Loctite case
Loctite Company de México case
The case of Loctite Company de Mexico presents an example of an inefficient incentive system that leads to lack of motivation, high employee turnover and internal competition. Given the need of keeping salesmen motivated Loctite used a MCS based on result control by establishing compensations based on performance. According to Merchant and Van der Stede (2012), result control influence actions because they make that employees will be concerned about the consequences of such actions. In this kind of control employees are empowered to take whatever actions they believe will best produce the desired results. However, in Loctite this incentive system was not effective and was yielding unwanted effects.
To understand the fault in their system, a set of conditions for the result controls to work have to be examined, as proposed by Merchant and Van der Stede (2012):
1. Managers know what results are desired: In order for controls to be effective organizations must be aware of what their prefered results in an area are and these desires needs to be effectively communicated to the employees who are active in that area. In case of the result chosen being wrong or the importance of an area is given inaccurate significance it motivates employees to undertake wrong actions (Merchant and Van der Stede, 2012). In the case of Loctite, results controls are focused on the improvement of sales (15%) and margins (20%). So, the targets are devoted to maximize shareholder value.
2. Employees have the ability to influence the desired results. If the results area are totally uncontrollable by the employees, the measures reveal nothing about what actions or decisions were taken. In our case, the sales people complain about the lack of tools to achieve their aims. Indeed, the price and the place are fixed by the top management and salespeople are not allowed to derogate to these two important aspects of the marketing mix. It could be argued that this is
The case of Loctite Company de Mexico presents an example of an inefficient incentive system that leads to lack of motivation, high employee turnover and internal competition. Given the need of keeping salesmen motivated Loctite used a MCS based on result control by establishing compensations based on performance. According to Merchant and Van der Stede (2012), result control influence actions because they make that employees will be concerned about the consequences of such actions. In this kind of control employees are empowered to take whatever actions they believe will best produce the desired results. However, in Loctite this incentive system was not effective and was yielding unwanted effects.
To understand the fault in their system, a set of conditions for the result controls to work have to be examined, as proposed by Merchant and Van der Stede (2012):
1. Managers know what results are desired: In order for controls to be effective organizations must be aware of what their prefered results in an area are and these desires needs to be effectively communicated to the employees who are active in that area. In case of the result chosen being wrong or the importance of an area is given inaccurate significance it motivates employees to undertake wrong actions (Merchant and Van der Stede, 2012). In the case of Loctite, results controls are focused on the improvement of sales (15%) and margins (20%). So, the targets are devoted to maximize shareholder value.
2. Employees have the ability to influence the desired results. If the results area are totally uncontrollable by the employees, the measures reveal nothing about what actions or decisions were taken. In our case, the sales people complain about the lack of tools to achieve their aims. Indeed, the price and the place are fixed by the top management and salespeople are not allowed to derogate to these two important aspects of the marketing mix. It could be argued that this is