VOLTAMP ELECTRICAL CORPORATION Written Analysis and Communication Report A report submitted to Prof. Danesh Gojer Letter of Transmittal September 29, 2011 To, Vice President, Specialty Appliance Department, Voltamp Electrical Corporation. Subject: To determine the course of action to be taken in order to exploit the commercial possibilities of the new magnetic material, TGW, in the best possible ways. This report contains a detailed analysis of different options, criteria for evaluation and recommendation about the department which is best suited for the production of TGW.It also analyses the most appropriate time for the sale of the same outside the company.
All the options have been evaluated on the basis of various criteria of development in the context of the company and goodwill are given more importance as these would benefit the company as a whole in the long run. Regards, John Carter (Manager, Audio Products Section) Executive Summary Audio Products Section and Magnetic Materials Section as production centres are evaluated to find the most commercially viable strategy to launch TGW, a new magnet developed by APS, along with the perfect time period to launch it.The criteria used for evaluation are Profitability, Leadership in innovation and Development in the context of the company, Opportunities in selling, Time constraint, and Equal opportunity. It is recommended that the Audio Production Section should assign the manufacturing techniques to Magnetic Material Section immediately and receive royalties for TGW. CONTENTS Sr. | Topic| Page| 1| Situation Analysis| | 2| Problem statement| | 3| Options Available| | 4| Criteria for Evaluation| | 5| Evaluation of Options| | 6| Recommendation| | 7| Action Plan| | | Exhibits| | Situation Analysis: The Advanced Development Laboratory of Voltamp Electrical Corporation approached Magnetic Material Section (MMS) for developing a new kind of magnetic material ,TGW which was stronger, smaller in size and was produced at one-third the cost of traditional magnet.
This proposition was declined by MMS as it was engaged in the developmental research of other magnetic products. MMS also believed the TGW might not be commercially viable and had apprehensions about the idea being converted into tangible results.The proposal was later offered to Audio Products Section (APS) which accepted the offer Ever since decentralization all inter-departmental decisions are undertaken by section managers on mutual agreement. After 5 years of developmental research and incurring a developmental cost of $500,000, APS discovered a new magnetic material which could replace all other magnetic materials currently used by Voltamp. After the success of the developmental research of TGW and its promising market leadership in innovation, MMS showed interest in taking over the techniques and procedures of manufacturing TGW.Realizing the risk taken by APS, it seems unfair to give away its innovation to other departments which will deny APS its due credit.
APS’s research initiative of the development of TGW has been a break through and highly profitable. It can give a competitive edge and also improve the company’s existing magnet product line. APS needs to reap the benefits of their toiling endeavour. By not giving away the right to manufacture the process, APS can command higher profits due to low costs and also through the company policy be able to protect TGW from being replicated by competitors.The production costs of other departments that use magnetic materials will also decrease as the material will now be available internally at lower costs and this will eliminate the need to purchase from manufacturers outside the company.
If MMS were to take over the production process of TGW, it would maximize sales and profits as they could sell to outsiders as per the company policy. They would be able to optimize the production capacity due to their expertise in the field.Furthermore, issuing of licenses to competitors for manufacturing TGW would give Voltam an edge over the competition and complete control of magnetic material. Eventually in the long run, the manufacturing of TGW will be handed over to the M. M.
S and will be entitled to take all decisions regarding the same. Thus, the decision to keep the manufacturing process in one of the 2 mentioned departments needs to be made bearing in mind not just the profitability of the department but also the company’s growth and development. Problem statementDecision needs to be made either to turn over the production techniques and processes of manufacturing new magnetic material, TGW, from the APS to MMS or leave it with the APS. Options Available 1. Keep manufacturing techniques of TGW with APS for 18 months, during which the re-design other products of Voltam using magnetic material to suit its requirements will take place. Thereafter hand over TGW to MMS.
2. Keep production processes with APS for 5 years, during which the restoration of the existing products using magnetic material to suit the requirements of TGW will take place.Thereafter hand over new magnetic material to MMS. 3. Handover the techniques of producing TGW from APS to MMS immediately. However, royalties earned by sale of TGW will be credited to APS.
Criteria for Evaluation 1. Profitability – Exploitation of TGW should be done to attain high profitability through sales maximization. 2. Leadership in innovation – TGW, being a break through discovery, will give a competitive advantage in product development. Any disclosure, on the manufacturing techniques of TGW, will deprive the company of its absolute command over the same.
. Development of the department with respect to the company – Growth of each department is essential along with the company and the departments’ interests must not overshadow the larger interest and benefit of the company. 4. Opportunities in selling – The decentralization charter has certain restraints on departments with respect to the sale of products to outsiders, and thus section managers need to ascertain the viability of selling to outsiders against selling within the company. 5.
Time constraint – Time is a factor that needs to be evaluated realistically to avoid unnecessary wastage which may give competitors some leeway to innovate and counter the discovery. 6. Equal opportunity – Each department must be given a fair opportunity to contribute and reap the benefits of it Evaluation of Options 1. Keep manufacturing techniques with APS for 18 months: * Profitability – Profit margins will increase due to lower costs. * Leadership – Will be high.
* Development – After 18 months, once the products have been re-designed, APS will start making profits. Opportunities – Limited, as selling outside the company is prohibited as per company policy. * Time – TGW will be lying idle for 18 months which is not feasible. 2.
Keep production process with APS for 5 years: * Profitability – High profits due to lower costs. * Leadership – Initially high but may gradually decrease as competitors may counter the innovation soon. * Development – The department will reap benefits of the discovery but this will hamper the overall growth as it won’t guarantee increase in sales. * Opportunities – Limited, as selling outside the company is prohibited.
Time – 5 years is a long time to keep hold of technology as there is always risk of obsolescence. The company may be ridiculed for its unwillingness to assign the new technology. * Equal opportunity – Will put APS at the receiving end of its due credit but MMS might feel deprived of venturing out into its core competence – magnetic materials. 3. Handover techniques of production from APS to MMS immediately: * Profitability – High due to lower costs * Leadership – Quite high as even if it is immediately sold to competitors, it’ll be a while till it is replicated or newer technology will replace TGW. Development – Will be highly beneficial as it’ll ensure leadership in innovation as well as high sales * Opportunities – Sales will be higher as MMS, as per company policy, will be allowed to sell to competitors.
* Time – No time will be lost in rendering new material to customers and this will help consolidate the company’s reputation in being not just leaders but also catalysts of change. * Equal opportunity – Will help render justice: MMS is given due share of work and APS gets credit in the form of royalties. Thus, the third option seems most suitable for the situation as it allows higher sales as well as maintains the company’s goodwill. It also shows growth of not just APS and MMS but of Voltamp too.
The goodwill will be maintained if product leadership is attained or is in the process of attainment and negative publicity is prevented. In case of duration of 5 years before selling to external customers, a lot of negative publicity by competitors can take place in which Voltamp will be blamed for preventing the manufacturing and selling products by others.RECOMMENDATION The APS should handover the manufacturing techniques to MMS immediately and receive royalties for TGW. ACTION PLAN * Before transferring TGW to MMS, a meeting should be planned and the work done by the APS department should be appreciated. * A mutual agreement between the top management should be made that costs incurred by APS should be distributed among other sections according to their usage percentage of TGW.