ATH Technologies Case Study: Performance, Management & Control

This document presents a comprehensive analysis of the ATH Technologies case study, focusing on the evolution of the company's performance management and control systems across different phases: founding, growth, push to profitability, refocus on process, and new management. The analysis covers key aspects such as the effectiveness of the earn-out structure, communication and motivation strategies for employees, financial measures for performance assessment, and the role of control systems in both the company's successes and failures. It also addresses critical issues like avoiding FDA investigations, managing company reputation, and scanning the competitive environment. The study further evaluates the decision of Scepter to purchase ATH's technologies, and how the new management can use control systems to implement their agenda and ensure future success. The document provides detailed recommendations for improving performance management, setting goals, and mitigating risks.

MANAGEMENT
ACCOUNTING

Table of Contents
1. FOUNDING........................................................................................................................1
1. Does the earn out structure focus on the right performance goals.....................................1
a) Should Scepter pharmaceutical put additional controls on this entrepreneurial firm?.......1
2. from the perspective of president of ATH technologies, how would you communicate
and motivate employees to achieve profit and performance goals.........................................2
a) What are the appropriate performance goals for employees to focus on?.........................2
b) How would you communicate and control events and employee actions that could put
business objectives at risk?.....................................................................................................2
3. Explain the best financial measures to assess ATH technologies’ performance and why?
................................................................................................................................................2
2. GROWTH PHASE: 2011-2012.............................................................................................3
1. How would you evaluate the performance of ATH technologies during the growth
period?....................................................................................................................................3
2. What is the strategy of the business?..................................................................................4
3. How should performance be measured and analyzed?.......................................................4
a) Which additional measures would you use to implement the strategy?.............................5
b) What are the characteristics of a good measure?...............................................................5
4. As a president of ATH technologies, what would you do to focus on the attention and
efforts of your employees?.....................................................................................................5
3. Push to Profitability................................................................................................................5
1. How did managers at ATH technologies achieve their profit and performance goals
during 2013?...........................................................................................................................5
a) What role did control systems play in ATH’s success and problems?..............................5
b) How could top management have avoided the actions by employees that led to the FDA
investigation?..........................................................................................................................5
c) What are the possible consequences of these events on the company’s reputation?.........5
2. If you were the president of ATH, what would you do to get the business back on track?
................................................................................................................................................6
4. REFOCUS ON PROCESS: 2014-2015.................................................................................6
1. Why did senior managers introduce a vision and belief statement?..................................6
2. Why did managers at ATH Technologies change their performance measures?...............6
a) John Frost includes both process and output measures. Why? What is he trying to
accomplish?............................................................................................................................6

b) He also includes ratio and ordinal measures. What are the advantages and issues of each
type?.......................................................................................................................................6
c) Why did John Frost include departmental performance in the bonus scheme?.................7
3. What are the risks for ATH technologies going forward? How should these risks be
measured and controlled?.......................................................................................................7
5. NEW MANAGEENT 2016-2017..........................................................................................7
1. Why did ATH technologies experience problems with its new products? What role did
measurement and control systems play in these problems?...................................................7
2. How should Janet Isabella design and use performance management and control system
to implement her agenda and take charge of the situation?....................................................7
a) What are the critical performance drivers of success going forward?...............................7
b) What variables should be measured?.................................................................................7
c) How easy or difficult should goals be?..............................................................................8
d) How should financial expectations be set and communicated?.........................................8
3. How can Janet Isabella use control systems to scan the competitive environment to
ensure that the business is not again surpassed by new technology?.....................................8
4. What events or employee actions could put business objectives at risk? How would you
ensure that these risks are adequately communicated and controlled?..................................8
5. How would you measure and evaluate Scepter’s decision to purchase ATH’s
technologies in 2011?.............................................................................................................8
REFERENCES...........................................................................................................................9
3

1. FOUNDING
1. Does the earn out structure focus on the right performance goals
Particulars 2013 2014 2015
Sales 82 148 215
Bonus 20 25 30
Sales to bonus ratio 4.1 5.92 7.17
Particulars 2013 2014 2015
Earnings 11 34 47
Bonus 20 25 30
Sales to bonus ratio 0.55 1.36 1.57
Particulars 2013 2014 % change
Sales 82 148 80.49%
Earnings 11 34 209.09%
Bonus 20 25 25.00%
Particulars 2014 2015 % change
Sales 148 215 45.27%
Earnings 34 47 38.24%
Bonus 25 30 20.00%
The earn out structure of ATH technologies shows the capability of an entity by
predicting future results of three years starting from 2013-2015. Net sales of the firm is
increasing from 2007 to 2010 which is correctly shown through to the earn out structure.
a) Should Scepter pharmaceutical put additional controls on this entrepreneurial firm?
Scepter pharmaceutical should impose control on regulating their financial position as
earn out structure reflects both advantages as well as negative condition. Sales goal of $82
million in the year 2013 gets reduces to only $11 million that shows the overall costs of $71
million in 2013 is not beneficial for the business.
Particulars 2013 2014 2015
Sales $ 82.00 $ 148.00 $ 215.00
Earnings $ 11.00 $ 34.00 $ 47.00
Cost $ 71.00 $ 114.00 $ 168.00
1

2013 2014 2015
$-
$50.00
$100.00
$150.00
$200.00
$250.00
Sales
Cost
2. from the perspective of president of ATH technologies, how would you communicate and
motivate employees to achieve profit and performance goals.
Announcing reward system by owner in front of all the employees to motivate them to
achieve all the targets on time to provide cash rewards to employees who meet the targets.
Performance report of an entity is presented among all the personnel through open sessions
(Way to Measure Company’s performance, 2010).
a) What are the appropriate performance goals for employees to focus on?
 Time bound target
 Setting targets in a month for all the employees
 Knowing versatility of employees by allocating different field work
b) How would you communicate and control events and employee actions that could put
business objectives at risk?
Risks is categorise into various segments by preparing risk matrix to prioritise risk
into internal as well as external risks. Risk matrix is submitted to all the employees through e-
mails to notify about this.
3. Explain the best financial measures to assess ATH technologies’ performance and why?
Particulars Formula 2007 2008 2009 2010
Net sales 9477 354357 1683852 5377135
GP 275042 687870 1147871 337394
GP ratio GP/Net sales 29.02 1.94 0.68 0.06
Operating
profit GP-operating expenses 237384 301933 -446900 -2627209
Operating expenses 37658 385937 1594771 2964603
2

Operating profit ratio 25.05 0.85 -0.27 -0.49
2007 2008 2009 2010
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
GP ratio
Operating profit ratio
2. GROWTH PHASE: 2011-2012
1. How would you evaluate the performance of ATH technologies during the growth period?
Particulars Formula 2007 2008 2009 2010 2011 2012
Net Sales 9 354 1684 5377 12641
2334
9
GP 275 688 1148 338 774 3288
GP ratio
3.27
%
51.45
%
147
%
1591
%
1633
% 710%
Operating Expenses 38 386 1595 2965 5404
1266
6
Operating
Profit
GP-Operating
Expenses 237 302 -447 -2627 -4630 -9378
Operating Profit Ratio 26.33 0.85 -0.27 -0.49 -0.37 -0.40
3

2007 2008 2009 2010 2011 2012
-500.00%
0.00%
500.00%
1000.00%
1500.00%
2000.00%
2500.00%
3000.00%
GP ratio
Operating ratio
2. What is the strategy of the business?
Cost reduction strategy used by an entity whose results reflect in higher sales of the
business of ATH technologies from 2007 to 2012.
3. How should performance be measured and analyzed?
Particulars
20
07
200
8
200
9
201
0
201
1
201
2
Net Sales 9
1
0
0 354
39.
33
168
4
3.
76
537
7
2.1
9
126
41
1.3
5
233
49
0.8
5
GP
27
5
1
0
0 688
2.5
0
114
8
0.
67 338
-
0.7
1 774
1.2
9
328
8
3.2
5
Marketing and sales 38
1
0
0 386
10.
16
159
5
3.
13
296
5
0.8
6
540
4
0.8
2
126
66
1.3
4
R&D
10
09
1
0
0
171
6
1.7
0
282
7
0.
65
428
4
0.5
2
829
9
0.9
4
133
42
0.6
1
Net loss
15
61
1
0
0
400
0
2.5
6
705
7
0.
76
882
9
0.2
5
181
14
1.0
5
305
25
0.6
9
Cash and short term
investments
13
00
1
0
0
764
3
5.8
8
105
60
0.
38
234
1
-
0.7
8
-
545
-
1.2
3 546
-
2.0
0
Other current assets
16
7
1
0
0 839
5.0
2
157
0
0.
87
228
0
0.4
5
912
3
3.0
0
112
91
0.2
4
Net fixed assets
61
3
1
0
0
169
8
2.7
7
214
9
0.
27
252
3
0.1
7
757
6
2.0
0
130
30
0.7
2
4

Total assets
24
25
1
0
0
105
57
4.3
5
148
39
0.
41
775
5
-
0.4
8
165
09
1.1
3
252
36
0.5
3
Long term debt 0
1
0
0 0
0.0
0 0
0.
00 0
0.0
0
240
46
0.0
0
617
58
1.5
7
Common stock
47
45
1
0
0
160
81
3.3
9
264
93
0.
65
264
93
0.0
0
264
93
0.0
0
264
93
0.0
0
Retained earnings
25
70
1
0
0
657
0
2.5
6
136
27
1.
07
224
56
0.6
5
405
70
0.8
1
710
96
0.7
5
a) Which additional measures would you use to implement the strategy?
Ratio analysis is used by an entity to compare their current results with the previous
financial figures of an entity.
b) What are the characteristics of a good measure?
A good financial measure is easy to understandable approach by all the candidates in
a firm.
4. As a president of ATH technologies, what would you do to focus on the attention and
efforts of your employees?
Performance report is distributed among all the employees as positive or negative
results of the report will change the perspectives of the business.
3. PUSH TO PROFITABILITY
1. How did managers at ATH technologies achieve their profit and performance goals during
2013?
Balance score card approach used by the firm to develop all the goals according to
four pillars of an entity such as financial, internal control, innovation and customers and
stakeholders.
a) What role did control systems play in ATH’s success and problems?
In controlling system, an entity will keep watch on all the business activities through
dashboards that helps in improving individual’s performance.
5

b) How could top management have avoided the actions by employees that led to the FDA
investigation?
Reason behind the frauds takes places in an entity communicated to all the employees
in an entity to overcome all the problems.
c) What are the possible consequences of these events on the company’s reputation?
Increase in sales in return increases the profitability of the firm induces the business
image and its goodwill which helps in attracting large number of customers.
2. If you were the president of ATH, what would you do to get the business back on track?
FDA investigation of the firm is done had spoil the image of the business due to lower
quality of goods. This problem can avoid by the firm by providing high quality services.
4. REFOCUS ON PROCESS: 2014-2015
1. Why did senior managers introduce a vision and belief statement?
To attract customers and potential investors to be part of the business who have
contributed for all their customers.
2. Why did managers at ATH Technologies change their performance measures?
Senior managers have changes their performance measures to overcome all their
problems. They have changed their goals by seeking feedback of all their personnel.
a) John Frost includes both process and output measures. Why? What is he trying to
accomplish?
John Frost includes both processes and end results measures to tests the quality of
generated output by using good method (Assess company’s performance, 2017).
b) He also includes ratio and ordinal measures. What are the advantages and issues of each
type?
Particular
s Formula
20
07
20
08
20
09
201
0
201
1
201
2
201
3 2014 2015
Net Sales 9
35
4
16
84
537
7
126
41
233
49
953
81
1400
80
1964
92
GP
27
5
68
8
11
48 338 774
328
8
578
96
8860
0
1227
95
GP ratio GP/Net sales
30.
6 1.9 0.7 0.1 0.1 0.1 0.6 0.6 0.6
Operating expenses 38
38
6
15
95
296
5
540
4
126
66
213
08
3318
8
3749
1
Operating Profit 23 30 - - - - 365 5541 8530
6

7 2
44
7
262
7
463
0
937
8 88 2 4
Operating
ratio
Operating
profit/net sales
26.
3 0.9
-
0.3 -0.5 -0.4 -0.4 0.4 0.4 0.4
Operating profit ratio and gross profit ratio come under profitability ratio to tests the
profitability generates by an entity from one period to another.
c) Why did John Frost include departmental performance in the bonus scheme?
Departmental performance has included in an entity to know the sales figure of the
business of different years.
3. What are the risks for ATH technologies going forward? How should these risks be
measured and controlled?
 Risks incurred in ATH technologies
 Increasing costs
 Higher tax imposed on an entity
 Higher bonus reduces income capability of the business
Risk matrix created by an entity to know the likelihood of all the risks that incurred in an
entity.
5. NEW MANAGEENT 2016-2017
1. Why did ATH technologies experience problems with its new products? What role did
measurement and control systems play in these problems?
Customers are loyal towards regular products offers by an entity. Measurement and
controlling systems created by the firm by preparing Ansoff matrix for market penetration to
introduce new products in the current market.
2. How should Janet Isabella design and use performance management and control system to
implement her agenda and take charge of the situation?
Customer service plan prepared by an entity to focus on all the needs and expectations
of all the customers in the external business market.
a) What are the critical performance drivers of success going forward?
 Increase in sales goals
 Timely completion of targets
7

 Work allocation according to interests
b) What variables should be measured?
 Market segment
 New customer base
c) How easy or difficult should goals be?
Identifying new customer base is difficult for an entity as it requires deep knowledge
of the external market.
d) How should financial expectations be set and communicated?
Financial goals is to be set by an entity by including in the annual reports of the business
3. How can Janet Isabella use control systems to scan the competitive environment to ensure
that the business is not again surpassed by new technology?
Environmental scanning is used to scan the events in the atmosphere to consider the
best suitable strategies.
4. What events or employee actions could put business objectives at risk? How would you
ensure that these risks are adequately communicated and controlled?
Increasing number of customers affects the current sales figure of the business
Market segmentation strategies used by an entity to evaluate all the customers in the market.
5. How would you measure and evaluate Scepter’s decision to purchase ATH’s technologies
in 2011?
Business acquisition amount evaluates by an individual to know the prospective worth
of the business of ATH technologies.
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