Vyaderm Pharmaceuticals: The EVA Decision

Case Solution

Robert L. Simons, Indra A. Reinbergs
Harvard Business School ()

In 2016, the new CEO of Vyaderm Pharmaceuticals launched an Economic Value Added (EVA) program to align the company with long-term shareholder value. The EVA program consists of three elements: EVA centers (business units), EVA drivers (operating practices that improve EVA results), and an EVA-based incentive program for eligible managers. Over the next two years, program implementation will encounter several obstacles, including resistance from regional managers pushing 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, in which the sudden exit of a competitor leads to an unexpected and one-time drop in profits. Senior Vyaderm managers are grappling with the question of whether to adjust EVA results to avoid demoralizing managers in future years when EVA results are likely to decline.

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