Formosa Plastic Group Case Study

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EXECUTIVE SUMMARY

Formosa Plastic Group (FPG) was founded in 1954 and headquartered in Taipei, Taiwan with over 47,000 employees. FPG was the largest private diversified chemical company that produced and sold a broad range of products which mostly related to plastic. It also operated 6000 bed hospital, medical college, a nursing school, and a technical college.

FPG was organized into three major corporations and other affiliated companies. Those three major corporations are Formosa Plastics, Nan Ya Plastics, and Formosa Chemical & Fibre Corp, and each corporation were consist of several divisions. Most of the administrative functions of the company were centralized in order to take the economies of scale for granted. FPG had set up a strategy to be the low cost producer in the commodity market since it was the products sold by most of the company’s chemical divisions.

The company’s and its division’s performance were measured based on it return on investment (ROI). There were no corporate assets allocated to the divisions. Moreover, plants and product groups were considered as profit center, distinct production processes and group of machine were cost center, and nonproduction-oriented units were consider expense center within the divisions. The performance of the company was monitored closely by the FPG’s president every month by having a comprehensive meeting with senior managers.

THE PROTAGONISTS

Based on our discussions and analysis, we have come out with two protagonists in this case. They are the FPG’s president, whose name was not mentioned, and the Polyolefin Division general manager, Mr. Hsiao Chi-Hsiung.

The FPG’s president is the one who is responsible to monitor the performance of the company. Every detail about the business was discussed in particular in a monthly performance review meeting including sales, the competitive situation, future trends, and future products. This is to ensure that the managers will always be alert and be able to bring the company toward success. On the other hand, Mr. Hsiao Chi-Hsiung, the Polyolefin Divisions general manager, is the one who is responsible in dealing with the situation faced by the division which was the shortage of ethylene supply. He had to come out with plans in order to cope with the unfortunate situation.

THE PROBLEMS
The total bonus amounts put in the budget are fixed and not varied by the actual profit of the year. So, in case the company earns higher actual profit, the amount of bonus will not be revised and still taken from the budget. This can cause the employee to be demotivated and this can affect the operation of the company and reduced efficiency. The second problem that the company faced was the conflict between the top management and division manager. It happen when the sales plan and production plan prepared by the division managers was hardly accepted. The top management wanted the division target to have an 80% to 90% probability of achievement. Therefore, the division managers have to review the plan several times before the top management approved. It is because they have different understanding on how to manage the division’s operations. Next problem that the company confronted was the shortage of ethylene supply. The ethylene was the only raw material used in produce polyethylene. Consequently, the shortage of the ethylene will cause decreasing the production of high density of polyethylene. This will lead to decrease in sales directly, and profit indirectly.

THE MAJOR ISSUES
The major issue detected in this case is the performances of employees are evaluated subjectively. It will cause the employee to not have clear details about objectives of their task and how will they be evaluated. For instance, when the company set the division target to have an 80-90% probability of achievement, the employee might not have clear details about the target and what is...
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