ATH Assignment (1) (1).docx

ATH Micro-Technologies Assignment Part A Q1 Does the earn-out structure focus on the right performance goals? The current earn-out structure is basically targeted three areas of performance 1st one is on the approval of the new product (i.e. Product quality and feasibility), 2nd is on achieving superiority of technology (focuses on drive for innovation and excellence in product development) and 3rd is on basis of achieving the growth and earnings targets (Revenue management and profits management). The earn-out was developed as a rewarding system for overall organizational development. Yet they mainly focused on short-term revenue and profit maximization rather than aiming for a sustainable overall business growth. A right performance goal should part from the financial aspects, be focused on the other factors such as Customer satisfaction, Internal control and management and employee education and innovativeness. A wholesome performance measurement should be as parallel with the organizational objectives. Though the earn- out structure proposed by Scepter looks promising in the short-run but in the long-run it hardly able to cover each of the four aspects thus it will not be effective enough to drive the organization and its work force towards the long term goals of the organization. Q2 Should Scepter Pharmaceutical put additional controls on his entrepreneurial firm? Scepter the acquirer company needs to focus on the achievement of the proposed synergies that were supposed to be derived from the conglomerate. ATH has every prerequisite to be a successful target company provided Scepter Pharmaceuticals should impose effective control for operational efficiency with focusing on the optimum utilization of the available resources of ATH at its disposal. Further it is necessary for Scepter to impose additional control on ATH in order to determine the performance achievements upon which the earn outs are based on at least close monitoring at regular intervals of the activities and decisions of ATH ‘s Senior staff will enable it to track any deviations from its merger objectives. Q3 if you were president of ATH tech how would you communicate and motivate employees to achieve profit and performance goals? Motivating other people is always a difficult task to accomplish with a reasonable level of precision yet without right motivation the workforce of ATH could not be able to achieve the targets that have been set before them and it is duty of the senior management to communicate effective motivation to its employees. This can be achieved by aligning the goals across the organization effectively to support a properly defined strategy. There are various reasoning for implementing alignment of the goal as it can  Enhance and speed up execution operationally i.e. switching from planning of strategy to execution phase with ease.  Retention of employees by improving their morale improves retention, resulting in more engaged employees to words a mutual organisational goal. It is necessary to effectively communicate expectations to the employees while identifying their strengths and weaknesses on the go to ensure that they are actually aligned to the goals that of the organization, and well aware about his/her contribution towards the organization's core mission & Vision. Communication on the part of the company can be done through a well-defined scorecard system both on organisation wise and individual department wise. Further it is also important to communicate about the rewards based on performance and achievement of the targets to promote productivity, Thus by putting together the goals and rewards are need to be simultaneously communicated to motivate employees. Q4 what are the appropriate performance goals for employees to focus on? As the part of strategic value creation process a company tends set four types of goals as employers, with its employees: I. Job Goals: Goals that clearly outline tasks which are to become mandatory to finish the job. Such goals must be specifically personalized as per every employee and respective position. II. Project Goals: consists of activities with specifically defined end and beginning that the employees should pursue. III. Professional Development Goals: These defined goals provide focus on improving efficiency and technical that are important for the professional growth. And they should help in developing both employee and the organization as a whole. IV. Performance Goals: When we refer to performance goals then we are talking about specific end results which are key to an organization’s success and which a specific employee also needs to perform and produce results.

Performance goals enable employees to stay focussed on producing target-oriented results. These goals vary from work activities since they are more about improving efficiency and the quality of an employee with respect to his/her position in an organization. Motivation, efficiency, productivity, job satisfactions and accountability are some rudimentary performance goals. However basic performance goals may be, it is important for organizations to document them in an easily accessible and understandable way so that it would come in handy for employee education and training process.in real life scenario following goals need to be pursued both by the organisation and the employees as an ingredient for the strategic value creation practice. V. Employee motivation- Employees’ motivation as a performance goal is carried by spotting talent by providing high-level tasks and duties, and enabling them to display their leadership skills during the process. VI. Employee productivity- Appraisal and evaluation mechanisms are used to measure and increase productivity level as part of performance goal. During this phase, hindrances to high productivity are discovered along the way with employee evaluation. Training and development can be used to correct them, which are an integral part within the goal-setting stage of performance appraisals (mostly). VII. Employee accountability – Incorporating employee accountability is part of performance goal that makes them accountable of their jobs. It is achieved evaluation of performance whether they are actually doing their work for which they are hired. Employees are made accountable usually by observation and guidance. VIII. Employee job satisfaction: Performance evaluations can actually employee’s efficiency/success in other work areas based on their job satisfaction level. Employees who get ample support from their managers and supervisors and have job satisfaction tend to be more productive and engaged. Also, employee recognition is also improved with job satisfaction. IX. Employee Efficiency: Increasing employee efficiency as part of performance goal is akin to productivity, but the output is approached in a different way. The efficiency of an employee is the employee’s quality of work in terms of speed, accuracy and consistency that improves the overall performance and contribution to the organization. Q5 How would you communicate and control events and employee action that could put business objectives at risk? It is a well-accepted fact that the success of every business is always get threatened by various distracting factors in its micro or macro environment which are otherwise termed as ‘Risk’. The probability of an event happening and resulting consequences is Risk. In normal business and economies scenario primarily there exist 3 types of business risks: I. Preventable Risks: The risks that arises within a company internally, which can be handled and eliminated or avoided. Such risks included the illegal, incorrect, inappropriate, unethical, unauthorized actions and routine operational process breakdowns by employees and managers. The result could be a short-term profit for a firm but long-term value erosion of the company. This is controlled by watching operational processes and directing behaviours of people and decision-making towards the defined norms. II. Strategy Risks: This involves voluntary acceptance of a part of risk in order to get higher returns from the strategy. Expecting high returns requires a company to take significant risks as part of its strategy, and for potential gains, such risks should be managed well. Rule-based control cannot control strategy risks, what it needs is a risk-management system which can ensure that assumed risks are reduced rather than materializing, and at the same time it betters the organization’s ability to bring risks within control in the event of them occurring. III. External Risks: These are risks that occur outside the control of a company and are external in nature. Some examples of such risks include political unrest, natural disasters and other major macroeconomic movements. Such risks require different approach and reasoning to contain them as organizations cannot control them. So, identifying them beforehand should be the focus of the management in order to mitigate their impact. The process of using tools, methods and processes to manage and mitigate risks is known as Risk management. It includes identifying the potential eventualities, their evaluation and impact, and how they can be addressed with the help of strategies. One important aspect of risk management is good communication. The effectiveness of risk management does not only lie with modelling, comprehending, or testing risks, but also the ability to clearly communicate them and their impact on the business and correspondingly influence. The following are some examples of how businesses can communicate risks pertaining to business and operational risks:  Independent technical experts could form a review board with the role to analyse risks, mitigate them and periodically evaluate them across the organisation.  Focus on strategic planning discussions across the company on risk perspectives, which may include a key management tool that measuring communication and strategy such as Balanced Scorecard.

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Once risks are identified, generation of Risk Event Card is done based on that is associated with the strategy map of the company. It also lists the effects of an event on operational processes, the likelihood of its occurrence, key indicators and actions that has the potential to mitigate threats. It goes further in identifying the entity with the accountability for risk management. A heat map that gives risks visualization shows the holistic view likely impact of risks across the entity within an organization during decision making. The data values are represented in a two-dimensional way using the heat map and colours represent them..

Q6 what are the best financial measures to asses ATH Micro Technologies performance? Why? A company’s performance can be defined in different aspects such as financial performance, workforce or operational performance etc. There are different tools to measure them such as a. Customer relationship management b. Supply chain management c. Business process engineering d. Total Quality management etc. to assess these different types of performance .Financial measures normally consists of analysis of facts and figures of company’s financial statements and operating results. It is obvious that the financial measures cover only numbers that may be sales, expenses, profits, equity or assets , That’s why we normally use different types to tools to get the conclusion and the projection such as Ratio analysis, variance analysis, cash flow analysis etc. It is easy to do assessment of Financial performance and overall operational efficiency performance ,at the first place we use various type of ratios .All time primary measure of a company’s performance is Return on Equity (ROE).Another measure is Return on Assets (ROA) which is helpful in analysing the long-term profitability .ROA as a key performance measurement metrics focuses on assets required to run the business including their contribution towards the bottom-line .Other type of ratios can be used to assess financial performance of the company such as Liquidity ratios to measure short-term liquidity position of the company , Solvency Ratios especially the Debt-Equity ratio which is important for determination of whether the company is leveraged .ATH from the very beginning of its operations has been driven by revenue and profit maximisation objective through large market capture thus it is essential to assess its future feasibility along with historical performances till now .That’s why alongside we can use the EVA margin analysis to assess the future viability of the company .Enterprise value addition or Economic value addition (EVA) is the measurement of companies future projected cash flows with discounting to present time in terms of Economic profits it likely to earn in the future. EVA can be defined as how much economic profit a company produces per dollar value of sales. In simple terms it is the value created for stakeholders and lower the sales the profit will be lower or vice versa yet it EVA margin can be positive i.e. though the company is in no profit zone yet it will be able to create value for shareholders in the long run.

Part B Q1 How would you evaluate the performance of ATH Micro-Technology During the growth period? The objective of ATH during the growth period was to acquire as much market share as it can by its aggressive strategy of product development and frontline marketing. Although ATH’s senior managers were planning for such a strategic move, they were not yet ready to make the move happen in an effective way. The key evaluations of ATH’s performance are as follows: 1. The senior managers are too much possessed with acquiring market share through aggressive push of its products that they ignored the other factors such as the employee bonus scheme which was not linked systematically to individual performances rather the bonus system was more likely to be biased by the senior management thus resulting in degrading employee performance. 2. ATH was not innovative enough as it has been revealed subsequently that a new competitive technology in Europe can dilute its market shares. Instead the development cost that were incurred on the product development were became overhead thus slicing a huge chunk of the profit for the 2001 and 02. 3. As from the very beginning ATH’s objective was to increase revenue and the bottom line , it completely ignored the cost of productions which needed to be optimized to earn a fair amount of contribution margin which in turn would have been helpful in meeting its huge fixed expenditures on the product developments and other establishment expenses. Although Revenue has increased considerably, neither the company was able to turn the huge revenue in to a healthy bottom line nor a breakeven contribution margin.

Q2 What is the strategy of the business? The strategy of ATH is what every business formulates at its growth phrase is to gain market share and thus it mainly focused on its revenue maximization strategy. Owing to which it spent huge amounts of money on marketing and selling expenses as well as on product development in a short span of time. The senior managers at ATH had a perception that gaining a large market hare ad becoming a major player in the market in terms of volume will going to solve the company’s problems of low bottom line. Their whole plan was revolving around how to achieve a bigger sales figure with in short span of time. Q3 How should performance be measured and analysed? Performance measurement is a tool in the hand of management to control the outcomes of the decisions related to operations. A performance measurement system should provide timely information is a necessary tool in the hand of any management. It’s a process that can greatly impact operations. There are a wide variety of ways in which performance can be measured. The key thing here is knowing ‘what to measure’ in performance measurement. Quantifiable factors linked to components that drive success of a specific business in a specific sector is the priority. And, they include key performance indicators (KPIs). Performance measurement can be done in the following ways.  Measurement of financial performance A growing business requires measuring financial performance. When profitability is measured, the following need to be evaluated: Net profit margin, return on capital employed, operating margin, and gross profit margin. This helps you in knowing how your business is doing and how well the money is invested against other investment avenues. Ex. efficiency ratios of effective asset utilisation, liquidity ratios, discounted future net cash flow and gearing ratios or financial leverage.  Measurement of customer value creation Every business has a crucial task to find and retain customers. Before you start measuring and analysing specific areas of your business, you must question yourself whether you know enough of your clientele. Customers’ point of view must be taken into consideration. Losing valuable customers can be avoided by taking their perspective during the growth phase. Information on questionnaires, comment cards, products or services through sales data, etc. from customer feedback on operations can be collected. A powerful tool to capture and analyse information about customers including the services and products they buy can be done through customer relationship management (CRM) software.  Measurement of employees Performance A practical direct way of monitoring and enabling individuals’ progress is through meetings and appraisal measurement including formal appraisals and informal meetings. To keep a watch on developments across your business in a wider scale, staff meetings conducted regularly can be useful and employee performance can be measured quantitatively. Sales from each employee, contribution from each employee, and profit per employee are some of the most commonly measurement criteria.  Measurement against competitors - benchmarking Benchmarking is a method that helps you understand your business better in terms of business performance and its potential so you can improve it such as measuring its performance against an organization from the same sector. However, within business processes, internally benchmarking can be done. The focus should be given on areas that are responsible for driving business success A good framework for performance measurement means customer will be its focus and it will measure the right performance criteria such as: • Explicit, eloquent, and most commonly understood • Within the organization, responsible teams should hold and manage • Basis high-level reliability of data • Enable data collection within the normal procedures which is rooted • Ability to start improvements • Accompaniment to key goals and vital organisational drivers Four important steps are involved in the framework for performance measurement  The organization’s strategic objectives are switched to preferred performance criteria  Actions for improvement are initiated to find gaps  Actual achieved standards is compared with anticipated performance by developing metrics  To review and constantly implement performance measurement steps: For TQM, the fundamental building block is performance measurement that ensures quality organisation. Generally, financial outcome has been used to measure performance of organisations, whether it is because of profit or liquidation failure. Cost accounting information that is a traditional performance measurement, have little incentives to support organisations quality-wise, this is a result of their inability to map process performance and betterments as viewed by

customers. In a quality and successful organisation, improvements viewed by customers will be used to measure performance along with the results being delivered to shareholders who are also stakeholders. Q4 Which additional measures would you use to implement the strategy? A roadmap for businesses – to chase set goals of performance and specific strategic directions, deliver value to customers and other stakeholders while being successful – is provided by a strategic plan. But, if there is no proper plan for implantation then you can’t be sure of desired performance level. A process that translates plans and strategies into actions in order to achieve desired strategic goals and objectives is called implementation. The ‘what and why ‘of actions is addressed by strategic plans, but ‘who, where, when, and how’ addressed by implementation. And, they are equally important for success. Competitive advantage can be gained by organizations by implementation of strategic plans effectively. 

Having the right people on board is the first step for implementation. Following employee skills broadening, recruitment, and training the planning process; new competencies are must for a strategic plan.

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To have enough time and ample funds for implementation support.

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Define the correct lines of authority and management restructure; that has an open and clear channel of communication with employees.

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Every month or quarterly, meetings to review progress should be held that is based on activity level and plan of action time frame.

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Use milestones to lay out a plan that must be accomplished within a planned time schedule. There is a tool that is used to combine milestones and progress tracking, which is a performance scorecard.

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An environment must be created that brings employees closer to the organization’s goals while making them feels comfortable at the same time.

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All involved parties should contribute towards finalizing a strategic plan. Bring the budget of company to yearly goals on the basis of financial assessment in alignment with the departmental goals. Each group should be presented with different versions of the plan. Their plans of action need to be tracked and monitored by establishing the performance scorecard system. Also, establish a reward system and performance management. Across the entire organization, communicate and implement strategic plan and around the organization’s strategic plans, build annual plans of all departments.

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Q5 If you were president of ATH tech. what would you do to focus the attention and efforts of your employees? 1. Keep the communication simple and clear. And stay focused on the massages that are vital for retaining employee attention. 2. Be clear on what’s distracting the focus of attention of employees and deviating them from their allocated goals so that the managers could be strategic about how to shift their team away from it. 3. To make efficient use of scarce resources especially human resources. 4. Introduce Performance incentives to create a motivation factor for the employee to reach above and beyond a goal. 5. Try to acknowledge an employee's idea and recognize them within the company for bringing a change and make the employee recognized.