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Missouri State UniversityA Project Report On: | Vyaderm Pharmaceuticals | ForACC 715Instructor: Carl E. Keller Jr., Ph.D., CPABy | | Dong, Yifei,Nan, Tiewen,Zhou, Bojun | |

Case Summary
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.

Study Questions

1. Why does Maurice Vedrine want to implement an EVA system? What benefits or disadvantages do you see possibly occurring from the EVA system?

Answer: Tom Finn, Vedrine’s predecessor, used to run the company by a mainly focus on earnings per share. But the company’s profitability had begun to slip in many of the business divisions, and the company was under considerable pressure to perform. So Vedrine began to implement economic value added measurement, because he believed that EVA was a “ruthlessly objective” comprehensive performance measure that would let people focus on the long run of the company, not just the earnings per share. Vedrine thought that EVA could

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