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Rosemary Mulcahy

on 19 July 2014

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Transcript of SPACE ODYSSEY

Case Overview
What role do incentives play in motivating the engineer's behavior ?
You get what you reward. Be clear about what you want to get and systematically reward it.
Bob Nelson (Nelson 2014)
How do the current incentives create "agency costs"?
“Victory comes from everyone sharing the same goals.” Sun Tzu

Balanced Scorecard
Change Failure Reasons
Goal Congruence
1. Why has Elite Engineering been unsuccessful in achieving the desired change?
The vision was not clear, compelling, complete or concise. (Brennan, 2012, p. 19)

Did not have a transitional leader. (Brennan, 2012, p. 174)

Did not have a guide to show them the way, needed a dashboard. (Brennan, 2012, p. 13)
Corporate Governance Issues
One of the key issues associated with corporate governance is the alignment of shareholders’ interests with those of the executive management of a public corporation. Normally, this is achieved with a compensation plan that rewards executive management for good financial performance. (Anson, 2004)
Value Deal
Flashy Ride
Product Retirement
(sell it to a redneck)
Case Overview
Change Failure Reasons
Goal Congruence
Scorecard Evaluation
Scorecard Proposal

Leaders Retiring
Industry Shrinking
Change Resistant
New Measures
2. Evaluate the need for goal congruence. Why do some of the consulting engineers lack a sense of urgency about the need to change?
The goals are not aligned to the vision, the measures are not aligned to the goals.

They are receiving nice bonuses to do things that do not help the company get closer to the desired state.

(Brennan, 2012, p. 59 and 176-177)
Questions? You ask them and we answer or we ask and you will have to answer!
The goals listed did not support the vision.
Achieve annual revenues of $25 million while maintaining excellence in our work.
Maintain fiscal health with a strong cash flow.
Diversify and balance our services.
Operate the business with effective cross-discipline and cross-geographical teamwork.
Expand our capabilities by aggressively recruiting and continually developing our people.

The goal of 40% revenue growth may not be attainable.
It is not clear how these goals lead to the vision.
Created by one man, the goals should be generated the orginzation.
No wonder they failed!
(Brennan, 2012, p. 20-21)
Partners are over-extended with billable activities and do not have time for business development (Brennan, 2012, p. 90)
Measures should be SPORTI
Significant – The measure should be important and caused by something other than mere chance.

Practicable – The measure should be feasible, capable of being obtained.

Operable – The measure should be suitable for being used for a particular purpose, and effort to adjust it likely to result in a positive effect.

Reliable – The measure should be dependable, stable, and worthy of trust; multiple observations of identical phenomena yield identical results.

Timely – The measure should be available early or at the right time.

Insightful – The measure should reveal the inner nature of things; grant a penetrating understanding into a situation.

Scorecard Evaluation Cont.
Category Goal Measure Scoring Weight
customer measures

Internal Business process measures

Learning & Growth Innovation measures

Financial measures

Corporate Governance Issues
Frequently, the role of chairman of the board and chief executive officer are combined. In this dual role, the chairman of the board controls the board of directors, whose job it is to set the pay for executive management. This same chairman is also the president, and part of the executive management team that receives the compensation package. It is in the chairman’s economic interest to press the other directors to adopt a generous pay package for executive management. (Anson, 2004)
Scorecard Evaluation
Needs Improvement
Better Measures for Growth
Better Measures for Financial
Transition Measures
Anson, White, McGrew, Butler. (2004). Aligning the interests of agents and owners: an empirical examination of executive compensation.
Ivey Business Journal
. Retrieved from http://iveybusinessjournal.com/topics/governance/aligning-the-interests-of-agents-and-owners-an-empirical-examination-of-executive-compensation#.U8gy4vldXwt
Bob Nelson. (n.d.). BrainyQuote.com. Retrieved July 17, 2014, from BrainyQuote.com Web site: http://www.brainyquote.com/quotes/quotes/b/bobnelson194824.html
Agency problems arise when the management of a public company pursues its own economic self-interest ahead of shareowners’ interests. This behavior may manifest itself in the form of golden parachutes, long-term employment contracts, corporate jets, and other perquisites (Anson, 2004)
The New Scorecard
Creating S.M.A.R.T. Goals. Top Achievement. http://topachievement.com/smart.html
S - specific
M - measurable
A - attainable
R - realistic
T - timely
Brennan, L.L. and Sisk, F.A. (2012). Strategic Management for Results: Practical Strategies for Sustainable Outcomes. Cognella Publishers.
(Brennan, 2012, p. 177)
Full transcript