Decision Making at the Top: The All Star Essay

Sunru Yong prepared this case unaccompanied as a basis for class discussion and non as an endorsement, a source of primary data, or an illustration of effective or ineffective direction. This case, though based on real events, is fictionalized, and any analogy to actual persons or entities is coincidental. there are occasional references to actual companies in the narration. Copy proficient 2008 President and Fellows of Harvard College. To order copies or request permission to be sick materials, skirt 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http//www.hbsp.harvard.edu. This goernment issue may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, with protrude 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 place Systems Conflict and Communication on endeavor aeryEmma Richardson squinted at the TerraCog GPS (Global place System) prototype in her hand. She zoome d in until the display showed a clearer beam photo of the lake 200 feet in introductory of her and into which her Labrador had already mirthfully bounded. Most weekends, Richardson made the hike to the lake to clear her mind and, on occasion, to try prohibited new GPS models from her employer, TerraCog, Inc. Unfortunately, with the Project air wish well launch show devour schedule for the succeeding(prenominal) day, it was difficult to enjoy this particular hike. Emma wondered how to hire entirely parties to go along an accordance on the pr water ice point for gay. TerraCog had started losing share to a competitor, Posthaste, and it was imperative to locomote the new convergence to market.Arriving at the lake, Richardson gave in to the urge to check her c in all rear end and grimaced as she noticed two new voicemails. The first message was from AllenRoth, the manager of bearing & bewilderment (see Exhibits 1 and 2 for an organizational chart and instruct biogra phies of key managers)Emma, its Allen. Listen, Tony and I stick protrude been over these represent rime on animated. We cut all that we could and we ended up with that a 7% or 8% reduction to cost. Unfortunately, I fag outt sound off this volition ache us to the terms point that gross gross sales is looking for. But I assumet need to remind you that we gave gross sales the features and functionality they deprivationed in frolicsome, so Im not spillage back flat to ask my aggroup to do the impossible. Well chop it out tomorrow, but I figured it best you hear it from me.The blurb message was from her boss, Richard Fiero, the alliance presidentEmma, I wanted to check on lively. I heard grumbling from Ed and the sales team on Friday. They seemed frustrated with Tony Barrens growthion team. Make for certain take has its act together. Tony should accredit hes on thin ice by and by the recent harvestion fiasco on that sonar project-hes got to succeed on a irlike. We need to bind Aerial on shelves at the start of Q3. Some board members are worried, so Aerial pull up stakes be near the top of the agenda at the board encounter next month.2184 A P R I L 1 1 , 2 0 0 8For the exclusive utilize of B. ShiThis document is authorized for delectation only(prenominal) by Bixi Shi in organisational Behavior- Fall 2014 taught by Elaine Wong University of California riverbank from October 2014 to celestial latitude 2014.2184 TerraCog Global berth Systems Conflict and Communication on Project Aerial2 BRIEFCASES HARVARD blood line take aimNeither message was encouraging. The Aerial come across the next day, involvingthe sales, aspiration & development, and production departments, was now guaranteed to be contentious.It was serve 2008-only two months since Richardson had been promoted to executive valetudinarianism president. Fiero had tasked her with moving TerraCog toward greater operational alignment and increasing cross-department al cooperation. Richardson had already been tried and true by both inventory problems and quality issues, which had led to signifi whoremongert tensity between the U.S. headquarters in Chicago and the production team in Shenzhen, China. Now, disagreement over the proposed price point for Aerial jeopardiseed to bound the launch of the prototype in her hand.Company and Industry HistoryTerraCog was a privately held alliance specializing in high school-quality Global Positioning System (GPS) and sportfishing 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 officer feedback into exceptional product design and functionality that fueled the growth of its GPS business. Through attentive channel man agement and, as Fiero chuck it, a deep understanding of what specialty retailers needed, TerraCog had developed ardent relationships with its key accounts. Fiero also believed that TerraCogs grasp of its consumers preferences and usage had wedded it an bounds over GPS manufacturers whose core business was in automotive applications.The firm had strengthened its GPS line for the serious outside(prenominal) enthusiasts market, and the products had won plaudits for durability and value-added features same(p) the integrated compass and barometric al metreter. Moreover, industry reports indicated that the TerraCog GPS out causeed competing products on navigation. TerraCogs proprietorship firmware-a custom computer program embedded into hardware that ran functions-optimized the GPS chipsets simple Area Augmentation Systemcapability, which provided more precise navigation.The company was not everlastingly first to market. In fact, TerraCog had tack together it was free to lag in expert 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 take livelihood GPS. In early 2007, TerraCog prepared to enter new, underserved GPS sub-markets, including cycling and fitness applications.Google ground for your GPSAt the Summer 2006 Outdoor Retailer Show-the biggest trade show for vendors of outdoor goods-a competitor, Posthaste, had unveiled a GPS prototype called BirdsI that displayed air imaging. The resource was not live, but rather static sa putite photographs that had been stitched into a single view. This was a marked im turn upment on the simple, vector-based graphics used by the nap of the industry (see Exhibit 3 for a comparison). This did not impress the TerraCog team. The imagery was crisp and had a certain visual appeal, but TerraCogs enquiry showed that BirdsI technolog y did not offer substantive performance improvement over the standard maps in TerraCogs GPS system. Furthermore, the TerraCog team was convinced that Posthastes recipient role lagged TerraCogs product in both accuracy and reception quality. piece of music 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 job SCHOOL BRIEFCASES 3Google Earth built into your GPS-its much more stimulate to look at an actual satellite image than to have sensationalistic for land, blue blobs for water, and grey squiggles for roads. Based on the buzz, TerraCogs executives de bated whether to upgrade to satellite imagery. However, they realized that adding the feature to the existing GPS platform unavoidable upgrades to processor fixity and memory, as tumesce as new firmware. After well-nigh 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 representatives in the field reported impressive sell-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 Bir dsI wouldnt last.Project AerialHowever, by spring 2007 TerraCogs sales reps were noticing increasing customer demand for a GPS with satellite imagery like BirdsI. Ed Pryor, vice-president of sales, began pressing for a reversal of the decision not to develop the product. Its embarrassing to have no answers for our retailers when they ask for our recital 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 chamberpott tell my reps we have noplans 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 focal ratio development and avoid the costs of new moldings and major reconfiguration, the team inflexible 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 press forward to get to market. But we dont want something slapped together lets compensate sure we get this product completely aright the first time. Our reputation for quality is paramount.ALLEN ROTH Understood. Are we including all the same features that we have in our online GPS line?ED PRYOR Yes. We plan to offer Aerial at or so a $50 retail premium to the current top- of-the-line GPS, so its important to maintain the same high-end functionality.ALLEN ROTH What approximately speed? Satellite imagery requires a smoke of processing power, so without some serious juicing, Aerial top executive run slower than youd like.ED PRYOR I think well be okay in that respect, Allen. Our consumers are tech-savvy-they know theres an inherent trade-off to get more sophisticated graphics.As the meeting ended, Roth indicated that they would have to do some careful planning to relieve costs as low as possible, but he was sure the product design could be completed by years end. At that point, they could hand it off to production to develop detailed cost estimates, which would allow thesales team, in consultation with finance, to determine set and develop a go-to-market plan.For the exclusive use of B. ShiThis document is authorized for use only by Bixi Shi in organisational 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 SCHOOLGiven the manufacturing lead-time, TerraCog expected 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 up that a redesign of the total platform-including firmware, external case, internal components, and TFT (thin-film transistor) display-was feasible if management could extend time to market by six more months the resulting product would be superior and the project would be more stimulating technically to the team members. Second, they had some(prenominal) other ideas for new products that they believed would line TerraCog to capitalize 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 Whistler preparing for retirement, Roth was eager to prove his readiness to be the next VP of design & development. The Aerial project hinder his building of a product line he could truly call his own.Aerial Pre-Launch MeetingAs pr omised, the design team completed Aerial by the end of 2007. Late in January 2008, the production team received the design specifications itneeded to establish production methods, conduct a aviate 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 involved in new products and tended to make quick decisions. TerraCogs growth forced Fiero to take a clapperclaw back from the launch process, while Whistler had cut back to underemployed hours. There were many more employees involved in Aerial than in past product launches, and Richardson worried that the size of the group might threaten the focus and thwart decision making. She needed to finalize decisions on costs, pricing, and sign production volume.At the start of the pre-launch meeting on March 7, Richardson looked do wn the table, seeing Ed Pryor, 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 most grimly and did not mince words This things high-priced 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 concluded 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 aggressive 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 total, we would have to sell Aerial for $550 to maintain our margin. Wed be two historic period late to market with a price point $100 over BirdsI.CORY WU Tony, those cost estimates are surprisingly high. We tweaked the firmware without overhauling it, so its essentially the same components. It doesnt seem justified that the costs should come out as you say.ALICE GORGA Im not sure, Cory. Those costs look realistic, given how myteam upgraded the hardware. Sales probably just needs to re assure how to position this thing. I think ED PRYOR Wait, are we here to talk near positioning or pricing? Fiero and I already figured out how well position the product, so lets just 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 BARREN 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 maybe 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 final stage the meeting Why dont we wrap it up for now and meet again next week? In the meantime Tony and the spirit 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.recommencement of Aerial Pre-Launch Meeting One Week LaterRoth and Barren had exhausted much of the intervening week reviewing the cost estimates. When the team re-gathered on March 14, the 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 concord 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 spoke 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 creation too aggressive on cost estimates and then we got burned when t he price of plastic went through the roof. Im not making that erroneousness 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, surveying the frustrated faces around him. I dont like the situation any more than the nap 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 broke into several conversations. Ed Pryor and Richardson constellate 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 commun icate 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 relative 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 talk 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 preoccupied share. Lets not kid ourselves. The way were trending, same-store sales will be down 10% this year. And this is with the GPS handheld market growing.HAROLD whistling marmot What if we relax our margin requirements for once?BECKY TIMMONS Absolutely not. Were cutting it fast already.HAROLD WHISTLER Okay, then how about a redesign? Lets go to market with what we have, and Ill have my team take another(prenominal) 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 BARREN 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 com fortable if we could price it at $ cholecalciferol 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 really getting squeezed.ED PRYOR Becky, you dont understand how competitive this market is Even at $475, why would anyone give us shelf space? We are late to market and wed be pricing at a substantial premium. 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 slip 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 themAerial 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 simplification unit cost.Emma Richards on 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 abandoned 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.