Case 5

Essay by jslamCollege, UndergraduateB+, March 2014

download word file, 1 pages 0.0


Axeon N.V. should manufacture AR-42 in the Netherlands instead of building the plant in UK. After adjusting Mr. Wallingford's initial computations, the group arrived at a $111,000 NPV for the construction of the UK plant. Pushing through with the proposal would only lead to economic losses for the company. As seen in the analysis, producing in the Netherlands was the clear alternative due to its NPV of over a million dollars. The big difference is a result of the large investment required to build a new plant. Producing in an existing plant only required a minimal investment of extra working capital.

In order to prevent unnecessary rivalries and demotivation arising from this type of situation, top level management should change their current rewards system. At present, the company grants a premium to those who achieve superior divisional performance. This encouraged segments from different regions to cannibalize each other's markets and sacrifice long term goals for short term achievements.

The group thus proposes an evaluation system that includes non-financial criteria in measuring the segment performance. Mixed evaluation bases should improve segment motivation and performance because it captures non-financial inefficiencies that are hidden in a solely financial set of targets. The balance score card is good evaluation technique because it takes into account the financial, customer-related, internal, and learning aspects of each segment. It should serve to unite segments from across the globe in fulfilling the company's overall targets, improving its performance, and maximizing shareholder wealth.