INTRODUCTION
ATH Micro Technologies Incorporation is a company which had begun its operations in the year 1997 by John Frost and Dr. Charles Casper. The company also received the regulatory approval for launching their first innovative product which was specifically for medical imagining in surgeries.
ath microtechnologies case solution
A group of experienced doctors were also motivated and convinced to invest in this venture. The company achieved huge success throughout all the years till 2000 and in 2000, with further improvements in the product a new generation for the product was developed. It was then in 2001, that considering the success of the company, it was acquired by Scepter Pharmaceutical Incorporation for an initial payment to the existing shareholders of about $90 million.
After the acquisition of ATH Micro Technologies by Scepter Pharmaceutical Incorporation, the financial performance of the company boomed and the market share of the company also increased rapidly. The ultimate objective of the senior managers of ATH Micro Technologies who had decided to stay with the company after the acquisition was to acquire more and more market share through the development of new products and also new marketing efforts. However, since 2002 the company had faced severe competition in the industry and it had struggled through all the growth faces to maintain and then re-build its competitive position in the market but somehow, the management of the company had lost track of its corporate mission, objectives and strategic paths.
PROBLEM STATEMENT
The main issue that had always been faced by the company which led to the poor performance of the company and also losses in future years was that the company had deviated from its long term vision of producing innovative products and achieving the market share and profitability targets for future success and expansion. However, in the later years the company was involved in meeting its departmental and organizational targets that it had its attention deviated from the product development concept. In the light of decreasing revenue, poor operational performance, and weaker internal controls, the company had focused its complete attention towards building the market share and increasing the profitability of the company. The products of the company had reached the saturation point in the dynamic industry of innovation. This resulted in the company losing its sales, higher costs and weak profits. It was then in 2004, that the company had received a warning letter from the Food and drug Administration which outlined around 150 quality and compliance irregularities. Also the product life cycles in this industry are short because the business is completely technology driven. Continuous product development and innovation is critical for evolving in this industry and maintaining a competitive position. However, this was overlooked by the management in the light of other performance metrics such as profitability and market share.
ANALYSIS OF COMPANY OBJECTIVES & PERFORMANCE
EARNINGS PLAN ANALYSIS
When Sceptor Pharmaceutical acquired Ath Technologies, the core strategic objective was to increase the market share for the company. However, after the acquisition the management of Sceptor Pharmaceuticals had taken a Laissez-faire approach which suggested that there were no particular operating synergies that were to be created after the acquisition of ATH Technologies by Sceptor Pharmaceuticals. There were also concerns regarding the earn-out plan. The first condition was that $30 million would be paid if the products which were currently under development were approved by the Food and Drug Administration. However, this payment should have been more contingent on approval. Although, there was enough certainty that Food and Drug Administration would give the approval but the uncertainty related to the fact that would give enough effort to be provided to bring all the products to the stage where it would be approved. Secondly, $35 million would be paid if the technology proved to be superior, however, if the technology was substituted then the entire investment would be lost; therefore, this payment should be tied to the next $120 million or the initial payment. Apart from this $120 million was set for sales growth and earnings goals. This lead to the complete focus on sales ignoring the profits and also due to the richness of the payoff, the behavior of the employees may be myopic.
The earnings formula which was developed by the management was solely output- based. These types of formulas provide a lot of independence to the management. There should be the presence of a process-based formula................................
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