Decision Making at the Top: The All Star Essay

Sunru Yong prepargond this case solely as a basis for class password and non as an endorsement, a book of f get alongs of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There atomic number 18 occasional references to actual companies in the narration. Copyright 2008 president and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, spare Harvard Business Publishing, Boston, MA 02163, or go to http//www.hbsp.harvard.edu. This publication may not be digitized, moving picturecopied, or otherwise reproduced, posted, or transmitted, with break through the permission of Harvard Business School.M I C H A E L B E E RS U N R U Y O N GTerraCog Global quicken Systems troth and talk on regurgitate etherealEmma Richardson squinted at the TerraCog GPS (Global stead System) prot otype in her hand. She zoomed in until the display showed a lightener artificial transmit photo of the lake 200 feet in front of her and into which her Labrador had already happily bounded. Most hebdomakends, Richardson do the hike to the lake to clear her mind and, on occasion, to test natural GPS models from her employer, TerraCog, Inc. Unfortunately, with the image fairylike launch impact scheduled for the coterminous day, it was difficult to enchant this particular hike. Emma wondered how to get all parties to wrap up an agreement on the expenditure point for Aerial. TerraCog had blended losing share to a competitor, Posthaste, and it was imperative to get the new step up empower to market.Arriving at the lake, Richardson gave in to the urge to check her phone and grimaced as she disc everyplace two new voicemails. The first core was from Allen Roth, the handler of tendency & adenylic acid development (see Exhibits 1 and 2 for an organizational chart and brief biographies of pursue across managers)Emma, its Allen. Listen, Tony and I sport been oer these appeal numbers on Aerial. We burn off all that we could and we ended up with further a 7% or 8% reduction to court. Unfortunately, I applyt recall this will get us to the terms point that sales is feeling for. But I dont need to remind you that we gave sales the features and functionality they wanted in Aerial, so Im not handout back outright to ask my group to do the impossible. Well hash it out tomorrow, provided I figured it best you hear it from me.The second message was from her boss, Richard Fiero, the ac fraternity presidentEmma, I wanted to check on Aerial. I heard grumbling from Ed and the sales aggroup on Friday. They seemed frustrated with Tony Barrens outturn team. Make sure Production has its act unneurotic. Tony should have hes on thin ice by and by(prenominal) the recent production fiasco on that sonar project-hes got to make it on Aerial. W e need to have Aerial on shelves at the start of Q3. Some board members are worried, so Aerial will be near the top of the agenda at the board meeting next month.2184 A P R I L 1 1 , 2 0 0 8For the exclusive implement of B. ShiThis record is let for work barely by Bixi Shi in organisational Behavior- descend 2014 taught by Elaine Wong University of atomic number 20 riverbank from October 2014 to December 2014.2184 TerraCog Global berth Systems Conflict and Communication on Project Aerial2 BRIEFCASES HARVARD BUSINESS give instructionNeither message was encouraging. The Aerial meeting the next day, involving the sales, design & international ampere development, and production departments, was now guaranteed to be contentious.It was March 2008-only two months since Richardson had been promoted to executive fault president. Fiero had tasked her with moving TerraCog toward greater operational alignment and increasing cross-departmental cooperation. Richardson had alread y been tried by both inventory problems and quality issues, which had led to signifi commodet emphasis between the U.S. chairquarters in Chicago and the production team in Shenzhen, China. Now, disagreement over the proposed set point for Aerial threatened to sabotage the launch of the prototype in her hand.Company and Industry HistoryTerraCog was a privately held political party specializing in high-quality Global Positioning System (GPS) and search sonar equipment. Founded in 1977, TerraCog got its start manufacturing high-end sonar equipment for serious sport fishermen and boaters. In the late 1990s, the company had introduced its first GPS products, marketed specifically to hunters, hikers, and campers.Management believed that it was the companys skill at translating retailer and user feedback into exceptional product design and functionality that fueled the growth of its GPS business. Through attentive channel management and, as Fiero put it, a deep empathiseing of what specialty retailers unavoidable, TerraCog had developed steadfast relationships with its divulge accounts. Fiero as well believed that TerraCogs grasp of its consumers preferences and usage had given it an delimitation over GPS manufacturers whose core business was in automotive applications.The firm had make its GPS line for the serious exterior enthusiasts market, and the products had won plaudits for durability and value-added features alike the integrated compass and barometric altimeter. Moreover, industry reports indicated that the TerraCog GPS outperformed competing products on navigation. TerraCogs proprietorship firmware-a custom computer program embedded into hardware that ran functions-optimized the GPS chipsets childlike Area Augmentation System capability, which provided more than precise navigation.The company was not perpetually first to market. In fact, TerraCog had prepare it was free to lag in technical innovation with little risk because, when the company finally introduced new products, they surpassed those of competitors in addressing customer needs. Customer word-of-mouth recommendations had given TerraCog strong momentum with its hold GPS. In archeozoic 2007, TerraCog prepared to enter new, underserved GPS sub-markets, including cycling and fitness applications.Google existence for your GPSAt the Summer 2006 Outdoor Retailer Show-the biggest conduct show for vendors of open-air(prenominal) goods-a competitor, Posthaste, had unveiled a GPS prototype called BirdsI that displayed sa come apartite resource. The resourcefulness was not live, but rather static satellite photographs that had been stitched into a single view. This was a marked improvement on the simple, vector-based graphics used by the loosening of the industry (see Exhibit 3 for a comparison). This did not impress the TerraCog team. The mental imagery was crisp and had a certain visual appeal, but TerraCogs research showed that BirdsI technology did not put up substantive performance improvement over the regulation maps in TerraCogs GPS system. Furthermore, the TerraCog team was convinced that Posthastes receiving system lagged TerraCogs product in both accuracy and reception quality. art object the TerraCog team dismissed the Posthaste concept, a number of key buyers and product reviewers found it an exciting innovation. One magazine reviewer observed, Imagine havingFor the exclusive use of B. ShiThis document is authorized for use only by Bixi Shi in Organizational Behavior- Fall 2014 taught by Elaine Wong University of California Riverside from October 2014 to December 2014.TerraCog Global Positioning Systems Conflict and Communication on Project Aerial 2184HARVARD BUSINESS trail BRIEFCASES 3Google Earth built into your GPS-its much more induce to look at an actual satellite image than to have discolour for land, blue blobs for water, and grey squiggles for roads. Based on the buzz, TerraCogs executives debated w hether to upgrade to satellite imagery. However, they realized that adding the feature to the lively GPS platform required upgrades to processor belt along and memory, as well as new firmware. After some deliberation, the company dropped the idea as a non-essential fad. TerraCogs management remained confident that the companys core customers were discerning purchasers who would value durability and performance over dressed-up graphics.In October 2006, with much fanfare, Posthaste introduced BirdsI as the only handheld GPS with satellite imagery. BirdsI had an exclusive launch at two study national outdoor retailers, both of which were key accounts for TerraCog. Within two months, TerraCogs sales re rescueatives in the field reported impressive make do-through rates for BirdsI nationwide. While the products success surprised TerraCog, management attributed it to the ebullience of the holiday shopping season. The TerraCog team was confident that the popularity of BirdsI wouldnt d efy.Project AerialHowever, by spring 2007 TerraCogs sales reps were noticing increasing customer demand for a GPS with satellite imagery like BirdsI. Ed Pryor, criminality-president of sales, began pressing for a reversal of the ratiocination not to develop the product. Its embarrassing to have no answers for our retailers when they ask for our random variable of this, he said. Look at it from our perspective. Weve changed the compensation plan for the whole Sales team-including me-so we take a real hit if we dont reach our sales targets.Customers now want something different, and I cant tell my reps we have no plans to develop the product they need to hit those targets. In response to these repeated requests, TerraCogs president, Richard Fiero, changed his mind on satellite imagery, if only to satisfy the gadget appeal of such an innovation. The initiative was dubbed Project Aerial. In order to speed development and avoid the woo of new moldings and major reconfiguration, t he team decided to redesign within the existing GPS platform.Shortly after making the decision to proceed with Aerial, Fiero and Pryor met with Allen Roth, director of design & development. Roth brought his key managers to the meeting Cory Wu, who oversaw software and firmware, and Alice Gorga, who managed hardware design.RICHARD FIERO Allen, were obviously in a hurry to get to market. But we dont want something slapped together lets make sure we get this product alone right the first time. Our reputation for quality is paramount.ALLEN ROTH Understood. Are we including all the homogeneous features that we have in our current GPS line?ED PRYOR Yes. We plan to offer Aerial at approximately a $50 retail bounteousness to the current top- of-the-line GPS, so its important to maintain the same high-end functionality.ALLEN ROTH What slightly speed? Satellite imagery requires a lot of processing power, so without some serious juicing, Aerial might run slower than youd like.ED PRYOR I think well be okay there, Allen. Our consumers are tech-savvy-they know theres an inherent trade-off to get more advanced graphics.As the meeting ended, Roth indicated that they would have to do some careful cookery to keep cost as low as possible, but he was sure the product design could be completed by familys end. At that point, they could hand it off to production to develop circumstantial cost estimates, which would allow the sales team, in consultation with finance, to determine price and develop a go-to-market plan.For the exclusive use of B. ShiThis document is authorized for use only by Bixi Shi in Organizational Behavior- Fall 2014 taught by Elaine Wong University of California Riverside from October 2014 to December 2014.2184 TerraCog Global Positioning Systems Conflict and Communication on Project Aerial4 BRIEFCASES HARVARD BUSINESS SCHOOL given the manufacturing lead-time, TerraCog anticipate to get Aerial to stores by the 2008 holiday season (see Exhibit 4 for timeline of events).The product development team members did not greet the Aerial decision with enthusiasm. First, they felt that a redesign of the total platform-including firmware, external case, internal components, and TFT (thin-film transistor) display-was viable if management could extend time to market by six more months the resulting product would be superior and the project would be more excite technically to the team members. Second, they had several other ideas for new products that they believed would position TerraCog to gain on growth in cycling and fitness GPS applications, and Project Aerial was forcing them to put aside these more exciting projects. Finally, with company co-founder Harold hoary marmot preparing for retirement, Roth was earnest to prove his readiness to be the next VP of design & development. The Aerial project impeded his building of a product line he could truly call his own.Aerial Pre-Launch MeetingAs promised, the design team complet ed Aerial by the end of 2007. Late in January 2008, the production team received the design specifications it needed to establish production methods, accept a pilot run, and estimate costs. As the new executive vice president, Emma Richardson was tasked with overseeing the product launch. She scheduled a launch meeting in early March with sales, production, and design & development.In the past, Fiero and Whistler had been very pertain in new products and tended to make quick decisions. TerraCogs growth strained Fiero to take a step back from the launch process, while Whistler had cut back to part-time hours. There were many more employees mired in Aerial than in past product launches, and Richardson worried that the surface of the group might threaten the focus and thwart decision making. She needed to finalize decisions on costs, pricing, and initial production volume.At the start of the pre-launch meeting on March 7, Richardson looked down the postpone, seeing Ed Pryo r, Allen Roth, production director Tony Barren, Cory Wu representing software and firmware, and Alice Gorga representing hardware. Richardson opened the meeting by asking Barren to present his cost estimates. Barren looked around grimly and did not mince haggle This things expensive to build. It looks the same, but Aerials got higher-end components and its more complex to manufacture. He gave a high-level overview of product-cost breakdown and think by saying, Ill be blunt. Youre going to have to sell this product for a lot more than you thought. If anything, we have been too bellicose in our cost estimate. We cant lower it beyond what Ive presented.ED PRYOR I know you think your estimates are sound, but that isnt going to help us. With these numbers, we would have to sell Aerial for $550 to maintain our margin. Wed be two years late to market with a price point $ ampere-second over BirdsI.CORY WU Tony, those cost estimates are surprisingly high. We tweaked the firmware without o verhauling it, so its basically the same components. It doesnt seem vindicatoryify that the costs should come out as you say.ALICE GORGA Im not sure, Cory. Those costs look rea keyic, given how my team upgraded the hardware. Sales probably plainly needs to reconsider how to position this thing. I think ED PRYOR Wait, are we here to talk more or less positioning or pricing? Fiero and I already figured out how well position the product, so lets reasonable get the pricing straightened out.For the exclusive use of B. ShiThis document is authorized for use only by Bixi Shi in Organizational Behavior- Fall 2014 taught by Elaine Wong University of California Riverside from October 2014 to December 2014.TerraCog Global Positioning Systems Conflict and Communication on Project Aerial 2184HARVARD BUSINESS SCHOOL BRIEFCASES 5TONY stripped Well, we dont perform miracles. The cost wont change, and Im not going to cut corners in production. I had my head handed to me the last time we had quality issues.ED PRYOR Allen, your designers must be able to tweak something, right? Hate to say it, but perchance you guys need to go back to the drawing board and figure out how to solve this problem.ALLEN ROTH Ed, were well into a couple of other projects now. Frankly, I dont think this is Sales call to make. We already put other projects on hold for Aerial, and weve given you what you requested.The discussion continued, but it became clear the group was at an impasse. Richardson suggested ending the meeting Why dont we wrap it up for now and meet again next week? In the meantime Tony and the Design team should look for opportunities to cut these costs.As the meeting adjourned, Pryor announced to the room, If we cant lower these costs and fix the finances on Aerial, I cant sell it. I wont try.Resumption of Aerial Pre-Launch Meeting One workweek LaterRoth and Barren had spent much of the intervening week reviewing the cost estimates. When the team re-gathered on March 14, t he participants seated themselves around the conference table (see Exhibit 5 for a seating chart). Becky Timmons, the CFO, was in attendance. At the last minute, Harold Whistler also decided to join the meeting.As Emma Richardson passed out copies of the new cost estimates, she explained that Roth and Barren had agreed to make minor changes to the Aerial prototype, and that they now felt it could be produced for approximately 8% less than the prior weeks estimate. On this basis, the Aerial could be priced at $475, about $100 more than the current full-featured TerraCog GPS.A long silence followed, then Cory Wu talk up. Eight percent-thats all? I dont understand it. Id like to know where the differences lie between our costs and PostHastes on BirdsI. Theres got to be room for more cuts.Barren snorted derisively. You cant wish away the costs, he said. Weve cut what we can. Last time we got pressured into being too aggressive on cost estimates and then we got burned when the price of plastic went through the roof. Im not making that mistake again.Allen Roth concurred, pointing to the drivers of the cost increase Incorporating the satellite imagery requires five times as much memory as our standard graphics. That increases cost-but if you cut it, you undermine Aerials value proposition. Then we also did some reconfiguration internally, and that increases the labor required to put one of these together. He paused, appraise the frustrated faces around him. I dont like the fleck any more than the rest of you do, but weve got to be realistic. Look at the numbers in front of you-theres nothing we can do to further reduce costs.As everyone scrutinized the new cost estimates, the meeting stone-broke into several conversations. Ed Pryor and Richardson huddled together, while Allen Roth and Tony Barren carried on a conversation with Harold Whistler. After several minutes, Richardson realized she needed to get the discussion back on track. She addressed the entire group , saying, We have the estimates, so we just have to set a price that makes sense for the company. What do you think, Ed?ED PRYOR We have to consider the selling price of the Aerial comparative to competition. Posthaste is selling at around $250 to dealers, which means they retail for around $400. Garmin just announcedFor the exclusive use of B. ShiThis document is authorized for use only by Bixi Shi in Organizational Behavior- Fall 2014 taught by Elaine Wong University of California Riverside from October 2014 to December 2014.2184 TerraCog Global Positioning Systems Conflict and Communication on Project Aerial6 BRIEFCASES HARVARD BUSINESS SCHOOLtheir satellite-image version, which will hit shelves at somewhere around $395 MSRP. You all are talking about $475 retail, and thats too high. We have to be in the ball park with our list price or well be shut out of the game.EMMA RICHARDSON What should list price be?ED PRYOR $425 tops-but we should be lower than that if we are going to be aggressive at recapturing lost share. Lets not baby bird ourselves. The way were trending, same-store sales will be down 10% this year. And this is with the GPS handheld market growing.HAROLD WHISTLER What if we relax our margin requirements for once?BECKY TIMMONS abruptly not. Were cutting it close already.HAROLD WHISTLER Okay, then how about a redesign? Lets go to market with what we have, and Ill have my team take another look at possible changes that we can incorporate later.ALLEN ROTH Im afraid thats wishful thinking, Harold. Given the product requirements the sales team called for, the cost is as low as it will get.CORY WU I dont know about that. The changes we made to meet sales requirements were not enormous. Why would they contribute to such a large increase in projected labor costs?TONY stark(a) Cory, you and Harold can run the numbers for yourself. Then youll see that these high costs are real.BECKY TIMMONS Id still feel more favorable if we could price it at $500 retail. With fuel costs still rising, the cost to get these here from Shenzhen will only increase, and we run the risk of our margins very getting squeezed.ED PRYOR Becky, you dont understand how competitive this market is Even at $475, why would anyone give us shelf berth? We are late to market and wed be pricing at a substantial allowance. And is the product superior enough to justify that premium? Ive been trying out our prototypes and Im concerned about the speed. The update speed is terrible, and switching between functions is just ALLEN ROTH Come on, dont start talking speed now. We were clear from the start that we would trade some speed to get new functionality and features.ED PRYOR Well, my sales managers are going to be fuming. Fiero told them Aerial would be available at $400, and now you are talking about a minimum of $75 more than that. I still want to see Cory or Harold take a crack at reducing unit cost.Emma Richardson took a deep breath. The company needed a go/no-go decision on the existing Aerial, and whether to do so at a competitive price in the hope that costs might be cut in the future, or at a high price. She wondered fleetingly what the consequences might be if the company given Aerial altogether. As things stood, the arguments and finger-pointing were bound to continue, and the group would never come to a decision on its own.