Consulting Report

COMPARATIVE LAUNCH REPORT:

WHETHER TO LAUNCH JV0275 SERIES LAND-SURVEYING DRONE

INTERNATIONALLY OR DOMESTICALLY?

Prepared for:

CEO – Greeneleafe, Inc.

Prepared by:

May 6, 2017

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TABLE of CONTENTS

Table of contents …………………………………………………………………….……..…… 1

List of tables ………………………………………………………………………….……….… 2

Executive summary ………………………………………………………………….…………. 3

Introduction …………………………………………………………………………….………. 4

Decision Tree model discussion …………………………………………....………………….. 5

Decision Tree model analysis ………………………………………………………………….. 6

Strategic presentations discussion …………………………………………………....………… 8

Strategic presentations analysis ………………………………………………………...……… 9

Recommendation ………………………………………………………………..……………. 12

References …………………………………………………………………………………….. 14

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LIST of TABLES

TABLE 1 – Decision Tree Model ………………………………………………………...….… 6

TABLE 2 – Risk Profile ……………………………………………………………………....... 9

TABLE 3 – Payoff ………………………………………………………………………...….. 10

TABLE 4 – Opportunity loss ………………………………………………………....………. 10

TABLE 5 – Strategic decisions ……………………………………………………………… . 11

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EXECUTIVE SUMMARY – This report is the product of a request by Greeneleafe, Inc. The

company’s senior management seeks a consultive evaluation related to the release of the new

JV0275 land surveying drone equipment. In particular, their concern lies with whether to

initially release the product domestically or internationally. This report will provide details

regarding the various events and decisions associated with this decision.

An introductory assessment of Greeneleafe’s current industry position finds them well

placed both domestically and internationally. Additionally, they enjoy sufficient means to

engage either release possibility.

A decision tree model was researched, developed and constructed. The findings of this

model are discussed at greater length in the report. The model favors a domestic release.

Additional tools using data harvested from the decision tree were also employed. They

include risk, payoff, opportunity loss and strategic decision profiles. Once again, discussion is

offered regarding each in the report. In the end, these supplemental measures offered a split

decision regarding whether the JV0275 should be released domestically or internationally.

The report concludes with a recommendation discussion. The report argues for

Greeneleafe’s domestic release of the JV0275 using cooperative distribution channels.

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INTRODUCTION – Greeneleafe, Inc. is a leading manufacturer of surveying equipment. They

have long maintained a strong market share position in their industry. In the company’s effort to

work to maintain this position a next generation, GPS enhanced, remotely controlled drone was

developed for use in surveying land.

Greeneleafe has land surveying products currently in distribution that use GPS and

remote flight technologies. The JV0275 introduces new software capacities previously lacking

in this industry category. It will also include enhancements to current technologies in the

conduct of its abilities.

The release of this product is not in question. Greeneleafe’s senior leadership has already

done its due diligence regarding the viability of the product and its associated technology. The

question on hand involves whether to launch the new JV0275 drone series internationally or

domestically.

The work presented in this document is the result of Greeneleafe’s retention of this

report’s author in an effort to facilitate their consideration regarding initial international or

domestic distribution. While Greeneleafe has a strong presence in both the international and

domestic markets, and existing distribution infrastructure in both realms, they are uncertain as to

the most viable initial approach regarding this new product’s release. The design of this report is

to offer senior management the quantitative documentation and associated analysis born from the

systematic evaluation of the various considerations associated with the review. This was done

by way of decision tree modeling and the resulting strategic decision-making tools that are a

product of such modeling.

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DECISION TREE MODEL DISCUSSION – The work undertaken to define the decision-

making process regarding the most favorable distribution routes resulted in the construction of a

Decision Tree model. Decision trees have proven to be helpful tools that ably assist to define

and contribute toward understanding and resolving “decision problems involving uncertainty”

(Evans, 2013, p. 357). It should be noted that this model was built with a view towards

maximizing net expected value.

Building the Decision Tree for this report required the author to identify the various

decisions and events most likely to influence outcomes associated with this decision. This was

accomplished by obtaining input from various members of the Greeneleafe leadership and

logistics teams. Additional input was also obtained from existing international and domestic

distribution partners used by Greeneleafe currently for current products. Finally, marketing

concerns also used by Greeneleafe both internationally and domestically were queried regarding

input employed in the Decision Tree.

The net result of the preliminary work referenced above identified several events,

representing in the tree as circles, and one principal decision, depicted as a square, that would

potentially impact the profitability levels associated with the likely outcomes. The decision

referenced and included in the model, relate to whether distribution would be accomplished

directly by Greeneleafe or through cooperative relationships that currently exist between

Greeneleafe and various distribution companies. The company has used both methodologies for

the distribution of various products in the past and this possibility was built into both branches of

the tree used in this report.

The events outlined in the model relate to whether international or domestic distribution

is chosen and whether 25% market penetration is achieved in association with the respective

distribution paths referenced above. Finally, the tree does include consideration for the

possibility that this product is not distributed either internationally and domestically.

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TABLE 1 – Decision Tree Model

DECISION TREE MODEL ANALYSIS – Proper analysis of the Decision Tree model (TABLE

1) developed for Greeneleafe for this project, and shown, above requires discussion of the

different elements listed. There are two main branches associated with this tree. They involve

decision tracks related to international or domestic distribution possibilities associated with the

JV0275 drone model that is the focus of this work. The bottom set of branches relate to

domestic distribution; the top branches involve international distribution thinking.

Terminal

Values

Terminal

probabilities

0.19

> 25% market penetration

$79.371 0.106

($8.185) $79.371

Dedicated distribution

($47.061) $80.567 0.81

< 25% market penetration

$80.847 0.454

0.56 ($6.709) 80.847

International launch

$142.870 $97.980 0.34

> 25% market penetration

$97.111 0.190

($4.678) $97.111

Inter. launch cost (est.) Co-oper. distribution

($8.253) $51.238 ($32.828) $97.980 0.66

< 25% market penetration

$98.428 0.370

0.44 ($3.361) $98.428

No product launch

($8.253) 0.440

$0.000 ($8.253)

0.32

> 25% market penetration

$83.838 0.275

($6.999) $83.838

$78.576 Dedicated distribution

($17.992) $85.242 0.68

< 25% market penetration

$85.903 0.585

0.86 ($4.934) $85.903

Domestic launch

$113.619 $92.147 0.39

> 25% market penetration

$92.082 0.335

($2.698) $92.082

Co-oper. distribution

Dom. launch cost (est.)

($14.049) $92.147 0.61

($4.790) $78.576 < 25% market penetration

$92.189 0.525

($2.591) $92.189

0.14

No product launch

($4.790) 0.140

$0.000 ($4.790)

( 1 in millions USD)

DECISION TREE MODEL 1

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Based on input from various contributors, probabilities were developed for the various

events with the purpose of defining the likelihood of each event. A review of the table above

shows that the possibility of launching internationally is 56% versus a 44% possibility of not

launching the product outside the U.S. Conversely, the prospects of launching the product

domestically are thought to be about 86% versus a 14% chance of not launching domestically.

The reader can assess further the various probabilities associated with the market

penetrations outcomes listed. For the purpose of this study market penetration greater than, and

less than 25% were established as the outcome benchmarks. Each is shown for both dedicated

and cooperative distribution efforts associated with international and domestic product release

respectively.

Right most in the table are listed the terminal values that reflect the net cash flow

amounts. These result from following the course created by the various amount listed along the

course the particular branches. The greatest terminal net cash flow possibilities are represented

by the product being released international and distributed through cooperative distribution

means. In these instances, potential net cash flows would be expected to exceed $97M USD.

The situation offering the smallest potential net cash flow also relates to an international release,

in this case involving dedicated distribution where market penetration of more than 25% is

likely.

In addition, the right most column of the table highlights the terminal probabilities

associated with the various events. Interestingly, the event with the least net cash flow is also the

event with the least likely probability, calculated at only 0.106 – international release using

dedicated distribution anticipating market penetration beyond 25%. On the flip side, the most

encouraging probability, at 0.585, lies with course defined by domestic release using dedicated

distribution and market penetration below 25%.

Finally, if one traces the Decision Tree back, right to left, which is how decision trees are

read (Evans, 2013), the model suggests that domestic release is the best course. The expected

value represented at the tree’s base of $78.576M USD is the result of course defined by

cooperative distribution of the JV075 released domestically.

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STRATEGIC PRESENTATIONS DISCUSSION – A number of strategic perspectives will now

be raised. The Decision Tree itself is a helpful tool however this “approach does not explicitly

consider risk” (Evans, 2013, p. 358). As a result, several additional assessments will be offered

to enhance the evaluation of various events and outcomes.

In particular, this report will offer several other methodologies using the data from the

Decision Tree to help broaden decision makers’ understanding of the Decision Tree’s findings.

Doing so is intended to better equip management understanding of the implications associated

with the different outcomes and probabilities.

First among these is a Risk Profile Table (TABLE 2). This instrument outlines the

different terminal outcomes and the net revenue amounts that result from each course taken to

arrive at the said outcomes. Additionally, this table offers the associated net risk probability for

each outcome. Instinctively, the larger this probability the greater the likelihood the associated

outcome might be realized.

The next table offered is entitled Payoff Table (TABLE 3). This table lists the terminal

values shown in the Decision Tree for all outcomes associated with the decision to release the

new product either internationally or domestically. Included among those possible outcomes, as

it should be, is the possibility that the product would not be released.

The Opportunity Loss Table (TABLE 4) follows. Structured identical to the Payoff table,

the Opportunity Loss table reflects what might best be understood as buyer’s remorse. In

numerical terms this table shows the difference in net revenue possibilities for international

release versus domestic release between identical outcomes. For example, this table suggests

that the net revenue difference between international and domestic release given dedicated

distribution and market penetration less than 25% is $5.056M USD. This amount, if

international release is chosen, amounts to the opportunity lost to domestic release, given this

outcome, in terms of net revenue potential.

Finally, TABLE 5 (Strategy Tables) presents a number of strategic considerations from

multiple vantage points. Included in this table are evaluations of aggressive, conservative,

average payoff, and opportunity loss decision strategies. An aggressive strategy seeks the most

optimistic revenue outcome. The conservative strategy takes the opposite tack evaluating the

smallest likely payoff for all outcomes considered. The average payoff strategy, like its name

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suggests averages the payoff outcomes for both decisions. Lastly, the opportunity loss strategy

determines which “decision . . . minimizes the maximum opportunity loss” (Evans, 2013, p.

359).

STRATEGIC PRESENTATION ANAYLSIS – Following is a brief, specific discussion

regarding the afore mentioned strategic decision tables.

TABLE 2 – Risk Profile Table

The Risk Profile Table (TABLE 2) catalogs the terminal risk probabilities associated with

the various outcomes listed in the Decision Tree model. The outcome with the greatest

likelihood, given the greatest probability (stated as being 0.585), involves the domestic release of

the product, using dedicated distribution channels, achieving less than 25% market penetration.

Indeed, this seems a reasonable conclusion as this effort affords Greeneleafe the least challenges

to release along with the lowest market penetration expectations.

The converse of the above is related to international release through dedicated

distribution resources expecting greater than 25% market share. Again, here too this conclusion

(stated as being 0.106), at least on the surface, seems most difficult if one considers the

Terminal Outcomes Terminal

Values

Terminal

Risk Prob.

International / Dedicated; >25% market penetration 79.371 0.106

International / Dedicated; <25% market penetration 80.847 0.454

International / Coop.; >25% market penetration 97.111 0.190

International / Coop.; <25% market penetration 98.428 0.370

International; no product launch (8.253) 0.440

Domestic / Dedicated; >25% market penetration 83.838 0.275

Domestic / Dedicated; <25% market penetration 85.903 0.585

Domestic / Coop.; >25% market penetration 92.082 0.335

Domestic / Coop.; <25% market penetration 92.189 0.525

Domestic; no product launch (4.790) 0.140

( 1

Net. Rev. in millions USD )

RISK PROFILE TABLE 1

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challenges associated with Greeneleafe, a U.S. concern, releasing the product internationally

through its own dedicated distribution efforts. All the while expecting to achieve market

penetration greater than 25%.

TABLE 3 – Payoff Table

Based purely on the largest payoff, as depicted by the Payoff Table (TABLE 3), the

decision seems straight forward. Greeneleafe should release the JV0275 internationally, using

cooperative distribution infrastructure and anticipate market penetration of less than 25%. Doing

so, according to the Decision Tree and TABLE 3 would yield the company $98,428M USD.

Such is the purpose of this table. It affords decision makers a quick, understandable perspective

regarding payoffs associated with the various outcomes given the decision possibilities.

TABLE 4 – Opportunity Loss Table

Table 4 offers a different perspective relative to Table 2 and 3. It does not simply take

Decision Tree data and just restate it. Rather, it takes that data and adds additional calculations.

No product

launch

Dedicated;

>25% market

penetration

Dedicated;

<25% market

penetration

Cooperative;

>25% market

penetration

Cooperative;

<25% market

penetration

Launch internationally (8.253) 79.371 80.847 97.111 98.428

Launch domestically (4.790) 83.838 85.903 92.082 92.189

( 1

in millions USD )

PAYOFF TABLE 1

No product

launch

Dedicated;

>25% market

penetration

Dedicated;

<25% market

penetration

Cooperative;

>25% market

penetration

Cooperative;

<25% market

penetration

Launch internationally 3.463 4.467 5.056 --- ---

Launch domestically --- --- --- 5.029 6.239

( 1

in millions USD )

OPPORTUNITY LOSS TABLE 1

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As mentioned in the discussion section this table quantifies the net revenue lost, given common

outcomes, between the decisions. The amount represented above in the table communicates for

the various outcomes the net revenue lost between decisions. That is to say, if Greeneleafe

pursues domestic release of the JV0275 using cooperative distribution and achieves less than

25% market share, based on the Decision Tree model, Greeneleafe’s would lose $6.239M USD

as opposed to net revenue if they had released the product internationally.

From a purely mathematical perspective the option that affords the company the smallest

opportunity loss would involve not releasing the product at all. That said, this is the result of

simple mathematical reality given the numbers involved are also the smallest considered.

TABLE 5 – Strategic Decisions Tables

STRATEGIC DECISIONS TABLES 1

Aggressive Strategy Average Payoff Strategy

Maximum

Average

Launch internationally

98.428

Launch internationally

69.501

Launch domestically 92.189 Launch domestically 69.844

Conservative Strategy Opportunity Loss Strategy

Minimum

Maximum

Launch internationally

(8.253)

Launch internationally

5.056

Launch domestically (4.790) Launch domestically 6.239

(1 in millions USD)

Finally, attention is turned to Table 5 (Strategic Decisions Tables). The content included

in this table offers a real dichotomy of viewpoints. Their function was discussed in the

preceding section. Here the report will offer assessments regarding what each suggests.

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The aggressive strategy would favor international release given this decision offers the

greatest possible payoff amounting to $98.428M USD. The conservative strategy clearly holds

for domestic release as doing so imposes the least likely loss were the product not released. The

average payoff strategy comes down on the side of domestic release as well given a maximum

net expected value outlook, here valued at $69.844M USD. Lastly, consider the opportunity loss

strategy. Given the maximum, net expected value basis underlying this report the decision that

minimizes such loss would be an international decision.

RECOMMENDATION – Business decisions are never purely quantitative decisions. While that

is true, the value quantitative data offers toward equipping decision makers cannot be

understated either. This report has endeavored to educate Greeneleafe leadership regarding their

decision involving the release to the JV0275 land surveying drone.

The Decision Tree model and associated evaluative tools employed in the research which

was used to educate the content of this report has somewhat conflicting results. The Decision

Tree software concludes for domestic release of the new system, favoring cooperative

distribution.

The data’s risk profile also favors domestic release but is less certain regarding

distribution. The opportunity loss measures are more punitive when choosing international

release versus domestic. Exclusive of the ‘no product launch’ outcome, the combined

opportunity loss associated with international release ($9.523M USD - choosing not to release

domestically) is appreciably less than the opportunity loss resulting from a domestic release

($11.268M USD). So here again, domestic release is preferable. In raw potential terms though,

without question, international release is easily the choice.

When considering the different decision strategies, the ballot is split down the middle.

Two strategies favor international release – aggressive strategy and opportunity loss strategy.

Two strategies favor domestic release – conservative strategy and average payoff strategy.

In the end, when everything is weighed and evaluated it is the recommendation of this

report that Greeneleafe release the new JV0275 domestically, using cooperative distribution

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channels. Doing so affords Greeneleafe comparably strong revenue expectation corresponding

to associated risk profiles offer the strongest support of this conclusion.

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REFERENCES

Evans, J. R. (2013). Statistics, Data Analysis, and Decision Modeling (5th ed.). Upper Saddle

River, NH: Prentice Hall.