Case Scenario Analysis and Discussion

M4: Assignment 1 Case Scenario Analysis

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Case Study 2

A-tech, an electronic manufacturing firm, has been in business 15 years. The company started with venture capital and soon grew to two hundred million dollars in annual sales. The average growth in sales the past three years has been 25%, due mainly to the engineering innovations in its five major product families.

The CEO and his executive committee have historically viewed the American electronics industry as one of the best in the world. Criteria for best were directed by high product quality standards and meeting performance expectations.

Recently a sixth product line was designed and is about to be launched. The product, a multichip high performance information processor, requires specific new engineering on a number of the components. Two components would be designed to manufacturing specifications in-house. However, the third component, selected by the manufacturing product feasibility team, would require a high investment by A-tech in engineering and capital equipment.

The component, called an R-stabilizer, is nearly identical to an existing component having similar specifications and performance, previously designed by a firm in India. The existing component could be re-engineered to meet A- tech’s specific requirements. The India firm, RAH, would assume and amortize the engineering and capital equipment investment. Because of the differentials in labor costs and inner-country transportation costs, the savings to A-tech would be about 6% per part.

The manufacturing new product team (MNPT) has requested approval from A- Tech’s executive committee to sign a five year agreement with the India firm. This would be the first product outsourcing agreement by the A-tech Corporation.

The CEO asked for a presentation to be given to the executive committee in order to start the decision process. The MNPT gave a PowerPoint presentation reviewing the components required for the R-stabilizer, status of the new components (particularly the problems with building the third component in- house), cost analysis, and project specifications from startup to new product ready for marketing and sales.

In attendance at this “focus meeting” is the CEO, VP for finance, VP for research and development, MNPT members, VP for manufacturing, and VP for marketing. These participants are identified as:

M4: Assignment 1 Case Scenario Analysis

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CEO–Chet VP for manufacturing–Wally

VP for finance–Richard VP for research and development–Kelly

VP for marketing–Paul MNPT chairperson–Alice

CEO: “Thank you, Wally, for this excellent presentation. I open up this discussion as a way for everyone to share perceptions and opinions. I would first say that this proposal is the first such foray into the outsourcing business, and as such, demands careful analysis.”

Richard: “I agree, Chet. The presentation illustrated the dollar advantage by going to RAH for this component. How is it that you (looking at Wally) have been in touch with RAH and this is the first time we are aware of what is happening?”

Wally: “We thought it would be better to do the preliminary work, get some numbers, before we took everyone’s time.”

Kelly: “Alice did contact me and explained the idea. Since we are behind nearly nine months, I encouraged Alice to proceed.”

Richard: “To proceed?! Does that mean you obtain confidentiality agreements and so forth?” (Slightly emotional)

Alice: “Yes, we did everything according to the book.”

Richard: (interrupts) “Not my book!”

Alice: “Richard, at the time we were doing this, you were in New York looking at investments for A-tech, and I believe looking at expanding our credit line.” (Obviously trying to be patient)

Chet: “Okay, guys. We have strayed a little here. By the way, I did approve the trip for the manufacturing group to visit RAH last autumn.”

Paul: “Do you have an agenda for this meeting Alice or Wally?”

Wally: “An e-mail was sent on the 21st to everyone here. I asked for confirmation, knowing this would be an uphill climb.”

Richard: “What’s that supposed to mean, Wally?”

Wally: (hesitates) “Actually, we knew there would be some resistance because this is a new direction.”

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Chet: “We all have tumbled through the ups and downs of change. I don’t think we are hurting too badly. But!! Let’s get back to it. Alice please make some additional copies of the agenda. We’ll take a short break.”

(Meeting resumes)

Chet: “Just a reminder before we start. For a decision meeting such as this, I appreciate everyone confirming the meeting and agenda. And, just in case one of us has been out of town, we need copies of the agenda anyway. Go ahead, Alice”. (tone indicates CEO is losing patience).

Alice: (by now is becoming more uncomfortable) “This was supposed to be a two hour meeting; we have only an hour left. I am not sure we can cover everything in an hour.” (slight hint at the problems in the communication process; waits for everyone to respond)

Paul: “Looking at the financials again, we show a 24% profit per part, which includes the RAH component. This looks pretty optimistic. We are not really sure of a number of things.”

Wally: “And those would be…”

Paul: (interrupts) “Well, let’s rattle off a few. One, we have no “G-2” on our competition; two, conditions in India are becoming more destabilized because of potential terrorist threats; three, we don’t know the problems in communication and ways of doing business on an outsourcing basis; four, we have no control over their process; five, there are the legal issues; six, we could have shipping problems, and then there’s the quality control issue.” (Paul stops, realizing he has provided many topics for debate—then continues) “It will take a great deal of time to get information on all these items.”

Alice: (raising her hand, looks at the CEO, but she is not acknowledged)

CEO: (addresses Kelly) “You’ve been through all this at Lintel. What does it take to gather all this information?”

Kelly: “Actually, I’ll defer back to Alice, but I do want to say my people have been working closely with Alice’s team and they have already covered much of that ground.” (Alice starts to respond, but is interrupted by Richard): “So, Alice, do you have all the answers to these questions?” (voiced tinged with sarcasm)

Alice: (even more uncomfortable) “Not in the strictest sense. I do have a lot of information, which is found in the R-stabilizer Feasibility Study. I wanted to review this today.”

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Richard: (a little loudly): “That’s a 100-page document and it doesn’t have an executive summary.”

Alice: “It does not contain an executive summary, but is does contain a specifications cost analysis.”

Paul: But that doesn’t really answer my questions. Like G-2.”

Alice: “I assumed you marketing people would start looking the R-stabilizer as soon as we informed them of that…”

Paul: “That was a bad assumption, Alice. We don’t or can’t do that until we have performance specifications and costs for production…”