Case Armco

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Case Study: Armco, Inc.: Midwestern Steel Division

What do you think was the problem with the implementation of the new performance measurement system?

In January 1991, Top management of the Kansas City Works of Armco’s Midwestern Steel division began implementing its new performance measurement system. It was designed to give better management focus on the things, which are most important. The new system included less data’s: it allows managers to focus on the 5-6 more important which cause 80% of the costs. In fact, the old system was not enough efficient. « Managers spent more time explaining why changes in costs were caused by problems with the accounting system than they did fixing the problems. ». Managers are focused on their objectives rather than the performance of the entire company: that may cause some problem if objectives of top management and those of middle and lower managers are not the same. Hence, for top management appeared the need to create a new system to increase competitiveness, and to avoid unnecessary expenses. But the way the implemented it leaded to were problems:

The operating managers’ initial reaction to the sample reports they were given was dissatisfaction. Indeed, Top management didn’t take managers’ reactions and feelings into account: for example; “Paul Phillips, the Rolling and Finishing manager, liked having the monthly and annual trends and the information comparing actual costs with objectives”. So that managers kept using the old performance measurement system because they was accustomed and they didn’t know the differences between the two systems, so they never seriously considered improvements that could be made with the new.

As a conclusion, there is a lack of information from top management to its middle and lower managers, so they are reluctant and don’t know why they have to use the new system, and this lack of information leads to a lack of motivation of middle/lower managers to use the new system. We...
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