Ask Basic Finance Expert

1. This is based on another real situation. A company was looking at developing a high throughput urinalysis device for central laboratory hospital settings. The company had only a minor presence in such markets so this was a major strategic initiative. The system would consist of a large analyzer with reagents. Marketing initially hoped that they could sell 5000 units. Engineering then developed a preliminary cost estimate of $50K for the machine. Marketing argued that with the standard gross margin requirements, the cost to the end user would be so high that they could sell only 2500 units. The engineers replied that at that volume some of the automated steps and specialized molds and jigs used to assemble this machine would not be cost effective. Without them, the cost for this lower volume would rise to $62K. Marketing's response was that at that volume, they could only sell 1200. This death spiral continued until the proposed project was abandoned.

With this project abandoned the company was left without any access to the strategically important area it was trying to enter. With the abandonment of the project, the strategy was in fact also abandoned.

(a) How could management intervene in this situation to make tradeoffs that would enable them to fulfill the strategic aim?

(b) What assumptions are being made?

(c) Can the validity of these assumptions be tested early in the project?

2. When evaluating the strengths and weaknesses of a company the two most critical elements are availability of funding and the available human resources. All too often when people look at human resources in a company they focus on the top management. The skills and experiences of top management are critical. However I believe that the real strength or weakness of a company lies lower in the organization. In a military analogy, not only do the generals of an army have to know what they are doing, the sergeants have to know too and without the later the former will fail. Why? Because the sergeants get things done and solve problems that constantly arise. In a company these people have varied titles such as manager, director, senior scientist, specialist, etc. Not everyone with these titles is strength to the company. The thing that characterizes them is usually experience (not education necessarily) and sound judgment about their work responsibilities. A personal example: a company I worked for was developing a new glucose test strip. This was a critical strategic project for the company and was being pushed hard by management. The project was not considered to be too challenging technically since somewhat similar products had been developed and sold by the company for years. After initial rapid success the project hit a major snag. The lot to lot variability was terrible. The manager of the group (the only PhD scientist on the project) asked for more resources. He wanted more technicians since his approach to the problem was to vary the amounts of different components in the formulation until he found the one that gave the best reproducibility. So they made a very large number of experimental manufacturing runs at great cost in money and manufacturing capacity and the lab techs did the testing on them. Enormous amounts of time and money was spent with this approach with no success. Finally the lab director overseeing this and other projects, took several scientists off whatever they were working on. They had not been previously involved with the glucose project at all. He assigned us to review this glucose project and see if we could see something that was being done incorrectly or to find alternate approaches to the problem. After an all day meeting, this group focused on one major issue. The chemistry of the test was a series of coupled enzymatic reaction. Blood plasma was the test medium. It seemed to the scientists that there was inadequate buffer in the test to have the reactions run at optimum pH for the enzymes. Direct measurements proved that the pH of the many different lots that had been made ran at significantly different pH values when different plasma sample were applied. Greatly increasing the concentration of buffer in the formulation solved the problem within two weeks.

If someone had assessed this company in a SWOT analysis everything would look good. The company did have the resources needed to complete this vital project promptly. In assessing the project itself, it would have a giant NPV, and the commercial and technical risks would have been assessed as very low. Initially the development costs needed to complete the project would have been considered modest with respect to the NPV; before the difficulties surfaced of course. All of the financial tools we used for measuring projects would have indicated it was a winner. Yet it suffered very long delays and huge unanticipated costs and would have been discontinued if it wasn't so important strategically.What are the lessons here? The wrong person was running a critical project with the wrong resources. Solving this variability problem was not a task that can be accomplished by throwing random resources at the problem. You had to solve a problem you didn't know how to solve at the time.

(1). While fault can be found with many people in this scenario, where were the major weaknesses in the business that led to this situation?

(2). How easy do you think it could be to identify these weaknesses in an analysis of the strengths and weakness of the company? Why?

(3). Can you suggest ways that a company could structure itself so that previously undetected weaknesses can be corrected as quickly as possible?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M9214837

Have any Question?


Related Questions in Basic Finance

Question utilizing the concepts learned throughout the

Question: Utilizing the concepts learned throughout the course, write a Final Paper on one of the following scenarios: • Option One: You are a consultant with 10 years experience in the health care insurance industry. A ...

Discussion your initial discussion thread is due on day 3

Discussion: Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your r ...

Question financial ratios analysis and comparison

Question: Financial Ratios Analysis and Comparison Paper Prior to completing this assignment, review Chapter 10 and 12 in your course text. You are a mid-level manager in a health care organization and you have been aske ...

Grant technologies needs 300000 to pay its supplier grants

Grant Technologies needs $300,000 to pay its supplier. Grant's bank is offering a 210-day simple interest loan with a quoted interest rate of 11 percent and a 20 percent compensating balance requirement. Assuming there a ...

Franks is looking at a new sausage system with an installed

Franks is looking at a new sausage system with an installed cost of $375,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped ...

Market-value ratios garret industries has a priceearnings

(?Market-value ratios?) Garret Industries has a? price/earnings ratio of 19.46X a. If? Garret's earnings per share is ?$1.65?, what is the price per share of? Garret's stock? b. Using the price per share you found in par ...

You are planning to make annual deposits of 4440 into a

You are planning to make annual deposits of $4,440 into a retirement account that pays 9 percent interest compounded monthly. How large will your account balance be in 32 years?  (Do not round intermediate calculations a ...

One year ago you bought a put option on 125000 euros with

One year ago, you bought a put option on 125,000 euros with an expiration date of one year. You paid a premium on the put option of $.05 per unit. The exercise price was $1.36. Assume that one year ago, the spot rate of ...

Common stock versus warrant investment tom baldwin can

Common stock versus warrant investment Tom Baldwin can invest $6,300 in the common stock or the warrants of Lexington Life Insurance. The common stock is currently selling for $30 per share. Its warrants, which provide f ...

Call optionnbspcarol krebs is considering buying 100 shares

Call option  Carol Krebs is considering buying 100 shares of Sooner Products, Inc., at $62 per share. Because she has read that the firm will probably soon receive certain large orders from abroad, she expects the price ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As