Formosa Plastics Group Management - Case Study Example

1. Formosa Plastics Group Management was facing some serious issues during the 1990’s which was impacting their performance and needs to be addressed. Some of the pertinent issues which Formosa Plastics Group Management was facing are Formosa Plastics Group Management had to deal with issues associated with pricing of the product as players from Korea were providing polyethylene at a much lower rate. This made price an issue and Formosa Plastics Group Management had to fight price war with other competitors Formosa Plastics Group Management had to deal with issues associated with supply of ethylene as it forms a major raw material. Since the supply of ethylene was restricted to one supplier it had increased the bargaining power of the supplier and also made difficult for the business to ensure a continuous supply of materials which was impacting their production Lack of proper policies from the government with regard to setting up a new plant which would produce ethylene was another hurdle in their path. Formosa Plastics Group Management had applied for a permission but was rejected which thereby increased the reliance on the only supplier of materials. This thereby raised the cost of raw materials as it constituted more than 60% of the cost and relying on one player impacted their production capacity thereby creating a continuous shortage in the supply of finished products Continuous fluctuation in the price of ethylene was another issue which Formosa Plastics Group Management had to deal with. This increased the problems associated with financial planning as proper forecast regarding the cost, sales, revenues and profits was difficult to estimate. This made the planning process to be very difficult and multiplied the overall risk for the business. The mechanism of providing bonus and incentive in Formosa Plastics Group was such that it looked to weigh the controllable factors and didn’t weigh the uncontrollable factors. As a result the employees tried to make changes in the environment so that they could be compensated fairly and didn’t look towards having policies which would help to improve the bottom line. The focus was towards controllable factors which thereby intensified the risk associated with uncontrollable factors and made it difficult for the business to be carried out on smooth grounds 2. The different major elements which were present Formosa Plastics Group management accounting and control system were as Standard costing system which was used for different aspect of manufacturing like labour, raw materials, steam, packaging and waste was one of the important controls which were used. It forms part of both action and result control as through the process of standard costing the correct price evaluation and estimation of the product is made (Macintosh and Quattrone, 2010) The indirect cost were allocated on the basis of allocation base where based on different usage the cost were assigned. This acted as an action control and helped to understand the different areas where the different cost of the business was accrued (Macintosh and Quattrone, 2010) Another important element was continuous monitoring and making changes in the different bases based on ground realities. This process acted as a personnel control as it helped to analyze whether the person was able to work within the allocated budget and if changes were noticed then steps were taken to make ramifications. This helped to also monitor the manner in which the different controllable factors were used by different employees and helped in evaluating their incentives and perks based on it. Meetings with senior executives every month which discussed the different issues which the organization was facing and coming up with solutions to deal with it were another control which was fully exercised. This control helped to achieved culture control as it provided the required directives and areas which need to be worked on. As a result of the control the business proceedings were better coordinated and helped to achieve the required results. The control also brought about the required change in behaviour and helped to develop the process through which better results were achieved One of the important element was the performance related bonus which was given to different employees and executives based on their contribution. This control looked towards examining the manner in which the controllable factors were used by the employees and executives towards the gain of the organization and the manner in which effectiveness in the use of resources was ensured. This control helped to achieve both the personnel and culture control as it helped to bring about a change in the behaviour of individuals and developed a process where employees looked to use the different controllable factors in the most efficient manner. This helped to develop an entire culture within the organization which was easily controlled as the performance resulted in perks, incentives and bonus which employees were looking at The manner of having different perks and bonus was further based on the work status, position in the organization and other relevant factors. This helped the organization to exercise personnel control as it developed a path where the employees were compensated based on their contribution to the organization and the manner in which they were able to bring about a change in the behaviour of employees. This helped the employees to work within the controllable factors and use those in a manner which will provide them maximum advantage and will develop their business in a proper way 3. Result control is an important part of the control process but it is difficult for organizations to determine the manner in which it will be implemented. Formosa Plastics Group by allowing subjectivity in performance evaluation will find it difficult to achieve result control because subjectivity brings in people opinion and beliefs (Uddin and Hopper, 2011). This varies from one person to another so having subjectivity will give rise of doubts and suspicion. Further, Formosa Plastics Group uses a process of evaluation where only controllable factors are evaluated for performance evaluation. Using subjectivity along with those and not including the uncontrollable factors will create gaps as incentives and bonuses will be decided on the whims and fantasies of people involved in it (Emmanuel, Otley and Merchant, 1990). The process will look towards having personal views and opinions which would thereby make certain employee happy and certain employee dissatisfied. The process of having subjectivity will thereby create rift between employees and will not help to achieve the objective of the control process. Subjectivity is further a matter of interest which varies from one person to another as people think differently. Having subjectivity provides an option where manipulation can take place. This would have an impact on the culture of the organization and would make the culture control function to be ineffective. The working style will get altered and people would look to please people with the objective of getting the required perks which will ultimately have an impact on the long term performance. Thus, subjectivity raises different issues which Formosa Plastics Group needs to address and using it in the control process will render the entire process to be ineffective and will have an impact on the overall performance of the organization. 4. There are some of the controls which are affected by national or cultural factors and are as Performance evaluation is one of the factors which is influenced by cultural factors as the performance looks to be evaluated based on controllable factors. This brings in subjectivity which would thereby make people decide incentive based on what they feel proper and appropriate (Macintosh and Quattrone, 2010). This will have an impact on the manner in which performance evaluation takes place and will result in compensating employees without looking at their contribution towards the long term goals The process of having different incentives and perks based on job level and position within the organization also shows the presence of cultural factors as people are distinguished based on job level and not performance. This will thereby culminate to a situation where the employees who are at the higher level will be compensated more compared to the lower level employees and will create differences between the working cultures of the organization (Macintosh and Quattrone, 2010). This would also lead towards creating gap among employees and will have an impact on the culture of the organization as employees will find it difficult to mix with one another. The presence of different control thereby leads towards different issues which need to be addressed and a process which will look to promote the organizational culture and develop better relations should be fostered. This will help to use the different controls in the most appropriate manner and will determine the path through which better results can achieved within the organizational culture. References Emmanuel, C., Otley, D. and Merchant, K. (1990), “Accounting for organisational control”, Accounting for Management Control,Chapter 1, pp. 3-37, Chapman & Hall. Macintosh, N. and Quattrone, P. (2010), “Issues: why management accounting and control systems (MACS)?” Management Accounting and Control Systems – An Organisational and SociologicalApproach, Chapter, 1, pp. 3-8, Wiley. Uddin, S. and Hopper, T. (2011), “A Bangladesh soap opera: privatisation, accounting, and regimes of control in a less developed country”, Accounting, Organizations and Society, Vol. 26, pp. 643-672. Read More