Loctite case free essay sample

The case of Loctite Company de Mexico presents an example of an inefficient incentive system that leads to lack of motivation, high employee turnover and internal competition. Given the need of keeping salesmen motivated Loctite used a MCS based on result control by establishing compensations based on performance. According to Merchant and Van der Stede (2012), result control influence actions because they make that employees will be concerned about the consequences of such actions. In this kind of control employees are empowered to take whatever actions they believe will best produce the desired results. However, in Loctite this incentive system was not effective and was yielding unwanted effects. To understand the fault in their system, a set of conditions for the result controls to work have to be examined, as proposed by Merchant and Van der Stede (2012): 1. Managers know what results are desired: In order for controls to be effective organizations must be aware of what their prefered results in an area are and these desires needs to be effectively communicated to the employees who are active in that area. We will write a custom essay sample on Loctite case or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page In case of the result chosen being wrong or the importance of an area is given inaccurate significance it motivates employees to undertake wrong actions (Merchant and Van der Stede, 2012). In the case of Loctite, results controls are focused on the improvement of sales (15%) and margins (20%). So, the targets are devoted to maximize shareholder value. 2. Employees have the ability to influence the desired results. If the results area are totally uncontrollable by the employees, the measures reveal nothing about what actions or decisions were taken. In our case, the sales people complain about the lack of tools to achieve their aims. Indeed, the price and the place are fixed by the top management and salespeople are not allowed to derogate to these two important aspects of the marketing mix. It could be argued that this is what Merchant and Van der Stede (2012) call action control by behavior constraint. In this way, their principal selling strength is the relationship with engineering, production, maintenance manager to provide them the most adequate product at their needs. However, these kind of products are easily duplicated by competitors. So, salespeople’s inventiveness permits only to generate the first sales but not to compete in the long term against cheap competitors. This situation does not provide any motivation, because salespeople feel powerless to achieve their results. 3. The organization can measure the results effectively. Results measures should be precise, objective, timely and understandable. In our case, we can see that measures are made once every two months. That allows to keep a pressure over employees and also to obtain a rapid feedback over â€Å"a less mature market†. The understandability is divided into two aspects, employees must understand both what they are being held accountable for (improve the sales) and what they must do to influence the measure (list of standards of performance targets). However, like we have seen above, this list may not permit to achieve results due to lack of controllability. All in all, it could be argued that in Loctite’s case the result control was not effective due to the lack of controllability which led to lack of motivation since it was negatively affected by behavioral constraints. The performance-dependent compensation systems of Loctite has it advantages, however it fails to provide incentive in certain areas as the personnel does not believe in the system. According to Merchant and Van der Stede (2012) in order for ideal motivation performance-dependent rewards have to satisfy certain criteria, rewards should be: valued, large enough to have impact, understandable, timely, durable, reversible cost efficient. For instances Loctites profit sharing compensation provided the employees with no motivation as they â€Å"They take [the payments] for granted† (p. 57). Moreover the sales targets where in many cases unrealistic due to the market situation in Mexico along with many competitors. Not meeting their required targets made the sales personnel loose motivation and made for a high staff turnover. In this case, a solution is recommended to improve the MCS at Loctite. A personnel control should be introduced in salesmen level. Merchant and Van der Stede (2012) believe that employees have natural tendencies to do what is right. Lack of motivation and personal limitations can be solved by the improvement in self-control, ethics and morality, loyalty through reselection and replacement, training, job design and provision of resources. Another initiative could be giving them a good work environment and the necessary resources.