The evolution of the management system is symbolised by the change of executive manager team. Since 1991, they have shifted their product orientation to customer orientation, which is a change in business vision and mission and naturally, brought dramatic changes in its strategies.
a) From cost reduction to wealth creation
Although it may lead to discussion whether by the early 1990s they have completed most cost reduction, the change from TQM to improving firm's profitability is a big leap in its strategies. This shows a strong focus on business growth and the importance of value adding activity. Using lean principle to explain, the cost cutting part is only a small part of work. They also need to trim non-value adding activities, focusing on people that add value to the company, and reduce inventory level. These value-adding and wealth creation activities proves a shift of emphasis from cost leadership to differentiation.
The introduction of Dynamic complexity of processes (exhibit 7) is a set of interlinked non-financial indicators of business performance, which is a way that management used to find ways growing revenue.
b)Focus on the most important objectives
Hoshin system that they deployed instructs the business to focus improvement on one or two breakthrough objectives for the company. It has its pros and cons, which is arguable. I would reckon it is more a neutral factor in the new system., which would be discussed later in the meeting.
c) Improved scorecard
In 1990s, the scorecard comprises key success factors measurements related to the firm's business plan. They are derived from the annually, and sometimes quarterly, changed company's five-year plan, which were more closely related to wealth creation. They have thes key success factors to fill the gap (limitation) of the old scorecard and mortified the evaluation system.
d) using of teams as responsibility centre
For projects, ADI uses teams to complete the task. As teamwork is highly recognised by modern management theory, it is a great method to shorten cycle time and improve efficiency and effectiveness.
f) Compensation system
Compensation system is not linked to non-financial measures, but to stock price. As what get rewarded, what counts. This will discourage people from carrying out progresses in non-financial aspects, but focus on financial performance. This, in turn, will in practice, forfeit the impact of non-financial measurement.
Q6:
I can't agree with the compensation philosophy and the reasons has been partly stated in Q5.
If people are not rewarded by their performance, they will not be motivated to keep doing it. This is based on the rational person theory. What is rewarded, what counts. If they don't link their payment to the non-financial performance, a possible outcome would be the drop in those figures and a disability of increasing them.
Even if people are carrying out the non-financial tasks to increase the critical success factors' figure, when there comes a conflict between financial and non-financial measurement, they would definitely go for financial performance as that is the basis of their payment.
Therefore, this kind of compensation system would have negative effects on non-financial performance.
Recommendation on the current compensation system (see discussion notes of sunday meeting). This should be decided by the whole group.
Q7:
Vision and mission statement in Vision 2000 give us a fair view of what they are doing and what they want to become in the future.
I reckon the objectives that followed should be their strategies. Just summarising their generic strategy:
change from single industry to related diversification
Product differentiation and continue cost leadership
build question marks, hold stars and harvest cash caw (a matrix would be needed to explain this)
organisational growth
Exhibit 8 indicates that a better scorecard is, or at least is going to be, in place. However, in regards to the scorecard, I think some of them is over-detailed.
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