Pelican Instruments, Inc. 1. Prepare the Report that you feel Amy Shultz should present to Mr.Park. Mr.Park.
2. Put yourself in the position of the followin si! manaers" eneral manaer#$M%& marketin manaer #$M%& manufacturin manaer #$M%& eneral manaer #$I%& marketin manaer #$I%& manufacturin manaer #$I%. 'hese si! manaers compete for a share in the company(s )onus pool. *or each of the si!, how would you make a case for your o)tainin a share of the )onus pool+ Si! manaers, three from the $M diision and three from the $I diision compete for a share in the company-s )onus pool. *or the purpose of this analysis, we take into account different ariances within each diision, *rom the $M side, the eneral Manaer could arue that his )usiness unit must without a dou)t follow the stratey of low cost, as he is dealin with a mature product. /ecause of this, he lowered his sellin price compared to his competition )y 0 1, resultin in a 0 1.MM profit loss. 3oweer, he can strenthen his position )y sayin that thanks to his lower price, he was a)le to penetrate the market een more, achiein an additional 0 2.4MM in profit from chanes in market share. *urthermore, he can arue that the lower price also ot him an increase in olume, which earned him 0 456k more in profits. 7learly, the the eneral manaer-s decision to lower his sellin price was more than )eneficial for his )usiness unit. 'he Marketin Manaer would arue that thanks to his efforts, he was a)le to o from a 18 market share to a 148 market share, )ecomin partially responsi)le for the additional 0 2.4MM in profits.
Althouh industry demand affected the diision neatiely, losin the diision 0 52k, the positie effects of the increased sales were adantaeous for the diision. *urthermore, the Marketin Manaer can say he is partially responsi)le for the sains in marketin fi!ed costs for the company, amountin to 0 14k. 'he Manufacturin Manaer for the diision must defend his increase in cost from 0 2 to 0 21. 3is arument can )e perhaps that he was focusin more on 9uality of product, and that )ecause his product was now of )etter 9uality he also is partially responsi)le for the increase in sales olume. 3e can also say that he is partially responsi)le for sain the company 0 :2k in fi!ed manufacturin costs. *rom the $I eneral Manaer-s point of iew, the fact was that he was a)le to sell his product at a much hiher price, earnin his diision an additional 0 1.4MM in profits. Althouh unfortunately he lost 0 4;6k from a lower sales olume, he clearly made it up to his diision )y earnin them 0 4.6MM from market share chanes, and an e!tra 0 .6MM from chanes in industry demand. As opposed to the $M diision, the $I added features that will allow the company to hae a )etter product than its competitors. :. As Mr. Park, how would you feel a)out the 1665 performance of each of the si! manaers who are competin for a share of the )onus pool+ 'akin into account the fact that the $M )usiness is a ?3arest@ )usiness dealin with a mature product, Mr. Park should seriously consider ettin rid of the diision )y slowly discontinuin the product, as it is performin worse than )udet and losin 0 MM in profits for the company as a whole. If Mr. Park decides to maintain the diision, the )est way for it to compete will )e )y followin a low cost stratey. /ased on the characteristics of a ?3arest@ )usiness, $M manaers should )e strictly held to )udet, and total compensation should )e )ased more on )ase salary and less on performance measures. In analyzin each manaer-s performance, Mr. Park should feel positiely a)out rantin the )onuses to )oth the Marketin Manaer and the eneral Manaer, )ut not the Manufacturin Manaer, as his aria)le costs per product increased, oin aainst the low cost stratey discussed. In terms of the $I diision, this is a hih potential market sement that is rowin e!ponentially and the company is doin well in this )usiness. 'his diision follows a ?/uild@ stratey and therefore he should )e more fle!i)le with his manaers, acknowledin that their stratey of differentiation and rowth is risky. 'hese manaers should )e ealuated less accordin to )udet and more accordin to lon term criteria such as R< spendin, product deelopment, and market deelopment. Manaer salaries should )e more )ased on performance )onuses and less on )ase pay so they are more willin to take risks in their stratey. In analyzin each manaer-s performance, Mr. Park should feel positiely a)out rantin the )onuses to the Marketin Manaer, who had a positie ariance for the department in terms of market share #aside from industry demand factors%. Similarly, the Manufacturin Manaer increased his aria)le costs )y a lare percent, )ut this could )e defenda)le from the point of iew of creatin a )etter and more differentiated product. 3oweer, Mr. Park should feel neatiely a)out the eneral Manaer, since he could hae offered the product at a slihtly lower price and attained more sales olume and adantaes from product mi! as well.