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Formosa Plastics Groups

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Case 25-3 Formosa Plastics Group

For many years, managers at Formosa Plastics Group (FPG) used a management control system with an element that was somewhat unique for a large corporation – all employees were evaluated subjectively. In making their judgments, evaluators looked at objective performance measures but subjectively made many adjustments for factors they deemed to be beyond the employee’s control. One effect of this system was that bottom-line profit was not even considered in the evaluations of some profit center managers: These managers were evaluated only in terms of the controllable factors driving profit, such as meeting production schedules, efficiency, cost control, and quality.

The FPG system seemed to work; the …show more content…

The major corporations were comprised of multiple divisions (see Exhibit 2), each responsible for one product line. The divisions, which were organized functionally, were reasonably autonomous; their managers were able to make their own plans and arrange all production and marketing aspects of their business within the scope of their approved authorizations. The division managers, who ranged in age from 40-60 years, were invariably career FPG employees (as were most other employees).

Many administrative functions, including engineering and construction management, technology (research and development), accounting, finance, procurement, data processing, legal, public relations, and personnel were centralized to take advantage of economies of scale. A unique feature of the corporate organization was a large (340-person) “president’s office” comprised of 15 “teams” of specialists whose function was to help division management. The president’s office form of organization began when the corporation was small. The central staff personnel set up procedures, trained management, monitored performance, and facilitated the spreading of effective practices from one division to others. At times, some of the central staff/division dealings had been confrontational; some division managers had referred to the staffs as “the Red Guard.” But more recently, with increased management professionalization, the staff teams placed greater emphasis on

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