Ath Microtechnologies: Making the Numbers

1. Why did senior managers introduce a vision and belief statement?

• To address 150 quality and compliance irregularities /issues stated in the Warning Letter under the FDA report.

• These were introduced as diagnostic control measures to avoid similar incidents in the future.

• To emphasize the quality, customer value and investment for the future.

2. Why did managers at ATH Micro Technologies Inc. change their performance measures?

• Earlier the performance measure included only financial measures like break even in 2003, sales, cost and profitability. But it diverted the attention from quality to quantity where company was focused on increasing the shipment of products and reduction of costs which ultimately led to increase number of consumer complaints and product returns. Increased number of product returns led FDA to issue a Warning Letter listing several irregularities concerning product quality and compliance which forced the managers to come up with quality specific performance measures.

a. John Frost includes both process and output measures. Why? What is he trying to accomplish?

• John Frost and senior managers were disappointed with the quality and compliance irregularities specified in the FDA report which could seriously jeopardize company's reputation and even led to the shutdown of the entire operation. So John Frost came up with both process and output measures within the performance so that both financial and non-financial measures can be taken into account while computing the bonus of the employees and to evaluate the true performance.

b. He also includes ratio and ordinal measures. What are the advantages and problems of each type?

• Ratio measures include Customer Contact Errors and Backorders & Ordinal measures include Product Defects and New Product Delays. Both of these measures keep a check on quality and customer value thus acting as diagnostic and boundary controls for the entire organisation.

c. Why did John Frost include departmental performance in the bonus scheme?

• 6% bonus was subjectively decided by the department manager of each employee so as to measure the department performance which was introduced to check the employees behavioral aspect within the particular department.

3. What are the risks for ATH Micro Technologies going forward? How should these risks be monitored and controlled?

• Risks

o Analysing the Table E we can clearly see that New Product Delays and Backorders have continue to be on the high side.

o Fast changing