Case Armco

June 25, 2017 Accounting

Case Study: Armco, Inc. : Midwestern Steel Division What do you think was the problem with the implementation of the new performance measurement system? In January 1991, Top management of the Kansas City Works of Armco’s Midwestern Steel division began implementing its new performance measurement system. It was designed to give better management focus on the things, which are most important. The new system included less data’s: it allows managers to focus on the 5-6 more important which cause 80% of the costs. In fact, the old system was not enough efficient.  Managers spent more time explaining why changes in costs were caused by problems with the accounting system than they did fixing the problems. ». Managers are focused on their objectives rather than the performance of the entire company: that may cause some problem if objectives of top management and those of middle and lower managers are not the same. Hence, for top management appeared the need to create a new system to increase competitiveness, and to avoid unnecessary expenses. But the way the implemented it leaded to were problems:

The operating managers’ initial reaction to the sample reports they were given was dissatisfaction. Indeed, Top management didn’t take managers’ reactions and feelings into account: for example; “Paul Phillips, the Rolling and Finishing manager, liked having the monthly and annual trends and the information comparing actual costs with objectives”. So that managers kept using the old performance measurement system because they was accustomed and they didn’t know the differences between the two systems, so they never seriously considered improvements that could be made with the new.

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As a conclusion, there is a lack of information from top management to its middle and lower managers, so they are reluctant and don’t know why they have to use the new system, and this lack of information leads to a lack of motivation of middle/lower managers to use the new system. We can even believe that there also are some personal limitations because Top management did not propose any training program to its manager to familiarize whereas they where accustomed to the old system that they knew well.

What could be done to solve those problems? Top management has to “change the mindset of managers”: But the only way they can succeed is making them accepting and adopting the new performance measurement system voluntarily and not to impose it as they did. In stead of impose the new performance measurement system to the managers, top management should have talked with them, to better understand what they like in the old system and what they would like in the new.

Moreover, they have to make the transition longer, explain to their managers why this is mandatory to change the system: for instance, they can create “training programs” to teach how to use the new system, to show the faults of the old system, and make sure that managers understand that changing the system is not to harm them but only because this is a need: the important point is that they really have to understand by themselves to avoid some futures problems (absenteeism, lack of discipline, differences between objectives).

A possibility to accelerate the process would be to afford kind of rewards to those who use the system in the first (congratulation, recognition…). And last point, top management also has to prove to their managers that the new system is totally working by showing better results, efficiency and productivity. By the way, they would have got better results and middle and lower managers should accept it easier. About this case:

This case allowed me to get a better understanding of my lesson: indeed, I had to use the concepts we see during the lectures. The case of the firm underlines the facts that we must not neglect the human factor in a firm, because it can leads to problems as I saw above. Doing a case every weeks will help me learning my courses regularly. Finally, in a broader context, my English is poor concerning professional vocabulary, so writing helps me to improve it.

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