Hcc Industries Harvard Case Solution & Analysis

1.      Discuss the relationships between budget targets and performance evaluation procedures of HCC Industries.

As per the facts of the case it can be seen that there was a relation between the performance evaluation procedures and the budget targets as well. Hence, the performance of the divisions that were involved in the HCC industries was evaluated in relation to the seven performance areas. First of all it is comprised of the profit before tax, which is the most important performance evaluation procedure regarding the measurement of the performance of HCC industries.

However, the relationship between profit before tax and the budget targets can be discussed in such a way that if the corporation has set a target in order to make a substantial amount of profit and later on it is not able to generate that specific amount of profit, then it may face difficulties in order to finance other areas.

In addition to this, the next performance evaluation procedure that was undertaken by HCC is comprised of bookings and as well as shipments. Despite this, the other performance areas include the returns, rework aging, the efficiency and delinquencies, which are based upon the volume of dollar and the percentage of delinquent orders that were outstanding.

Moreover, as compared to the above mentioned performance areas, the profit had an immense importance, but there was also a need to focus on these areas because they had higher contribution regarding the achievement of profit margins. Moreover, there were negotiations between the corporate management and the divisions that were based upon the performance standards in the areas that are listed above(J Hope, 2003).

In addition, this process was initiated in a month of December and its conclusion took place in the middle of March. Hence, in order to evaluate the relationship between these performance evaluation procedures and the budget targets, the process was started by the division managers in relation to the preparation of the forecasts that was related to sales. Hence, in terms of the preparation of these numbers, the most significant customers were contacted by the divisional managers personally.

2. Why did HCC corporate managers decide to abandon “stretch” budgeting concept?

By taking into account it is evident that there were some of the problems that were attached to the stretch budgeting concept. Hence, this was the reason which made the corporate managers of HCC in order to make a decision in relation to the abandoning of stretch budgeting. Moreover, the first problem that is worth mentioning was based upon the dissatisfaction of the corporate managers with this budgeting concept.

Most importantly, it was felt that the reason behind failing in terms of the achievement of HCC’s plans was the use of stretch budgeting. In addition, it was also stated that the budget was too optimistic as well as every year some of the divisions were able to meet the targets, but some of them were not able to achieve its targets however,overall the company was not able to achieve its targets and this was a worrying situation(Lazear, 1996).

This is because if the company is not able to achieve the planned targets, then it may affect the performance of the company itself, including the staff as well as the divisions that are operating under HCC, respectively. In addition, the other dissatisfaction was related to the bonus plan that was associated with stretch budget.

On the other hand, the division managers did not consider it significant or they thought that it would be too complex to enter into communication with their middle managers. The other reason which led to the abandonment of the stretch budgeting is related to the amount of information that was distributed among the personnel of HCC and those who were operating in other divisions.

Hence, the flow of information is necessary for the successful implementation of any budgeting process. Also,the reason that was mentioned about not providing the information to the rest of the personnel was the fear of the leakage of information to the rivals who are operating in the same industry. Most importantly, the division managers were not in favor of disclosing of divisional level financial information.HCC industries Case Solution

Thus, this ledto the situation in which most of the personnel in the division were aware about their own bonus potential as well as they were not aware about the basis on which they were awarded with bonus payments.The abandonment of the stretch budgeting concept can also be related to the level of approvals that were required before the payment is being released to the managers. Hence, this resulted in a dissatisfaction of most of the managers who did not agree with the plan because the awards were provided to them quite late...............................

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