Question

“We’re in trouble” Your boss tells you one day. “End of the quarter is coming and there is no way we’re going to make our sales budget,” he adds. “You know what that means?” he asks. Then he answers his own question saying, “no bonus for you, for me or for our department’s head; he’s going to be very upset!” Your boss then proceeds to tell you his plan for saving everyone’s bonus and meeting the quarter’s budget. He will send an email to some major customers informing them of a 10% price increase effective on the start of next quarter. The customers will then place next quarter’s orders by the end of this quarter to beat the price increase and you’ll be able to meet your sales budget. After the end of the quarter, your boss plans to send a memo rescinding the announced “price increase.”

Please comment on the following:

1. What shortcomings of the budgeting process do you see in this story and how would you address them?

2. In your opinion does the plan go against any rules or regulations? Is the plan ethical?

3. What short and long term impact will your boss’ plan have for the company’s employees, its shareholders and its customers?

4. What would you advise your boss regarding his plan and why?

5. What alternate course of action would you suggest?

Answer 1

1. Shortcoming is probably the target for sales budget has been very high which wasn't achievable. Budgets have to be set in a manner that they are difficult but achievable at the same time.

2. Yes the plan goes out against the rules of sending out company's private information to third parties for private gain. Also, because the boss plans to rescind this information. It means he is also cheating his customers which is an unethical practice.

3. In short term employees will gain bonus as they are likely to achieve the budget due to customers making early purchase.

Customers will feel cheated once the boss rescind the price increase memo and might stop further purchases. Shareholders might gain this quarter due to higher sales but would loose this wealth in next as customers have made early purchase and might not do the same next month.

In long term employees again won't be able to complete targets as the targets are set high and customers might not purchase in the same quantity as they got cheated in the first place. The boss action might be detrimental to the company image and shareholders would loose their wealth.

4. The advice to boss will be regarding the short term and long term impact of this plan. The plan wll get more negative results to the company than the short term benefits. In short term this might give good results but in long term customer will feel cheated and may not be involved in repeat purchases. This plan is a one time thing and cannot be repeated ever again as customer next time will be aware of these tactics.

5. Alternative course of action is boss should check the sales budgets with the past performance and achievements. The budget should be set not too high or low. It should motivate the sales team rather than demotivate them. There should be different bonuses and returns to the sales team at different levels of sales rather than keeping it at a unique level. The bonus plan should be progressive and not a particular level. With the increase in sales achievement, there should be a next level of bonus that motivates the sales team.