Essay on Business: The Target and Eva Centers

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Vyaderm Pharmaceuticals | | | | | | | Why is Maurice Vedrine implementing an EVA system? | | | | | 1. He wants something more objective -- the outgoing CEO had used a | | | | very subjective methodology as a major component of evaluation. | | | | 2. He wants something that is more long-term oriented; | | | | | EVA may partially do this by forcing links with capital not just today's actions. | | | 3. He is hoping that this may help stimulate 'horizontal communication' | | | | between divisions -- the capital use issue means sharing, communicating, planning. | | | 4. Create future value. | | | | | | | | 5. There were conflicting management priorities: | | | | | | cash flow could be viewed as having a value to the acquisition and use of assets, or | | | they could be viewed in terms of 'bonus compensation' for return on sales. | | | | EVA might marry these two odd bedfellows. | | | | | | | | | | | | | | | | What things need to be considered in the design of an EVA evaluation system? | | | 1. Simple enough (they narrowed adjustments down to 7 from 160; to 4 really) | | | so as not to demotivate. | | | | | | | | 2. Measurable evaluations. | | | | | | | | 3. Plan for the future, not short-term 'wall street' stock value. | | | | | 4. Set up a workable -- stimulating but real and attainable -- bonus incentrive plan. | | | | | | | | | | | | | What is the role of the bonus bank? | | | | | | | This is to incent people to think more in the long term. | | | | | The idea is NOT to create a 'quick deal', as can happen during | | | | | budget setting and attainment, but to contract to keep the | | | | | employee's 'feet to the fire' and keep living up to the | | | | | | current marketing. It creates a store to draw from later, but also a | | | | | 'draw' from which to apply financial kicks in the seat of the pants | | | | if performance slacks off. | | | | | | | | | | | | | | | | | | Why the automatic ratcheting of the target? | | | | | | I assume this means, "Why the automatic stable growth goals?" | | | | | This was a Vyaderm tradition; as we know from Finn’s credo: | | | | | “Make the numbers or else”. To some degree this is normal: | | | | | there are committed assets and they should be expected to make some | | | | impact or receive some remuneration for being there. | | | | | | | | | | | | | | | | Based on your analysis what do you recommend? | | | | | | 1.. The goals or budgets or expectations for the following period should be based | | | on the independent actions of the profit center, not some static, sterile target | | | that may or may not be attainable. There can be un/favorable exogenous shocks -- | | | economic events beyond management's and everyone's power to influence an outcome. | | | Setting fair goals could theoretically mitigate the wild number swings and consequent | | | demoralizing effect on the staff when results aren't attained. | | | | | There does not seem to be any material explaining how Vyaderm, just by forcing | | | an extrapolated, desired sales/return target, would achieve it, independent of the world. | | | 2.. Also, the way the bank is set up can hardly be called 'long-term visionary.' | | | It may set up a fund for some slight draw past the current year. If they truly do want | | | incentives to stretch to the future, then it should be three years or more forward. | | | 3.. There should be some non-financial incentives, other intrinsic rewards such as | | | vacation time or different responsibilities that would be of interest to a manager. These
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