Provigo (A), (B), and (C)

Assignment

The class will be divided into six groups, two companies (Provigo (A) and Provigo (B)),
each with a Board of Directors, a Medis division and a Loeb division. Students will
assume the roles of the Medis or Loeb management teams or the Provigo Board of
Directors.

The Board Meeting that end this exercise has two objectives: First, the Board must
evaluate the divisions and assess their future in Provigo. The Board must also decide
whether and how much their managers should be rewarded. As part of that decision, it
must determine whether it should intervene in the planned working of the new
performance system.

During its meeting, the Board of Directors will discuss the new performance evaluation
system and its objectives. The two management teams will present reviews of division
performance through the first quarter of 1989, elaborating if possible on departures from
expectations. Managers will also present their divisions’ strengths and weaknesses. The
divisions should then react to the performance evaluation system and discuss its relation
to their division and its motivational effect. All aspects of the system are open for
criticism, the performance measures themselves, reward functions, target setting, and the
use of management discretion. Management teams should feel free to suggest changes or
to politely question any aspect of the evaluation system.

The Board of Directors will review the information provided by the two management
teams and decide whether changes in management, in performance evaluation, or in the
organization will solve its problems. To make reasonable judgments, Board members
must understand the information provided by the two divisions. Therefore, they should
feel free to ask questions of the two management teams and make suggestions to enhance
understanding.

All members of the Medis and Loeb management teams, as well as the Board of
Directors, should wear business attire on the day your company presents. Name
plates at your seats and a seating chart are helpful to evaluators. The agenda,
seating arrangement, and seating chart are the responsibility of the Board.

Note that your syllabus schedule of work provides some due dates for timetables,
agendas, and visual aids:

1. By the end of the first meeting, I would like a timetable from each group
leader. The timetable should indicate when you are meeting as a group and
what you plan to accomplish at each meeting. You may decide that one or
 more meetings with the other Provigo division or the BOD are needed. If so,
those meetings should be indicated on the timetable. By the end of the day,
you should have a strong sense the important parts of the performance
evaluation system.

2. By the end of the second meeting, I would like copies of your first draft visual
aids and an outline of your presentation. The Board presentations will (1)
present and explain the important features of the new performance evaluation
system, (2) explain the objectives of the system, and (3) request division
reports on and reactions to the system. Division presentations have at least
three objectives: (1) Present division performance, highlighting strengths and
explaining weaknesses, (2) react to the new performance evaluation system
and its effect on your division, and (3) propose and explain changes in the
evaluation system. Final agendas are due.

3. Final visual aids due at the end of the third meeting.

Each division manager and the chairman of the BOD should schedule a meeting with
Prof. Shelley during the week preceeding the presentations. We will discuss your
responsibilities and progress in detail at that time. We will also review any numbers,
questions and proposals you have prepared by the time of the meeting.

I have some examples of timetables, agendas, and visual aids available for you to peruse.
However, they relate to different cases.
 Medis Division

Prepare a presentation for the Provigo Board of Directors to review the performance of
the Medis and the Medis management team’s perspective on the new performance/reward
system. Pay particular attention to issues relating to return on investment and the length
of time allowed in the plan to realize the return. Here are some questions that may help
guide your analysis of this case.

1. William Kipp seems to like the new plans, while William Brown’s comments
reflect a less complete agreement
• What are some of the reasons for this difference in opinion?
• Are William Brown’s complaints valid?
• Assess his suggestions for improving the long-term plan.

2. Evaluate Pierre Lortie’s strategy for Medis and its place in Provigo.

3. Evaluate the design of the plans. Pick two elements that strike you as very
adequate or very inadequate.

4. Assess the plans in terms of Salter’s six elements. Do the choices made make
sense for Provigo?

5. How do the conditions in which the two divisions operate differ?

6. What kind of division is disadvantaged by the plan? What kind of division

has an advantage?

7. Do the incentive plans accurately reflect the kind of business the company
wants to engage in? Where does that leave Medis?

8. What are the risks of sandbagging in Provigo’s case?

 Loeb Division

Prepare a presentation for the Provigo Board of Directors to review the performance of
the your division, review the strengths and weaknesses of the performance system,
recommend changes (if they are needed) and react to the request that the Medis budget be
revised following Q1, 1989. Should management discretion be used in performance
evaluation. Bill Kipp’s view on budgets is quite provocative, and provides a good
starting point for discussion. Consider the questions listed for Medis, Top Management
and the following:

1. What are the Loeb division’s strengths and weaknesses.

2. Do you care at all whether the Medis division gets paid bonuses? Why or
why not?

3. Your budget targets are essentially 100% achievable. Are there any important
respects in which negotiating a 100% achievable budget target is different
from later lowering a budget target or using management discretion in other
ways at the end of the period?
 Board of Directors

(Pierre Lortie, Chairman and CEO)

Plan a meeting during which you (1) present and justify the Provigo performance plan,
(2) gather information to fining evaluating the managers of the two divisions, (3) decide
whehter the Medis budget should ber revised at the end of the first 1989 quarter, (4)
determine whether changes need to be made in the performance evaluation system.

You must, therefore,

1. Plan and distribute an agenda for the meeting.

2. Thoroughly understand the performance system and the ramifications of

allowing management discretion in performance evaluation.

3. Be prepared to question the two division managers and their representatives on

performance and on any recommendations they make regarding the
performance system or budget revisions..

Look at the questions listed for the Medis and Loeb divisions and consider the following
questions:

1. What do you think of Henri Roy’s, Bill Brown’s, and Bill Kipp’s views on
target achievability and managerial discretion?

2. Imagine that you are Pierre Lortie, and you are just starting a meeting with
Bill Kipp to discuss next year’s budget. He is explaining to you that the
budget should require a 12% increase over last year, and that he feels there is
a good chance he will be able to deliver a bit more. What is your reaction?
How would you negotiate a budget target with Bill Kipp? With Bill Brown?

3. How high do you want the probability of achieving the budget to be?

4. Do you agree with Brown that his 1989 budget should be 100% achievable?
(Will Kipp’s be?)

5. Are lowering the budget target (increasing the probability of achieving

budget) and ex post managerial discretion substitute strategies? What are the
implications of each.