t

os
9-117-017
MAY 18, 2017

ATH Technologies (E)

rP
New Management: 2016-2017
During the first quarter of 2016, growth came to a halt. Products had been loaded to customers
during the last quarter of 2015 to meet the earn-out goals. More ominously, sales in Europe were
declining after a competitor introduced a substitute product based on laser technology to obtain
images of the body. Some doctors considered this to be a superior technology. In eight years, ATH’s

yo
technology had become mature and new competitors had entered the market. The focus on growth,
cost cutting, and profitability had blind-sided managers to new emerging technologies.

Senior managers began to leave the division after cashing the earn-out. Dr. Casper left in March
2016 and John Frost a month later.

Janet Isabella, a Harvard MBA with significant financial and international experience at Scepter,
was brought in to replace the departing executives. She soon realized that the business could not
op
realistically expect to maintain sales at the prior year’s level. Accordingly, she asked each department
head to reduce costs to 90% of their 2015 level. All incremental spending was focused on new product
development in an attempt to regain technological leadership.

By mid-2016 it became clear to everyone at ATH Technologies that the 14% bonus based on
achieving income before taxes targets could not be met. The attention of employees was instead
tC

devoted to the customer measures (10% of bonus) and departmental objectives (6% of bonus).
Customer satisfaction measures were renamed to focus attention on improving rather than avoiding
mistakes (see Figure A).

Figure A Customer-Focused Quality Measures

Old Label New Label

No

Product Defects Product Quality

Customer Contact Errors Customer Service
Backorders On Time Shipments
New Product Delays New Releases

During 2016, the business met the product quality requirements to obtain the ISO 9001 quality
certification (2.5% bonus) and the customer service target (2.5% bonus), but completely missed the
Do

________________________________________________________________________________________________________________

Professors Robert Simons and Doctoral Candidate Antonio Dávila prepared the original version of this case, “ATH Technologies, Inc. (E),” HBS
No. 100-020 which is being replaced by this version prepared by Professor Robert Simons and Research Associate Jennifer Packard. Funding for
the development of this case was provided by Harvard Business School and not by the company. Certain details have been disguised. HBS cases
are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of
effective or ineffective management

Copyright © 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

This document is authorized for educator review use only by Noor Ullah Khan, HE OTHER until May 2024. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu
or 617.783.7860
 117-017 ATH Technologies (E)

t
os
targets for the other two Customer Focused Quality measures. Most departments met their
department goals, but product development teams missed most of the new product release goals and
they received the lowest bonus at ATH.

Two new products were scheduled to be introduced in January 2017. But in final tests, several
doctors reported serious problems with both products and they were withdrawn from the market,

rP
leaving the division with old products in a fast-changing market. Internal compliance investigations
revealed that corners had been cut by development staff to meet product release targets. Meanwhile,
the new technology was taking over the U.S. market. Table A shows the latest financial statements
available.

Table A Financial Performance, 2010 – 2017

yo
2010x 2011x 2012x 2013x 2014x 2015x 2016x 2017x
(in thousands, except headcount)
Net sales 5,377) 12,641) 23,349) 95,831) 140,080) 196,492 195,354 117,105)
Gross margin 338) (774) 3,288) 57,896) 88,600) 122,795 115,536 68,055)
Marketing and sales 2,965) 5,404) 12,666) 21,308) 33,188) 37,491 35,208 33,485)
R&D 4,284) 8,299) 13,342) 10,474) 19,052) 20,580 23,544 16,718)
Net income (loss) (8,829) (18,114) (30,525) 13,813) 32,162) 44,611 12,061 (2,406)
op
Cash and S.T. investments 2,341) (545) 546) (1,778) 5,156) 12,526 141,276 593)
Other current assets 2,280) 9,123) 11,291) 26,107) 39,829) 51,987 48,308 23,200)
Net fixed assets 2,523) 7,576) 13,030) 10,568) 16,351) 14,110 11,606 2,471)
Goodwill and trademarks n/a)) n/ax n/ax n/ax) n/ax) n/ax 186,321 171,748)
Total assets 7,755) 16,509) 25,236) 35,048) 61,576) 79,630 391,989 200,429)

Long-term debt - 24,046) 61,758) 52,744) 41,266) - 128,700 (10,819)

tC

Common stock 26,493) 26,493) 26,493) 26,493) 26,493) 30,752 228,141 242,041)
Retained earnings (22,456) (40,570) (71,096) (57,283) (25,213) 11,418 1,307 (29,299)

Headcount (year-end) 95 221 252 356 619 636 670 289

Questions:

1. Why did ATH Technologies experience problems with its new products? What role did
No

measurement and control systems play in these problems?

2. In hindsight, what should have been done differently?

Do

3. How would you measure and evaluate Scepter’s decision to purchase ATH Technologies in 2011?

This document is authorized for educator review use only by Noor Ullah Khan, HE OTHER until May 2024. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu
or 617.783.7860