Assignment 1: Technotronics, Inc.

A Report submitted to

Prof. Gita Chaudhuri

In partial fulfilment of the requirements of the course Witten Analysis and

Communication – I

By

Anu Shrivastava

Roll No. 1911037

&

Vinay Kumar

Roll No. 1911293

Section B

On

20-10-2019
 Memo

To: Ilene Carter (Manager, Audio Products section)

From: Peter Burke (Executive Assistant to Ilene Carter)

Date: 30/08/1979

Subject: Report on the future strategic decision regarding commercialization of X-27

In response to the interdepartmental conflict between the Audio Product Section and
the Magnetic Material Section, this report provides all managers with operational
relief in terms of interpersonal relations. This Audio Products Section report presents
the decision on the' X-27' business operation. There is great gratitude for your
consideration of the study.

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EXECUTIVE SUMMARY

Situation Analysis: Audio Product Section used magnet as a major component in

their product but their products were bulky and not up to the mark using current
magnet hence, Advance Development Laboratory developed the theoretical concept
of X-27with more strength than those being made, smaller in size and less cost than
existing magnets. ADL offered development research to Magnetic Material Section
but due to other priorities and doubts on the concept of X-27 it was refused by MMS,
seeing this as good opportunity to develop market leadership APS took the project
from ADL. Looking at the benefits of the product MMS also want part in the share
APS developed the products, but it comes under MMS product line both sections
want to take befits out of it and increase their respective sales.

Problem Statement: Future strategy APS should use to utilize the full potential of X-
27 for its profit and profit of Technotronics.

Options: Three possible options for the problems are:

a) Give control of X-27 to MMS after 5 years
b) Give control of X-27 to MMS with Licence fee to recover cost
c) Give control of X-27 to MMS after two and half years then charge a Licence fee for
three years 

Criteria for Evaluation:

1. Decentralization and X-27 Impact on APS: - Impact on these two factors
will determine the direction Technotronics could take.
2. Profit: The goal is to increase profit of the firm in long run.
3. Market Leadership and Market Pressure: Holding the material for long can
provide Market Leadership to some divisions and can put market pressure
on it which might have negative impact on its image.

Recommendation: It is recommended Give control of X-27 to MMS after two years

then charge a Licence fee for 3 years 

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Situation Analysis: Technotronics has grown through a rapid expansion of its
product lines. Because of that, the company shifted to a decentralized product in
1974. So, section managers can take responsibility for determining and
implementing policies. The idea behind it was to make a fast decision near the unit
and to create a healthy competition between divisions so that they can take more
initiatives and challenges. The goal was to maximize Technotronics profit and to
promoter solution of issues by section managers.
Audio Product Section used a magnet as a significant component in their product,
but their products were bulky and not up to the mark using current magnet hence,
Advance Development Laboratory developed the theoretical concept of X-27with
more strength than those being made, smaller in size and less cost than existing
magnets. ADL offered development research to Magnetic Material Section but due to
other priorities and doubts on the concept of X-27 it was refused by MMS, Seeing
this as good opportunity to develop market leadership APS took the project from
ADL.APS took five years, $1.2 million and personal risk in the development of X-
27.because of its excellent characteristics X-27 could be used in enhancing other
sections product as 20-30% sections in Technotronics use magnet as a component.
But to incorporate X-27 in products and to commercialize it, products that use
magnet had to be redesigned. The process of the redesign will take considerable
time from 18 months till five years depending on product and section. This
commercialization will help them to gain profit and technological lead in the long
term. If Magnetic Materials section sells new material X-27 outside the company,
then the benefit will be realized immediately, but it won't be suitable for APS as it will
lose the opportunity to become a product leader. One solution was to sell X-27 it to
non- competitors, But If sold to only some customers or withhold for too long from
others, then it could be classified as restrain of the trade. Antitrust Division of the
Department of Justice was already observing Technotronics. 
APS developed the products, but it comes under MMS product line both sections
want to take befits out of it and increase their respective sales.

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Problem Statement: Future strategy APS should use to utilize the full potential of X-
27 for its profit and profit of Technotronics.

Options: Three possible options for the problems are:

a) Give control of X-27 to MMS after 5 years
b) Give control of X-27 to MMS with Licence fee to recover cost
c) Give control of X-27 to MMS after two and half years then charge a Licence fee for
three years 

Criteria for Evaluation: 

1) Decentralization and X-27 Impact on APS: - Decentralization policy is very
important to Technotronics to motivate its divisions to take innovative initiative
in the future and to increase moral of its workers by promoting healthy
competition.
2) Profit: - The goal is to increase profit of the firm in long run.
3) Market Leadership and Market Pressure: - Holding the material for long can
provide Market Leadership to some divisions and can put market pressure on
it which might have negative impact on its image.

Evaluation of options:
a.) Give control of X-27 to MMS after 5 years: 

1)  Decentralization: If AUS is allowed compete control of X-27 for next 5 years to

sell within Technotronics and design its product to incorporate new X-27 it will set
good example.
2)  Profit: From Exhibit 2 and Exhibit 3 it is observed that profit will be around $24.54
million if X-27 is kept with AUS and around $36.77million if it given to MMS hence in
5 years’ time Technotronics will lose more than $60 million.
3)  Market Leadership and Market Pressure: There will be a pressure from market
on Technotronics for withholding technology which can lead to bad reputation but
APS will be able to get a good chance at becoming market leader in audio device
section along with some other divisions of Technotronics who can utilize X-27

b.) Give control of X-27 to MMS with Licence fee to recover cost:

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1)  Decentralization: sections can raise questions on company decentralization
policy as a result this could lead to demotivation of other teams from taking such
challenges in the future
2)  Profit: From Exhibit 3 it can be observed that there will be instance profit of
around 12 million dollars if MMS is given production and licence control
3)  Market Leadership and Market Pressure: There will be no Market pressure on
Technotronics, but as minimum 18 months are required by different divisions to
develop new design Technotronic will lose market leadership not only in audio
section but other magnet using sections as well.
c) Give control of X-27 to MMS after two and a half years then charge a Licence
fee for 3 years 
1)  Decentralization: APS will get time to develop new design and can gain market
leadership along with-it APS can sell X-27 within Technotronics and earn a max
profit of 24.54 million dollars (Exhibit 2). It will show perfect example of
decentralization and will motivate others division to take initiative
2)  Profit: Initially there will be a loss of 30.5 million dollars unrealized profit which
Technotronics would have received, if production was directly given to MMS but AUS
contribution is more in Technotronics total revenue (exhibit 1) hence in long run profit
will be more because APS will get chance to become market leader and expand its
market and improve its margins
3)  Market Leadership and Market Pressure: Technotronics will be able to
establish market leadership in multiple sections and there will be no significant
pressure from market

Recommendation: It is recommended Give control of X-27 to MMS after two years

then charge a Licence fee for 3 years 
Action Plan: 1) Draw a contract between APS and MMS that for 2.5 years APS will
produce X-27 and will sell internally then full control of the product will be passed to
MMS
2) Increase the size of the design team and start working on new designs to
incorporate X-27
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3) Market X-27 to a different department within Technotronics and start selling it to
them
4) Workers from AUS should start helping in setting up a new manufacturing unit in
MMS for X-27
5) At the end of 2 years, AUS should start a knowledge transfer session for MMS

Word Count 1053

 
EXHIBITS 1:- Present contribution of MMS and AUS in Technotronics

APS
  (Millions) MMS (Millions)
Total Market capitalisation $50 $40
Cost of Manufacturing $32.5 $24
Earning after Taxes $2.49 $2.2
Contribution in
Technotronics revenue 2.38% 1.90%

Given data:- Total revenue of Technotronics is $2.1 billion

Assumption:-Variable cost of MMS and AUS are 60% and 65% respectively for all
their products

Profit after taxes margin of MMS and AUS for magnet is 5.5% and 5%
on all there products

EXHIBIT 2:- When production of X-27 is with AUS

APS
  (Millions) MMS (Millions)  Total
Potential Total
Market capitalisation
for magnet $16 30  
Cost of
Manufacturing $3.46 18  
 $24.5
Profit (Millions) $12.54 12 4

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Assumption:- All internal market within Technotronics is captured by AUS and cost
of production is one third but selling price is same.

Cost of production and sell have no change for MMS

EXHIBITS 3:-When Production of X-27 is with MMS

APS
  (Millions) MMS (Millions)  Total
Potential Total
Market capitalisation
for magnet $2 $44  
Cost of
Manufacturing $0.43 $8.8  
 $36.7
Profit (Millions) $1.57 $35.2 7

Assumption: - AUS market within Technotronics remain for magnet remains

unchanged but cost of production is one third but selling price is same.

MMS captures remaining 4 Million dollar market within Technotronics and cost of
production is one third but selling price is same

No new market outside is captured right now.