Catalytic Solutions, Inc (CSI) is a young Californian company that produces catalytic converters, which are used to reduce the toxicity of emissions from a combustion engine, as a motor. CSI possesses a technology that allows producing better and cheaper catalytic converters than competing products. This asset rests on the fact that CSI's converters are using between 50 and 80% less Platinum Group Metals than competitor's converters, which allows a lot of savings (between 40 and 200$, depending on the size of the car). This is a big advantage for CSI, particularly since the prices of these rare metals are increasing (exhibit 3).
Concerning management control system, CSI is still in a preprofit stage of operation, that is why its performance measurement and incentive systems are based on non financial data. For the moment, these systems are working well and according to Michael Redard, Vice President of Finance and Administration, CSI is "a very exciting place" and the 125 employees are working "24 hours a day, seven days a week". But the strategy of the company will certainly evolve in the future, jointly with its development.
Company history
Bill Anderson and Steve Golden founded CSI in 1996. For three years, they developed innovative catalytic converters for automotive sector, whose we described the advantages before. So, in 1999, they registered first patents to prevent the copy of their products and began the production to supply the auto industry after-market. CSI's immediate goal was to supply the automotive sector, which supposed to find Original Equipment (OE) commitments. In the same year, Honda started evaluating CSI's technology.
In 2000, Honda became the first OE adopter. Sales occurred in December 2010 to supply the production of the Honda Stepwagon model. Everyone at Honda appreciated CSI's products a lot: they were indeed impressed by their performance and realized that CSI's technology had a great potential. So they awarded the company with the Gratitude Award for Excellency in Research and Development in 2002.
[...] Catalytic Solutions, Inc We have decided to deal with this case study in three parts. The first one will give an overview of the company, the second will describe the compensation problem, which is the heart of the discussions, and after these two parts of description, we will identify and try to solve the major problems that the company is facing in the third and last part. I Overview of the company This part aims to give the reader a global view of the company actual situation, through its global description, its history, and the analysis of the targeted markets. [...]
[...] CSI must integrate it's critical success factors in it's balanced scorecard. The first one is to be profitable. We can make the hypothesis that, by the end of 2002, the company will already have made enough clients. Therefore the next customer objective will be to keep them and make them loyal. The process goal is still to offer the best possible service and product quality at their lowest cost possible (thanks to their patents). Finally, in terms of learning and development, their main goal should be to keep their competitive advantage through new patents and innovation. [...]
[...] This is the first moment at which the employee has met all requirements, so at this moment options become part of his portfolio. These options can be exercised during 10 years after granting, then, after this period, they become unusable. If an employee is fired or decides to leave the company, he has the right to exercise his ESO during 30 days. Executive stock options are aimed at inducing managers to act in the best interest of shareholders by maximizing the value of the company. [...]
[...] Furthermore, this system can create motivation issues for managers. For these reasons, as the company plans on growing and becoming public, we think that it should increase the salary of managers. III.3 - Remuneration through stock options The main advantage of giving employees stock options is that it makes them think in a long term perspective. Indeed, the stock options are given over a period of 4 years which avoids myopia (concentrating on short-term profit). However, this requires that the stock value reflects is based on long term decisions. [...]
[...] Therefore, ICS should be careful not to go bellow this limit. III.6 - Are the bonus objectives well defined, are the respective weights good? In this section, we will discuss the objectives set in 2001. The main goal for this year was to to get the QS-9000 certification and to find new future clients. The OE program commitments measure is based on how much client commitment the company has made during the year. This is good for the long term profit and the growth of the company. [...]
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