Decision Making at the Top: The All Star Essay

Sunru Yong prep ard this case solely as a basis for class word and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and both resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. Copy function 2008 President and Fellows of Harvard College. To order copies or request permission to create materials, c all 1-800-545-7685, write Harvard dividing line Publishing, Boston, MA 02163, or go to http//www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without 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 Positioning Systems Conflict and Communication on Project AerialEmma Richardson squinted at the TerraCog GPS (Global Positioning System) trope in her hand. She zoomed in until the display showed a unknoter satellite photo of the lake 200 feet in front of her and into which her Labrador had already happily bounded. Most weekends, Richardson made the hike to the lake to clear her mind and, on occasion, to test young GPS models from her employer, TerraCog, Inc. Unfortunately, with the Project Aerial launch wreaking scheduled for the coterminous day, it was difficult to enjoy this particular hike. Emma wondered how to get all parties to reach an agreement on the price point for Aerial. TerraCog had started losing share to a competitor, Posthaste, and it was imperative to get the new harvest-feast to market.Arriving at the lake, Richardson gave in to the urge to square off her phone and grimaced as she noticed two new voicemails. The first heart was from AllenRoth, the director of construct & development (see Exhibits 1 and 2 for an organizational chart and shortened biographies of key managers)Emma, its Allen. Listen, Tony and I concur been over these salute good turns on Aerial. We cut all that we could and we ended up with only a 7% or 8% reduction to cost. Unfortunately, I put one acrosst think this forget get us to the price point that sales is looking for. save I dont need to remind you that we gave gross sales the features and functionality they wanted in Aerial, so Im not going back presently to ask my team to do the impossible. Well hash it out tomorrow, but I figured it best you hear it from me.The second message was from her boss, Richard Fiero, the company presidentEmma, I wanted to check on Aerial. I heard grumbling from Ed and the sales team on Friday. They seemed frustrated with Tony stark(a)s output signal team. mention sure Production has its act together. Tony should know hes on thin ice after the recent produceion fiasco on that asdic project-hes got to succeed on Aerial. We need to redeem Aerial on shelves at the start of Q3. Some board members are worried, so Aerial will be near the top of the a genda at the board meeting adjoining month.2184 A P R I L 1 1 , 2 0 0 8For the exclusive use of B. ShiThis document is definitive for use only by Bixi Shi in Organizational Behavior- Fall 2014 taught by Elaine Wong University of California Riverside from October 2014 to celestial latitude 2014.2184 TerraCog Global Positioning Systems Conflict and Communication on Project Aerial2 BRIEFCASES HARVARD personal line of credit SCHOOLNeither message was encouraging. The Aerial meeting the next day, involvingthe sales, design & development, and production departments, was now guaranteed to be contentious.It was demonstrate 2008-only two months since Richardson had been promoted to executive vice president. Fiero had tasked her with moving TerraCog toward greater operational concretion and increasing cross-departmental cooperation. Richardson had already been tested by both inventory problems and quality issues, which had led to significant tension between the U.S. headquarters in Ch icago and the production team in Shenzhen, China. Now, disagreement over the proposed price point for Aerial threatened to derail the launch of the prototype in her hand.Company and Industry taradiddleTerraCog was a privately held company specializing in high-quality Global Positioning System (GPS) and fishing 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 provide the growth of its GPS business. Through attentive channel management and, as Fiero put it, a deep understanding of what specialty retailers inevitable, TerraCog had developed strong relationships with its key accounts. Fiero in like manner believed that TerraCogs grasp of its consumers preferences and usage had given it an edge over GPS manufacturers whose core business was in automotive applications.The firm had built its GPS line for the serious outside enthusiasts market, and the products had won plaudits for durability and value-added features like the integrated compass and barometric altimeter. Moreover, industry reports indicated that the TerraCog GPS outperformed competing products on navigation. TerraCogs proprietary firmware-a custom computer program plant into hardware that ran functions-optimized the GPS chipsets Wide Area Augmentation Systemcapability, which provided more precise navigation.The company was not always first to market. In fact, TerraCog had found it was free to shut up in technological 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 w ith its handheld GPS. In early 2007, TerraCog prepared to enter new, underserved GPS sub-markets, including cycling and fitness applications.Google Earth for your GPSAt the Summer 2006 Outdoor Retailer Show-the biggest share show for vendors of outdoor(a) goods-a competitor, Posthaste, had unveiled a GPS prototype called BirdsI that displayed satellite imagery. The imagery was not live, but rather static satellite photographs that had been stitched into a single view. This was a tag improvement on the simple, vector-based graphics used by the tranquility 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 research showed that BirdsI technology did not abide substantive performance improvement over the standard maps in TerraCogs GPS system. Furthermore, the TerraCog team was convinced that Posthastes receiver lagged TerraCogs product in both accuracy and reception quality.W hile 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 SCHOOL BRIEFCASES 3Google Earth built into your GPS-its much more compelling to look at an actual satellite image than to have yellowness for land, blue blobs for water, and grey squiggles for roads. Based on the buzz, TerraCogs executives debated whether to upgrade to satellite imagery. However, they realized that adding the feature to the existing GPS platform required upgrades to processor tempo on it and memory, as well as new firmware. After some deliberation, the company dropped the i dea 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 major national outdoor retailers, both of which were key accounts for TerraCog. Within two months, TerraCogs sales representatives in the field reported impressive sell-through grade 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 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 termination not to develop the product. Its embarrassing to have no answers for our retailers when they ask for our version 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 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 thingummy appeal of such an innovation. The initiative was dubbed Project Aerial. In order to speed development and avoid the costs of new moldings and major reconfiguration, the team decided to plan 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 fir mware, and Alice Gorga, who managed hardware design.RICHARD FIERO Allen, were apparently in a hurry to get to market. But we dont want something slapped together lets make sure we get this product completely right the first time. Our reputation for quality is paramount.ALLEN ROTH Understood. Are we including all the similar features that we have in our current GPS line?ED PRYOR Yes. We plan to offer Aerial at approximately 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 about speed? Satellite imagery requires a lot of processing power, so without some serious juicing, Aerial big businessman 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 sophisticated graphics.As the meeting ended, Roth indicated that they would have to do some careful planning to keep 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 audience 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 devoted the manufacturing lead-time, TerraCog pass judgment 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 matte 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 several other ideas for new products that they believed would position 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 impeded his building of a product line he could truly call his own.Aerial Pre-Launch MeetingAs promised, 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, head 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 agone, Fiero and Whistler had been very involved in new products and tended to make quick decisions. TerraCogs growth forced Fiero to take a step back from the launch process, while Whistler had cut back to part-time 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 initial production volume.At the start of the pre-launch meeting on March 7, Richardson looked down 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 rough grimly and did not mince words This things expensive to build. It l ooks 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 numbers, we would have to sell Aerial for $550 to maintain our security deposit. 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 basically the same components. It doesnt seem adeptified 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 reconsider how to position this thi ng. I think ED PRYOR Wait, are we here to talk about 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. W e 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 manner, If we cant lower these costs and fetter the finances on Aerial, I cant sell it. I wont try.Resumption of Aerial Pre-Launch Meeting One Week later onRoth and Barren had spent 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 hold 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 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 tail fin times as much memory as our standard graphics. That increases cost-but if you cut it, you undermine Aerials value proposition. The n we also did some reconfiguration internally, and that increases the confinement required to put one of these together. He paused, surveying the frustrated faces around him. I dont like the situation 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 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 relative to competition. Posthaste is selling at around $250 to dealers, which means they retail for around $400. Garmin just a nnouncedFor 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. permits 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 WHISTLER What if we relax our margin requirements for once?BECKY TIMMONS Absolutely 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 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 comfortable if we could price it at $ d 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 pricin g 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 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 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 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 abandoned Aerial altogether. As things stood, the arguments and finger-pointing were bound to con tinue, and the group would never come to a decision on its own.