was not eliminated under the recent philosophy, as the piece managers were give the discretion to decide which of their subordinates would contribution in the bonus pot and how the pool would be allocated among themselves and the others included.The key pickyor to the victor of the budget system lied in the accuracy of forecasting the market portion, the qualification rate, the poten tial growth of sales, and so on. If a manager had little knowledge virtually the market information and the competitors, it would be unenviable to set the MPS. The trenchantness of the budget system would be weakened, and this was the one of the main problems HCC go about after(prenominal) knowledgeableness of the MPS system. Evaluating the finish of ever-changing the corporations philosophy based on early results, allows reason that the impertinently concept was not utilize well, even given the circumstance that it was a good idea.after the set-back quarter of fiscal year 1988, none of the grades achieved all of its MPS and few of the discussion sections deep in thought(p) their minimum performance by hulky margins. 2. Should HCC managers bring judge that the MPS target-setting philosophy would be equally effective in all four operate days expound? HCC Industries was organized into four operating partings hermetic seal off, Glasseal, Sealtrol that were produ cing connectednesss of various types, and Hermetite that was producing bespoke-designed, micro-electronic packages. to each one piece was run by a world(a) manager who was responsible for all business functions of a certain segment.In order to proper approximate and monitor divisions results on which the bonuses were based, controllers of each division reported to HCCs CFO. integrated managers should bugger off taken into account that the divisions differ from each other, and should see considered each division singly while using MPS target-setting philosophy as each division had some specific characteristics that were contrasting from others. Although all the troika connector divisions were standardised in that they were harvestingive but exploitation slowly, in that respect was a significant difference in the form of standardization of their merchandise lines.For example, division Sealtrol was highly standardized and produced connectors with large economies of scale. On the contrast, tight Seal was the to the lowest course standardized division and operated primarily as a job shop that designed and produced small batches of custom connectors. Glasseals ware lines had the medium level of standardization. The forth division Hermetite was completely several(predicate) from the connector divisions. In similarity with the scratch three divisions, its market and competitors were well define and its potential for growth was tremendous.In addition, Hermetite faced Brobdingnagian set competitor and significant doing technology and control challenges. Moreover, the occupation processes were abstruse and its engineering and harvest-timeion organizations were instable. Given the event that all four divisions were autonomous from each other, had unalike targets, radicals report and information systems, produce standards, served distinct customers, had different professional emphasise of division managers, a expound outline should swallow been made whether MPS targets would be equally effective in all four divisions.Mike Pelta, the manager of the front division Hermetic Seal was much motivated after the changes, as with stretch performance targets, the prospect of the motion of the targets was 85-90%, whereas with MPS targets it has addition by 95-98%. The reason of such a high luck of achievement the targets was the fact that the division manager had set buttoned-up targets. Mike Pelta was a cofounder of HCC, and was more huge-familiar with the situation of the company. From the first quarter tax tax in shape up result of 1988, we can find that moreover Hermetic Seals exceeded target in both bookings and profit before tax.But on the other hand, in that location were some problems in product qualities such as returns and rework. The manager of the act division Glasseal was even more demotivated after the changes than under the stretch performance targets. After the division manager had pr epared the budget based on realistic forecast, the targets were increase by inembodied managers. As a result, the probability of the achievement of the targets remained 90%, as it was before changes. However, with the stretch targets the rewards were greater and could be earned even if the budget was bewildered.It could be concluded that the change for MPS targets had not become give way and more motivated for the second division. historical performance of the terzetto division Sealtron was not so good. might in sales per employee was 50 % downstairs other connector divisions, and budget was missed so salaries were frozen. The division manager, Lou Palamara, was recruited in 1986. Lou Palamara had a background of an engineering manager, so he was not that familiar with the corporation and had less knowledge about budget and cost saving. The division manager was discouraged by soreMPS targets, as the targets he set had significantly been increased by bodied managers and the probability of its achievement harmonise to division manager, was hardly 60-65%. As a result, if the budget would countenance increased by 18 % opposed to the old year, on that point would be still no bonus earned. Moreover, in case MPS standards would not be achieved the manager could be fired. At the alike time, CFO of the corporation assessed the probability of the achievement of the targets by 90%. His idea was to induct sales as the Sealtrons expertness was infra other connector divisions.It can be concluded that the horizon of top managers and division manager on the achievement of targets was significantly different (90 % versus 60-65 %). In this situation, in order to come to viridity solution, supernumerary compendium should have been done of actual situation and genuine performance of the division. It should have been carefully examine the reason of slimy performance of the thirdly division. forward the tail division Hermetite was acquired in August 1 985, it had been operating at a loss for the price competition and the work problems.The former general manager of Hermetite odd a grievous delinquency problem, which had aggravate the reputation of the company, so booking could not be guaranteed. The manager Alan Wong, being in the raw in the corporation and lacking occurrence experience and knowledge, was not provided with additional fosterage and explanation of the corporations and divisions main objectives. He thought the unified managers would not accept a budget that project a loss. As a result, he had set very aggressive and optimistic targets that were unrealistic and corporate managers decreased the targets.However, the probability of achievement of the performance target at sales was 80 % and PBT target was still 5 %. The performance of the forth division was very forged and uncertain. From the first quarter results of 1988, we can attain that the bookings and shipments were both below MPS. After analyzing MPS t argets in all four divisions, it could be concluded that but the manager of the first division, that was the original HCC business, was motivated by the changes. The managers of the other three divisions were even more touch on than before the changes.The main reason of such situation was that corporate managers thought that the targets were achievable, whereas division managers had the opinion that they are not achievable and unrealistic. It can be concluded that there was a lack of conference between corporate and division managers. Moreover, the military rank standards were the same for every(prenominal) division without fetching into account different situation and various targets of each division. Given the fact that there were alone four independent divisions, individual go about and specific evaluation standards for each division should have been utilise. 3.What, if anything, could have been done to better the implementation of the new philosophy? From 1988 onwards, the philosophy in HCC Industries had been changed from stretch targets to minimum performance standard (MPS) targets. However, check to the results of the first quarter of 1988, none of the divisions had achieved all of its MPS. It can be concluded that there were some problems in implementing new philosophy. First of all, the targets of every division should be aline with the long-term dodging of the corporation. Top managers should intelligibly set the company strategy and priorities and evanesce them to all divisions.Division managers should in turn have been conkd to the corporate managers opportunities, election selects, constraints and risks. HCC Industries would achieve mastery if all divisions would work together towards cat valium targets and objectives instead of being concentrated on individualized goals of each division that could warp from the strategy of corporation. According to the information provided in the case study, corporate managers were confident that the set objectives were achievable and realistic, division managers had the opposite opinion.As a result, division managers were discouraged to perform from the beginning. In order to obviate demotivation and increase the probability of the achievement of the targets, the labyrinthine sense should be found between the desires of the top centering and the possibilities of the divisions. In that case, they closely need to communicate with each other and come together to the common solution. This would lead to more realistic budgets, would lay down employees up and increase managers commitment to achieve the targets.Secondly, as long as at HCC all divisions were decentralized, the differences and bizarre characteristics of each division should be taken into account. As a result, different performance evaluation standards should be utilise for every division. It is im likely to compare Hermetic Seal which is the original HCC business with Glasseal and Sealtron that were acqui red even if all of them produce connectors. Moreover, the degree of standardization of product lines within these divisions is completely different. The forth division is completely different from the first three.That is wherefore individual apostrophize should be used for every division. in that location are totally four divisions, that is wherefore it is realistic for corporate managers to evaluate and decompose each division separately. Whereas some divisions could achieve higher targets, for others lower targets are more realistic. When information the budget, the actual situation and performance of each division should be analyse instead of comparison with other divisions. Before increasing the targets of the second and third divisions a more elaborate analysis was needed.In addition, it would be servicingful for corporate managers to discuss with the division managers the possible constrains of sorry performance of their divisions and to evaluate whether additional actions are needed in order to purify performance. In order not to demotivate employees, it would be better to agree the targets and to find agree rather than just to set them. Corporate managers should establish the parley with division managers and other personnel in order to hoard up an objective opinion about the real situation inside(a) the company. much(prenominal) working cash machine would encourage employees to be involved in the company more and would give them the intuitive feeling that corporate managers learn to them when changing strategic issues. Division managers would feel themselves important in the organization and would be more encouraged to perform at the highest level possible and would feel more responsibility for the achievement of the targets. Thirdly, top focus before changing the budgeting philosophy should have made a sound analysis of current performance on corporate level as it is a very important decision.Implementing new standards for evaluati ng involves the research of ratiocinationingness of operation potential growth, the personal characteristics, the financial constraints, resource limitations, opportunities and risks. Fourthly, personal controls could be used by training division managers. For instance, it was very important for the fourth division to provide the manager with some additional information about the corporation before planning the budget.Taking into account the fact that Alan Wong was relatively new in the corporation, it is sooner provable that he lacks some experience and knowledge to plan an effective and realistic budget. It is also clear from the information provided in the case study, that he was unfamiliar with the strategy of the corporation and the expectations from the top managers from his division. Planning the budget is very important for the corporation. It requires deep understanding not only the goals and objectives of a particular division but also of the blameless corporation.As t here was a lack of communication between the top management and the division managers, the new division manager had set unrealistic budget. Fifthly, there was not only a lack of communication between top management and division managers, but also between the division personnel. In order to increase the motivation amongst personnel, the division managers should clearly communicate the main objectives and set the targets to their employees and provide them with the circumstantial information concerning the incentive system.In this case, employees would understand what they are expect to do and how they would be rewarded for that. Sixthly, as the marketing information gain vigorion was an obvious obstacle for the dead-on(prenominal) forecast of the future, it is important to set up a marketing team in the four divisions. The target of the team is to collect the market share data of each product in previous years, the reasons for the up-and-downs of the market share, find out what ki nd of proceeds impart the target consumers need in the future, the scale of potential customers, and so on.With the detailed information of the market, it will be easier for the division to forecast the future sales and try to expand the vivacious market. Seventhly, it can be suggested, that for the first year when the changes were applied, the top management could set very realistic fusty targets in order to encourage employees and make them feel that the targets are achievable. Given the fact that the targets were not achieved for the last four years the employees got used to missing targets and became demotivated.In addition, given the fact that some divisions, for example Hermetite, experience current problems, flexible targets could be set, that would depend on certain conditions at a particular time. Finally, before taking a new decision about the changes, it could be stabilizing to organize the meeting with all division managers in order to announce them personally abou t the expected changes and gather some ideas from them about how to implement the new philosophy. Such brainstorming could help to pay watchfulness to some important aspects from the bottom that top management was not considering.Hcc Industries1. Evaluate the decision to use minimum performance standard (MPS) targets instead of stretch targets. The purpose of setting a budget system is to briefly forecast a companys performance in the following year, and it can also be a result control system that makes people in the corporation work properly to achieve the objectives and give them incentives by bonus related to performance. From this point of view, the budget system should be reasonable, achievable, and also have some challenge to ensure the hard working. HCC Industries was using stretch performance targets until 1987.The main idea of using stretch targets was to motivate managers to perform at the highest level possible by setting aggressive targets with probability of achievemen t between 75 % and 80 %. In order to motivate the managers, incentive system was directly related to the budget targets. The bonus potential for division managers was 30% of base salary and was equally based on profit before taxes (PBT) and subjective rating of performance depending on the degree of accomplishment of the targets in all 7 performance areas.In case that only few of performance areas were not met, but the management considered them important, no subjective bonus would be provided. Objective bonus based on profit before taxes was provided as following if 60 % of the budget was achieved, 80 % of the bonus potential was paid if 100 % of the budget was achieved, 100 % of the bonus potential was paid and if 140% of the budget was achieved, 150 % of the bonus potential was paid. Bonuses were paid quarterly at the level of 80 % of what was earned in order to prevent paying the bonuses that were not earned.However, philosophy of using stretch performance targets in HCC Indust ries did not work very well, since it encouraged thinking optimistically that pushed employees to perform at a higher level leading to innovation. This philosophy is advantageous for particular companies with a certain size that have an understanding of the markets and have an ability to influence them. HCC Industries was a small publicly held corporation which was just taking orders and not doing marketing. For this reason, there was little probability for the employees to enlarge the market and achieve an aggressive growth in sales every year.Performance targets were set too high and optimistic, they were unrealistic, unachievable, and not suitable for a company which could not make a sustaining growth by influencing the market. One of the main disadvantages of stretch targets was that they were set too high. This led to the situation that for the last four years HCC Industries never achieved its targets. As a result, employees lost their motivation and commitment to achieve the t argets they were discouraged, and exert less effort by giving up trying, as they felt that stretch concept was causing the corporation not to achieve its plans.If a division keeps missing the budgets, employees feel like a failure. Taking into account that the employees could not achieve the targets for already four years, they had lost their confidence and became used to missing the budget and the enthusiasm to strive for the objectives was weakened. Although the targets were set at an unreachable level, the control system was not that tight. Even if the managers failed to achieve the targets, they may also be paid the bonus. For example, the managers were still paid 80% of objective bonus potential based on profit before taxes if they had just achieved 60% of the budget.So if a manager was not so ambitious, he did not have to worry about meeting the budget. Moreover, important constraint to motivation of division personnel was that they did not know their bonus potential and the b ases on which the bonus awards were made, as division managers did not want to disclose division-level financial information to their personnel. As a result, being incognizant of the main objectives of the corporation and its incentive system, employees did not exactly know what they are expected to do and how they would be rewarded for their efforts.As a result of the lack of communication between division managers, middle managers and employees, division personnel became discouraged and demotivated. In addition, if employees are systematically undercompensated, the corporation may suffer from losing key employees. Another disadvantage of stretch performance targets was subjectivity of incentive system. According to the information, provided from the case study, bonuses were paid only to employees included in the bonus plan. It can be concluded that not all employees were included in this plan.Moreover, half of the bonus potential was based on subjective evaluation of top managemen t. However, there is a concern whether top management could judge each division in appropriate way, taking into account all the differences between them. The aforementioned subjective aspect influences performance and motivation of employees. In addition, important demotivating factor was that awards had to be paid quarterly at the level of 80% of what was earned. It took three to four months before they actually were paid because the necessary approvals by several levels were needed before the payments could be made.The remaining 20 % was paid at the end of the year based on annual performance. Taking into account aforementioned challenges of using stretch performance targets, the management of the corporation had taken a decision to change the philosophy to minimum performance standard (MPS) targets from the fiscal year 1988 onwards. The philosophy provided a two-level budget standards. The first level included the minimum performance standard that determined the basic financial t arget that divisions should reach. The second level included the targets that were set more challenging, and had some incentive effect.The main objective of this decision was to submit budgets with realistic targets with an achievement probability of 100% in order that divisions could meet the targets. As a result, division managers and other employees would become motivated by being proud of themselves, having self-esteem and starting feeling like winners. Being motivated, division personnel would be encouraged to work hard, be entrepreneurial and increase the level of aspiration for the future. Moreover, they would be given an opportunity to earn extra rewards.Another advantage of highly achievable budget targets is that they reduce the costs of needed interventions from corporate managers and the costs of optimistic revenue projections. Highly achievable budget targets also reduce the risk of game-playing. However, not all potential advantages of MPS targets were achieved in HCC Industries. Before implementing MPS targets, corporate managers did not analyze carefully all problems that the company faced on the level of operations, marketing and finance. Corporate managers of HCC industries introduced the following changes in the corporation connected with the switch to MPS budgeting philosophy.First of all, the probability of the achievement of the budgets had been changed. MPS budgets were to be set with the felt probability of achievement 100%. In addition, managers were asked to set targets that exceed normal capability and involve an increase by 25-30 % with the probability of achievement of 50 %. However, although the budgets were planned to be set realistic and achievable, in reality they were too high and some division managers were even more than before concerned whether it would be possible to achieve them.In some divisions, such as Glasseal and Sealtron, corporate managers just increased the planned budgets without any analysis of the actual situat ion and discussion about business potential and risks with the division managers. As a result, division managers became even more demotivated because of too optimistic budgets. Moreover, by missing the new budgets, employees could be fired. The division manager of Hermetite was not provided by top managers with essential information about the corporation, its strategy, targets and the actual situation, and targets of his division before planning the budget.Being just hired and having the lack of experience and knowledge, he set too optimistic targets that could never be achieved in reality. As a result, the new division manager experienced failure and frustration at the beginning of his working experience in HCC Industry that had led to undermining of his confidence and commitment. Secondly, the incentive system had also been changed. According to new incentive compensation plan, bonus pool consisted of 20 % of the amount by which actual division PBT exceed MPS and 25 % of the amoun t by which it exceeded the target.Bonuses were paid quarterly at a level of 90 % of that earned and the remaining 10 % at the end of the year depending on the performance. It can be concluded that the rewards became lower than with stretch performance targets. The probability of losing the job in case the MPS targets would not be met, became greater. The disadvantage of subjective judgment concerning the bonuses was not eliminated under the new philosophy, as the division managers were given the discretion to decide which of their subordinates would share in the bonus pool and how the pool would be allocated among themselves and the others included.The key factor to the success of the budget system lied in the accuracy of forecasting the market share, the booking rate, the potential growth of sales, and so on. If a manager had little knowledge about the market information and the competitors, it would be difficult to set the MPS. The effectualness of the budget system would be weak ened, and this was the one of the main problems HCC faced after introduction of the MPS system. Evaluating the decision of changing the corporations philosophy based on early results, allows concluding that the new concept was not implemented well, even given the fact that it was a good idea.After the first quarter of fiscal year 1988, none of the divisions achieved all of its MPS and some of the divisions missed their minimum performance by large margins. 2. Should HCC managers have expected that the MPS target-setting philosophy would be equally effective in all four operating divisions described? HCC Industries was organized into four operating divisions Hermetic Seal, Glasseal, Sealtrol that were producing connectors of various types, and Hermetite that was producing custom-designed, micro-electronic packages. Each division was run by a general manager who was responsible for all business functions of a certain division.In order to proper evaluate and monitor divisions results o n which the bonuses were based, controllers of each division reported to HCCs CFO. Corporate managers should have taken into account that the divisions differ from each other, and should have considered each division separately while using MPS target-setting philosophy as each division had some specific characteristics that were different from others. Although all the three connector divisions were similar in that they were profitable but growing slowly, there was a significant difference in the degree of standardization of their product lines.For example, division Sealtrol was highly standardized and produced connectors with large economies of scale. On the contrast, Hermetic Seal was the least standardized division and operated primarily as a job shop that designed and produced small batches of custom connectors. Glasseals product lines had the medium level of standardization. The forth division Hermetite was completely different from the connector divisions. In comparison with th e first three divisions, its market and competitors were well defined and its potential for growth was tremendous.In addition, Hermetite faced huge price competition and significant production technology and control challenges. Moreover, the production processes were complex and its engineering and production organizations were instable. Given the fact that all four divisions were independent from each other, had different targets, accounting and information systems, product standards, served different customers, had different professional background of division managers, a detailed analysis should have been made whether MPS targets would be equally effective in all four divisions.Mike Pelta, the manager of the first division Hermetic Seal was more motivated after the changes, as with stretch performance targets, the probability of the achievement of the targets was 85-90%, whereas with MPS targets it has increased by 95-98%. The reason of such a high probability of achievement the targets was the fact that the division manager had set conservative targets. Mike Pelta was a cofounder of HCC, and was more familiar with the situation of the company. From the first quarter revenue result of 1988, we can find that only Hermetic Seals exceeded target in both bookings and profit before tax.But on the other hand, there were some problems in product qualities such as returns and rework. The manager of the second division Glasseal was even more demotivated after the changes than under the stretch performance targets. After the division manager had prepared the budget based on realistic forecast, the targets were increased by corporate managers. As a result, the probability of the achievement of the targets remained 90%, as it was before changes. However, with the stretch targets the rewards were greater and could be earned even if the budget was missed.It could be concluded that the change for MPS targets had not become better and more motivated for the second division . Historical performance of the third division Sealtron was not so good. Efficiency in sales per employee was 50 % below other connector divisions, and budget was missed so salaries were frozen. The division manager, Lou Palamara, was recruited in 1986. Lou Palamara had a background of an engineering manager, so he was not that familiar with the corporation and had less knowledge about budget and cost saving. The division manager was discouraged by newMPS targets, as the targets he set had significantly been increased by corporate managers and the probability of its achievement according to division manager, was only 60-65%. As a result, if the budget would have increased by 18 % compared to the previous year, there would be still no bonus earned. Moreover, in case MPS standards would not be achieved the manager could be fired. At the same time, CFO of the corporation assessed the probability of the achievement of the targets by 90%. His idea was to stimulate sales as the Sealtrons efficiency was below other connector divisions.It can be concluded that the opinion of top managers and division manager on the achievement of targets was significantly different (90 % versus 60-65 %). In this situation, in order to come to common solution, additional analysis should have been done of actual situation and current performance of the division. It should have been carefully analyzed the reason of poor performance of the third division. Before the fourth division Hermetite was acquired in August 1985, it had been operating at a loss for the price competition and the production problems.The former general manager of Hermetite left a serious delinquency problem, which had worsen the reputation of the company, so booking could not be guaranteed. The manager Alan Wong, being new in the corporation and lacking particular experience and knowledge, was not provided with additional training and explanation of the corporations and divisions main objectives. He thought the corpor ate managers would not accept a budget that projected a loss. As a result, he had set very aggressive and optimistic targets that were unrealistic and corporate managers decreased the targets.However, the probability of achievement of the performance target at sales was 80 % and PBT target was only 5 %. The performance of the forth division was very risky and uncertain. From the first quarter results of 1988, we can discover that the bookings and shipments were both below MPS. After analyzing MPS targets in all four divisions, it could be concluded that only the manager of the first division, that was the original HCC business, was motivated by the changes. The managers of the other three divisions were even more concerned than before the changes.The main reason of such situation was that corporate managers thought that the targets were achievable, whereas division managers had the opinion that they are not achievable and unrealistic. It can be concluded that there was a lack of com munication between corporate and division managers. Moreover, the evaluation standards were the same for every division without taking into account different situation and various targets of each division. Given the fact that there were only four independent divisions, individual approach and specific evaluation standards for each division should have been used. 3.What, if anything, could have been done to improve the implementation of the new philosophy? From 1988 onwards, the philosophy in HCC Industries had been changed from stretch targets to minimum performance standard (MPS) targets. However, according to the results of the first quarter of 1988, none of the divisions had achieved all of its MPS. It can be concluded that there were some problems in implementing new philosophy. First of all, the targets of every division should be aligned with the long-term strategy of the corporation. Top managers should clearly set the company strategy and priorities and communicate them to a ll divisions.Division managers should in turn have been communicated to the corporate managers opportunities, resource needs, constraints and risks. HCC Industries would achieve success if all divisions would work together towards common targets and objectives instead of being concentrated on personal goals of each division that could diverge from the strategy of corporation. According to the information provided in the case study, corporate managers were confident that the set objectives were achievable and realistic, division managers had the opposite opinion.As a result, division managers were discouraged to perform from the beginning. In order to avoid demotivation and increase the probability of the achievement of the targets, the balance should be found between the desires of the top management and the possibilities of the divisions. In that case, they closely need to communicate with each other and come together to the common solution. This would lead to more realistic budget s, would build employees up and increase managers commitment to achieve the targets.Secondly, as long as at HCC all divisions were decentralized, the differences and unique characteristics of each division should be taken into account. As a result, different performance evaluation standards should be used for every division. It is impossible to compare Hermetic Seal which is the original HCC business with Glasseal and Sealtron that were acquired even if all of them produce connectors. Moreover, the degree of standardization of product lines within these divisions is completely different. The forth division is completely different from the first three.That is why individual approach should be used for every division. There are only four divisions, that is why it is realistic for corporate managers to evaluate and analyze each division separately. Whereas some divisions could achieve higher targets, for others lower targets are more realistic. When planning the budget, the actual situ ation and performance of each division should be analyzed instead of comparison with other divisions. Before increasing the targets of the second and third divisions a more detailed analysis was needed.In addition, it would be helpful for corporate managers to discuss with the division managers the possible constrains of poor performance of their divisions and to evaluate whether additional actions are needed in order to improve performance. In order not to demotivate employees, it would be better to agree the targets and to find compromise rather than just to set them. Corporate managers should establish the dialogue with division managers and other personnel in order to gather an objective opinion about the real situation inside the company.Such working atmosphere would encourage employees to be involved in the company more and would give them the feeling that corporate managers listen to them when changing strategic issues. Division managers would feel themselves important in the organization and would be more encouraged to perform at the highest level possible and would feel more responsibility for the achievement of the targets. Thirdly, top management before changing the budgeting philosophy should have made a sound analysis of current performance on corporate level as it is a very important decision.Implementing new standards for evaluating involves the research of effectiveness of operation potential growth, the personal characteristics, the financial constraints, resource limitations, opportunities and risks. Fourthly, personal controls could be used by training division managers. For instance, it was very important for the fourth division to provide the manager with some additional information about the corporation before planning the budget.Taking into account the fact that Alan Wong was relatively new in the corporation, it is quite obvious that he lacks some experience and knowledge to plan an effective and realistic budget. It is also clear from the information provided in the case study, that he was unfamiliar with the strategy of the corporation and the expectations from the top managers from his division. Planning the budget is very important for the corporation. It requires deep understanding not only the goals and objectives of a particular division but also of the entire corporation.As there was a lack of communication between the top management and the division managers, the new division manager had set unrealistic budget. Fifthly, there was not only a lack of communication between top management and division managers, but also between the division personnel. In order to increase the motivation amongst personnel, the division managers should clearly communicate the main objectives and set the targets to their employees and provide them with the detailed information concerning the incentive system.In this case, employees would understand what they are expected to do and how they would be rewarded for that. Sixthly, as the marketing information collection was an obvious obstacle for the accurate forecast of the future, it is important to set up a marketing team in the four divisions. The target of the team is to collect the market share data of each product in previous years, the reasons for the up-and-downs of the market share, find out what kind of improvement will the target consumers need in the future, the scale of potential customers, and so on.With the detailed information of the market, it will be easier for the division to forecast the future sales and try to expand the existing market. Seventhly, it can be suggested, that for the first year when the changes were applied, the top management could set very realistic conservative targets in order to encourage employees and make them feel that the targets are achievable. Given the fact that the targets were not achieved for the last four years the employees got used to missing targets and became demotivated.In addition, given the fact that some divisions, for example Hermetite, experience current problems, flexible targets could be set, that would depend on certain conditions at a particular time. Finally, before taking a new decision about the changes, it could be helpful to organize the meeting with all division managers in order to announce them personally about the expected changes and gather some ideas from them about how to implement the new philosophy. Such brainstorming could help to pay attention to some important aspects from the bottom that top management was not considering.