EVA at Vyaderm

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Vyaderm Pharmaceuticals, founded in 1945, was headquartered in Seattle, Washington. By 1996 Vyaderm was a $2.7 billion company, with 17,500 employees organized in 15 subsidiaries worldwide. In 1997, Vyaderm’s CEO, Thomas E. Finn, CEO for 18 years and was widely credited for having built Vyaderm to its current market position, retired. Maurice Védrine, his successor worried that the 15 subsidiaries were not working in synergy and profitability had begun to slip in many of the business divisions. Previously, there was a singular focus on earnings per share. Védrine believed that EVA was a comprehensive performance measure that would remove focus from earnings per share to thinking more long term, and introduces it to the company in 1999. CFO Sanders and Controller Myers also see it as a solution to conflicting management priorities caused by competing financial measures such as cash flow (for valuing acquisitions) and return on sales (for paying bonuses). The EVA program consists of three elements: EVA centers (business units), EVA drivers (operational practices that improve EVA results), and an EVA-based incentive program for bonus-eligible managers. Over the next two years, the implementation of the program runs into several stumbling blocks, including resistance from regional managers, who push for "line of sight" EVA drivers; the difficulty of managing a large number of EVA centers; and unexpected bonus adjustments due to poor EVA performance. The case talks about the situation in the Diagnostic business, where due to an unexpected bad year, under the new EVA program, would lead to managers receiving no new bonuses for the next two to three years. This threatened to demotivate the managers if implemented, and Védrine didn’t want to change the program. As a result, the company is reorganized on the basis of sectors, and the number of EVA centers is reduced

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