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Blind Ambition

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Submitted By bluesky12388
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Blind Ambition

(1) What happened at Bausch & Lomb -- Provide a few specific examples in your response.

Bausch & Lomb is one of the largest suppliers of eye health products. The company was thrived rapidly under the operation of chairman and chief executive Daniel E. Gill until early 1990s. Specifically, in 1978, B&L’s revenues were just $442 million , but over a decade its sales reached $1.5 billion. However, in early 1990s, B&L’s growth started to slow in the U.S and Europe. B&L was surpassed by rival Johnson & Johnson. Also, to boost the sales, several managers tried to extend the longer credit terms which, in return, increased receivables by 25% in 1993 to hit $ 506 million. B&L’s shares which reached 58 in 1991 dropped to about 30 in 1994.

However, the biggest problem came from B&L’s Asia-Pacific division in Hong Kong where Y.H. Chan was the president. He raised sales by selling sunglasses in gray markets where the price was 10% o 30% cheaper than prices in the U.S and Europe. When the receivables hit the roof, B&L auditors started to probe and they found out that a half-million sunglasses stored in a rented warehouse. Those glasses were returned by customers and also a result of fake sales.

(2) Why did such things happen?

There are several causes leading to these problems but one of the most obvious cause is “Gill’s own bonus plan : 30% depended on sales growth, 30% on earnings growth, and 30% on return on equity, another earnings-related measure. Improvement in customer satisfaction rated just 10%”. This plan stimulated the greed of managers to boost the sales in any ways to anyone. They allowed longer credit terms, they distributed a huge amount of stocks to distributors and assured that the distributors wouldn’t have to pay until they can sold the lenses, they also threatened to cut off distributors if they don’t take the goods, they shipped goods before customers ordered. Managers’ purpose was just to raise the sales in the income statements even if it violated the company policy. Also, as Chan used a fake ba dan sales, he sold the merchandise to distributors to obtain high sales record and then, those merchandise was subsequently returned.

(3) What could be done to limit these problems and still maintain some form of a pay-for-performance approach to compensation (be creative if nothing comes to you immediately)?

To limit these problems, the company’s policy should be changed. Instead of pursuing the Red Ball after every month or quarter, the top executives should extend to a longer term. Sales and profits are vital but not the only target for managers. They should concentrate more on the quality of products, the loyalty of customers and be more innovative to compete with the counters. Also, the company should have a good track on its products the avoid some problems like fake sales

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