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Visionary Design Systems Are Incentives Enough Case Solution
Visionary Design System is a hardware and software system integrating a company based in Silicon Valley. The founding father of the company had established VDS on the philosophy of empowerment and ownership. For empowerment, decision making authority is provided while for ownership; the company distributes its shares among its employees. The compensation system is based on commissions and bonuses that are distributed monthly, quarterly and annually. All team members work as a family. Currently, the Product Data Management (PDM) tool of the company is facing serious challenges and management must take some immediate action in order to revive sales and profits. Lack of infrastructure and technical knowledge of PDM are the key issues that are discussed in the case.
Following questions are answered in this case study solution
What is the basic philosophy and values of VDS?
How would you characterize the VDS compensation (base, bonus, and stock) system? On what principles is it based?
Why has VDS had problems with its Product Data Management effort? To what extent do you see incentive issues as important? What other issues are important?
What should VDS do about the Product Data Management (PDM) problems?
Would you make any changes to VDS' compensation systems? What? Why?
Case Analysis for Visionary Design Systems Are Incentives Enough
1. What is the basic philosophy and values of VDS?
Visionary Design System, a provider of integrator and Computer-Aided Design (CAD) software and hardware seller is based upon numerous philosophies and values. The founding fathers of the company consider the workforce to be the primary asset that a company can have; therefore, they have designed their philosophies in such a way that best support and empower their employees. Decision-making authority rests solely with the employees who are involved in the decision. Even minor decision like spending on department budget is up to the employees of the respective department. The founding fathers believe that through this, they can not only create a sense of empowerment among the people but can also add to their knowledge. Furthermore, every employee of the company is considered as a partner. There are no defined pay scales. Everyone gets what they work for. Also, the management has designed a compensation system in such a way that bonuses and commissions also comprise of the company’s shares other than regular cash commissions. Through this, the management wishes to produce a sense of ownership among the employees. Lastly, the management encourages an atmosphere of friendliness and cooperation among its employees. Rather than the defined hierarchy that exists in many companies, the management and employees respect each other and work together as a team to achieve the company goals.
2. How would you characterize the VDS compensation (base, bonus, and stock) system? On what principles is it based?
The compensation system of the Visionary Designing System is very different from other companies in the market. Their compensation system is based on the principle that everyone should earn what they work for i.e. pay should be in line with the business generated by the employee. Their pay scales are not based on seniority or position rather they are based on the output of an employee. Pay package comprises base salary, commission and bonus. The base salary is almost the same for all employees within a unit. However, significant differences are created by commissions and bonuses. Furthermore, these bonuses and commissions are given to employees on month, quarter and annual basis. These commissions and bonuses are given irrespective of the department and constitute 50-30 percent of employee income. Through this compensation procedure, the company plans to attract all those entrepreneurial people who are actually interested in generating business. Other than cash bonuses, management also gives away bonuses in the form of shares. Through this stock option, management wishes to generate a sense of ownership and empowerment among the employees. Lastly, even though the company arranges for performance reviews, pay scales are totally independent of that. These reviews are done to help the employee better understand the weaknesses rather than base pay ones. No rewards or incentives are given on the basis of these reviews.
3. Why has VDS had problems with its Product Data Management effort? To what extent do you see incentive issues as important? What other issues are important?
PDM during its early stages of development was considered to be an efficient tool that will help engineering firms to consolidate the entire designing process. The forecasted number and market experts’ opinion was enough to attract the attention of many companies like HP and IBM. VDM too realized the importance and entered the field. The management later was disappointed by PDM as sales and profits were not up to their expectations. Even though certain changes were made in the company to support this product, no particular sales difference was observed. The employee empowerment philosophy of the company did not turn out to be suitable. The founding fathers wanted PDM department executive to take the important decisions and generate revenues while executives wanted management to understand that generating revenues would take time, and that the company should proceed step by step towards the final goal. Also, the incentive compensation system failed for this product as the product was highly complicated and salesmen knew nothing about it.
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