Case Hcc Industries
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 …show more content…
The budget target is challenging but achievable, as Carl is 90% sure to achieve the target. This is a proper probability according to practical experience in the budgeting system. We believe that Glasseal is the best-suited division for the MPS system.
Lou, the Sealtron manager, would like to pay more attention to long-term development instead of currently cutting costs. He was upset with the MPS system but was forced to accept the system and the budget, so perhaps he is poorly motivated to implement the system. However, despite the manager's resistance to the MPS system, the performance of the division has improved under the new system and achieved most budgeting targets that were considered as impossible when making the budget and even exceeded some of them. The staff of the division used to be slothful under the stretch system when they didn't have to achieve the budget, whereas MPS is stimulating the staff to be more efficient.
In contrast to the three connection divisions reacting in a positive way to MPS, we consider MPS as a disaster for Hermetite. The division was keeping a horrible financial record in its growing period and needed to focus more on long-term development, so it was unfair and improper to judge and evaluate Hermetite’s performance with financial criteria and to ask them to achieve all the yearly budgeting targets and financial criteria. Moreover, Hermetite’s market situation was hard to predict, as it was unstable and