Houston Fearless 76, Inc.
Case: Houston Fearless 76, Inc.
The company in focus has undergone a lot of development and changes until its current set-up and composition as Houston Fearless 76. Being confronted with external hazards as the continuous demise of the industry it is operating in and internal challenges as lack of revenue growth and profitability, the company is standing at a strategically highly important and past due turning point in late 2000.
The company is set-up into four divisions (Extek Products, Mekel Technology, HF Interntaional, and HF North), which all concern different products at different market stages and operate as profit centers. According to Merchant and Manzoni (1989), there are two main strategies to organize budget targets in profit centers, namely setting highly achievable and less achievable targets. While the latter is consistent with motivational theory, challenging yet highly achievable targets are common practices in management nowadays due to several reasons as for instance predictability and flexibility. As opposed to prior research, these targets are apparently not hindering motivation (Merchant and Manzoni, 1989). At the same time, there are various arguments for setting less achievable targets, for instance to signal dissatisfaction with performance, to attain immediate profit, and of course to motivate. As motivation and incentivizing is the main focus of HF 76 top management, links can be drawn to the case at hand: how should the sales commissions be set up in order to motivate salespeople? And how should they be organized to not only drive sales, but also to incentivize to strive for profitability, new customer and market development? HF 76’s top management decides to tackle change from the core, as the mere sales orientation of the commission plan disregarded various important factors. The management sees three areas of improvement and has come up with a more challenging and aggressive plan; instead of a linear increase of commission
The company in focus has undergone a lot of development and changes until its current set-up and composition as Houston Fearless 76. Being confronted with external hazards as the continuous demise of the industry it is operating in and internal challenges as lack of revenue growth and profitability, the company is standing at a strategically highly important and past due turning point in late 2000.
The company is set-up into four divisions (Extek Products, Mekel Technology, HF Interntaional, and HF North), which all concern different products at different market stages and operate as profit centers. According to Merchant and Manzoni (1989), there are two main strategies to organize budget targets in profit centers, namely setting highly achievable and less achievable targets. While the latter is consistent with motivational theory, challenging yet highly achievable targets are common practices in management nowadays due to several reasons as for instance predictability and flexibility. As opposed to prior research, these targets are apparently not hindering motivation (Merchant and Manzoni, 1989). At the same time, there are various arguments for setting less achievable targets, for instance to signal dissatisfaction with performance, to attain immediate profit, and of course to motivate. As motivation and incentivizing is the main focus of HF 76 top management, links can be drawn to the case at hand: how should the sales commissions be set up in order to motivate salespeople? And how should they be organized to not only drive sales, but also to incentivize to strive for profitability, new customer and market development? HF 76’s top management decides to tackle change from the core, as the mere sales orientation of the commission plan disregarded various important factors. The management sees three areas of improvement and has come up with a more challenging and aggressive plan; instead of a linear increase of commission
References: Lipe, M. G. and Salterio, S., A note on the judgmental effects of the balanced scorecard’s information organization, Accounting, Organization, and Society, 27 (2002) 531-540 Merchant, K. A. and Manzoni, J-F., The achievability of budget targets in profit centers: A field study, The Accounting Review, July (1989) 3