Ath Technologies Inc.: Making the Numbers
The case of ATH is centered on management taking particular strategic paths in order to achieve the desired organization objective(s).
Beginning with the strategy of acquiring market share, Scepter implemented very attractive (personal) incentives in order to achieve this goal. These “earn out” incentives did indeed push for innovation, growth and market segment but it didn’t put any controls on the amount of spending, thus ultimately leading to major losses. The incentives focused more on personal gain i.e.: “Make the company look good at what ever cost so I can get the pay out” sort of notion. It is a good scheme in terms of promoting for continuous developments and to share know-how and make sure the products succeeded, but it didn’t have any other controls or limitation as to how to go about this. Had part of the incentive scheme be linked to the profitability of the company as a whole, then managers would’ve been more inclined to control and keep an eye on expenses and the profitability of the company.
Same situation happened as the changed their outlook and focused on profitability. All of a sudden in 1992 they change the strategic position to concentrate on profitability. Again they use dramatic incentives to push this focus. Once again employees are more self interested to achieve the goal, at whatever cost, in order to gain the incentive benefits. As in the former strategy, controls to achieve the current goal were non existent. As a result, profitability was met, but at what costs? Costs were reduced by cutting corners in production resulting in product defect returns, loss in customer loyalty and company reputation, which happen to be critical factors for market share growth. Management should’ve at least had certain controls such as minimum specifications and quality checks to ensure that quality of the company’s products were not harmed.
Upon receiving the warning letter, management, once again,