Case | HBS Case Collection | October 2000 (Revised January 2001)

Vyaderm Pharmaceuticals

by Robert L. Simons and Indra Reinbergs

Abstract

In 1999, the new CEO of Vyaderm Pharmaceuticals introduces an Economic Value Added (EVA) program to focus the company on long-term shareholder value. 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 decision point focuses on the competitive situation in a business unit where the sudden exit of a competitor produces an unexpected one-time windfall in earnings. Vyaderm's top managers struggle with the question of whether to adjust the EVA results to prevent demoralizing managers in future years when EVA results are likely to decline.

Keywords: Compensation and Benefits; Employee Relationship Management; Economic Growth; Economic Systems; Management; Motivation and Incentives; Organizational Design; Organizational Structure; Performance Evaluation; Decision Choices and Conditions; Pharmaceutical Industry; Washington (state, US);

Citation:

Simons, Robert L., and Indra Reinbergs. "Vyaderm Pharmaceuticals." Harvard Business School Case 101-019, October 2000. (Revised January 2001.)