Ath Technologies (a): Making the Numbers Case Study

ATH Technologies (A): Making the Numbers Case Study

1. Does the earn-out structure focus on the right performance goals?

There are definite pros and cons of the earn-out structure that is in place. The current structure is mainly focused on short-term revenue and profit maximization rather than aiming for a sustainable overall business growth. Apart from the financial aspects, the performance goals should be focused on the other factors such as Customer satisfaction, Internal control, management, and employee innovativeness. A wholesome performance measurement should be as parallel with the organizational objectives. Thus, the proposed earn-out structure is not effective enough to drive the organization and its work force towards the long-term goals of the organization. Additionally, I think that the co-existence of sales and earnings is a good practice, for it aids in controlling the way that ATH sells their product. Another Note is how the structure seems to focus far too much on the short-term goals, and there is really no incentive for ATH to continue to put money into Research Development and marketing after the initial earn-out structure’s bonuses. If there is no incentive to continue R&D, ATH might spend more time and effort into sales, and growth in the company’s technology may grow stagnant. In a competitive field, it is extremely important for ATH to continue to improve their product to maintain a competitive advantage. Finally, it also seems that the earn-out structure is too focused on personal goals, rather than the long-term goals of the organization. People may act selfishly to reach the numbers they need for the bonus (laid out in Table A).

1. Should Scepter Pharmaceutical put additional controls on this entrepreneurial firm?

The most sensible answer to me would for Scepter placing additional controls on ATH. Scepter the acquirer company needs to focus on the achievement of the proposed synergies that were supposed to be derived from the conglomerate. ATH has every prerequisite to be a successful target company provided Scepter Pharmaceuticals should impose effective control for operational efficiency with focusing on the optimum utilization of the available resources of ATH at its disposal. Further it is necessary for Scepter to impose additional control on ATH in order to determine the performance achievements upon which the earn outs are based on at least close monitoring at regular intervals of the activities and decisions of ATH ‘s Senior staff will enable it to track any deviations from its merger objectives. More specifically, they should implement forms of action controls on ATH in attempt to limit the decision-making authority. Scepter should have the authority to either approve or disapprove of major decisions or variations in ATH’s spending their money. Also, a form results control seems to be in place in the form of the bonus numbers, however another results control can be implemented in the form of ‘quality checks’ in the products. With Scepter performing routine checks of ATH’s products, this brings into play an incentive for ATH to continue and spend in operations along with R&D and to maintain and continually improve the quality of their product, which is what they should be doing in the first place! Additionally, a personnel control could assist in controlling entrepreneurial firm if Scepter is able to train and hire individuals who will perform in whatever is the best for the company.