CROON ELEKTROTECHNIEK, B. V.

James A. Narus James C. Anderson *

May 2002

*
James A. Narus is Professor of Business Marketing, Babcock Graduate School of Management, Wake
Forest University. James C. Anderson is the William L. Ford Distinguished Professor of Marketing and
Wholesale Distribution, and Professor of Behavioral Science in Management, Kellogg Graduate School of
Management, Northwestern University. He is also the Irwin Gross Distinguished ISBM Research Fellow at
the Institute for the Study of Business Markets (ISBM), located at Penn State University, and Visiting
Research Professor, Department of Technology Management, Eindhoven University of Technology, the
Netherlands. The significant contributions of Jan Peter van der Hoek, Ewald Bruggeman, and Erwin van
den Broek in gathering and analyzing case information are gratefully acknowledged.

Please note that we prepared this case as the basis for class discussion rather than to illustrate either
effective or ineffective handling of an administrative situation. We have disguised some case information.

Send correspondence to:

James A. Narus
Babcock Graduate School of Management
Wake Forest University
Suite 150, One Morrocroft Centre
6805 Morrison Boulevard
Charlotte, NC 28226-3551 USA
+1.704.365.6717 (telephone)
jim.narus@mba.wfu.edu (e-mail)

©
2002, James C. Anderson and James A. Narus. All rights reserved.
 CROON ELEKTROTECHNIEK, B.V.

A loud but warm greeting startled Fred Kombrink, a lead engineer from Croon Elektrotechniek’s
Engineering Department. It came from Bart Van Asch, a senior account representative from Océ
Technologies B.V. Along with a technical sales team from Océ, Bart had driven one hour by car from
their offices in Den Bosch to Croon’s headquarters in Rotterdam to give a sales presentation for the Océ
950 Digital Reprographics System. “Let me introduce you to my team, “ Bart said enthusiastically as he
gave a brief summary of the qualifications of each person. The team included a junior account
representative, a field technical service representative, and a system engineer.

As the group walked to a Croon conference room, Fred reflected on the events that led to the
day’s meeting. The general manager of Croon Elektrotechniek’s Engineering Department had selected
Fred as the lead engineer on a team and instructed them to select a new document reproduction system
for Croon’s office in Rotterdam. Croon, an electrical engineering and construction firm used the system
to duplicate technical documents including computer aided design (CAD) diagrams, building blueprints,
and construction process specifications. The system also assembled complex “sets” comprised of
numerous pages and varieties of odd sized drawings (e.g., blueprints), charts and graphs. Croon’s
incumbent system, an inkjet printer, analog copier, and offline folder, had done an adequate job for the
past five years. As the system aged and repair expenses continued to mount, the general manager
decided that it was time to replace the system. Fred and his team had narrowed the choices down to
three. First, Croon could replace the incumbent system with an updated inkjet printer, copier, and folder.
Second, Croon could purchase newer technology in the form of the Xerox Engineering Services 8830
Digital Duplication System (XES 870 DDS). Third, Croon could acquire the same technology in the Océ
950. On July 5th, Geert Hoogervorst of Hoogervorst Printing Services, B.V. had given a presentation for
the XES 870 DDS. Bart and the Océ team would have their chance today, July 9th.

BACKGROUND

With annual turnover approaching €200 million (euros) and total employees surpassing 1,500,
Croon Elektrotechniek is one of the four largest electrical engineering, design, and construction firms in
the Netherlands. For over 125 years, Croon has executed installation projects and maintenance contracts
both at home and abroad. Croon serves companies, institutions, and governments in six major sectors –
manufacturing, health care, domestic infrastructure, public buildings, marine and offshore industries, and
water supply. The firm prides itself on its extensive engineering know-how and the ability to integrate a
variety of technologies into comprehensive electrical solutions. The firm’s slogan, “Croon always one
step ahead”, underscores senior management’s goal of constantly seeking new ways to operate faster and
more efficiently while providing superior value to customers. In terms of social goals, Croon
management strongly advocates and practices environmental stewardship.

Croon’s Engineering Department is responsible for both electrical-system and installation-

process design. Draftsmen complete most of this design work on computer aided design (CAD) systems.
When a given project design is completed, a “driver” translates the native CAD file format into an
appropriate printer format so that the diagram can be printed onto oversized “blueprint” paper. In fact,
blueprints are no longer blue – they are typically black printing on a white background. Contrasted with
United States (U.S.) companies where blueprints are rolled up and delivered in large tubes, European
firms tend to mechanically fold these drawings and enclose them within standard-sized project reports.

The current document reproduction system functions in the following manner. A draftsman
completes a diagram(s) on a CAD system and prints it (them) in the form of a blueprint(s) or other
technical document(s) via an inkjet printer onto special, coated paper. As the coated paper furnishes a
 2

low quality document that cannot be marked up or written on, he or she requests that the Croon
Document Reproduction Department make a plain paper copy. To obtain a plain paper copy, the
draftsman takes the lone diagram or combines it with other documents into a “set”. In some cases, the set
is the final project report that Croon engineers will provide to the customer. Then, he or she manually
fills out a “repro ticket” (i.e., reproduction ticket), specifying such things as number of copies, paper size,
and desired completion date. Next, the draftsman takes the entire package (i.e., the set and repro ticket)
to Croon’s Document Reproduction Department. An operator in the Document Reproduction
Department produces the desired number of sets to specifications with a professional-quality analog
copier and offline paper folder. When the entire job has been completed, the operator delivers the set(s)
to the draftsman at his or her location. Each day, an Engineering Department accountant inspects and
reviews Document Reproduction Department repro tickets to calculate and record reproduction costs.

When the Engineering Department bought the incumbent system 5-years ago, it was most
popular system in use in the Netherlands. Over the years, it had performed adequately and most
draftsmen were satisfied with output. However, as it aged, system repair bills mounted significantly.
And, Croon management was well aware of technological advances in document reproduction systems.
For example, it was possible to electronically send a completed CAD file to a document reproduction
system and instruct the system to print the appropriate number of sets without the intervention of an
operator. With an eye on minimizing total operating costs, the general manager instructed Fred to
assemble a cross-functional team and consider both incumbent and emerging technologies for document
reproduction. He recruited a senior engineer, a draftsman, a reproduction system operator, and a
purchasing manager.

Fred and his team began the process with a series of interviews with draftsmen, engineers, and
managers in the Engineering Department. From these discussions, they gathered data on department
requirements and preferences (e.g., number of copies per year, paper sizes used, speed of printing) and on
costs associated with the incumbent system. Then they scoured the market searching for document
reproduction system alternatives that met Engineering Department requirements. They found three – an
updated replacement of the incumbent system, the XES 870 DDS, and the Océ 950.

From discussions with the vendor of the incumbent system, the team learned that the equipment
remained largely the same. Through negotiations, the Croon team successfully reduced price of the
system from the catalogue list price of €20,000 down to €19,091. The vendor could not add another roll
to the incumbent system. Claiming that maintenance contracts were offered at full cost, the vendor
refused to reduce the amount of the annual contract down from the €3,500 list price. As they had 5 years
of data on the incumbent system, Fred and his team turned their attention to the XES 870 DDS and the
Océ 950, contacting vendors and arranging for demonstrations and sales presentations. Hoogervorst
Printing Systems, a dealership based in Hengelo holds exclusive distribution rights for the XES 870 in
the Netherlands, while a direct manufacturer sales force sells the Océ 950.

Croon Requirements and Costs

Early in the purchase process, the Engineering Department’s general manager instructed Fred
and his team to consider total costs of ownership (TCO), not just price. To shift discussions to TCO,
Fred decided to develop and provide detailed, internal data on Croon document reproduction
requirements and costs to Hoogervorst Printing and Océ. In this way, all three companies would work
off the same Croon internal data. And, Hoogervorst Printing and Océ would know with which companies
they were competing for the sale. Fred also told the two vendors that the Croon cost of capital was
 3

around 10%. Exhibit 1, column 2, contains the internal data on the incumbent system that Croon made
available to both Hoogervorst Printing and Océ. Data is presented on an annual basis.

Fred discussed this data and related process information separately with both vendors in the
following terms. The Document Reproduction Department handles around 16,000 jobs or sets per year,
an average of 66 per workday. Of the 66 sets, about 50 entail a single diagram. Typically, an engineer
will run off a “rough draft” of a blueprint, run it by colleagues and clients, make changes in red ink, and
enter those changes into the CAD system. Approximately 16 sets per day are final reports containing
between 2 and 30 pages apiece. On average, draftsmen order 6 copies of each of these 16 final reports.
Some 95% of all sets require three or less sizes of paper. The most popular paper sizes, in order, are one
meter in width, one half meter in width, and standard text width (i.e., A4 letter size). The remaining 5%
of sets require four or five sizes of paper. Importantly, these 5% of sets are for the most critical Croon
customers in terms of potential sales, profits, and prestige.

The incumbent system has two paper drawers or trays, each containing one roll or a pre-cut ream
of paper. When paper runs out or additional paper sizes are needed, an operator has to switch paper rolls
or reams. Paper rolls average between 8 and 15 kilograms in weight and are cumbersome to handle. On
average, the operator spends 10 minutes per day changing paper rolls. The incumbent system has a
stacker that can hold up to 50 folded-sheets of paper. The minimum level of resolution desired on copies
is around 400 x 200 DPI (i.e., dots per square inch).

As Croon had been in business for over 125 years, sets often include “legacy” blueprints (i.e.,
blueprints made before the CAD system had been acquired). The incumbent system features an analog
copier, so a new copy of a legacy blueprint has to be made manually each time it is required. Although
an operator could do such copying, engineering personnel expressed an interest in a obtaining a scanner
that would allow them to transfer and save legacy prints in a digital file format.

With the incumbent system, Croon’s Engineering Department uses about 48,000 square meters
(m2) or 57,600 length-meters (i.e., length of paper used) of paper per year. Of this total amount, the
inkjet printer consumes about 8,000 m2. Only special, coated paper can be used in the inkjet printer at a
price of €0.68 per m2. In addition, special ink had to be used in the inkjet printer at a price of €0.23 per
m2.

Currently, a Document Reproduction Department operator works 6 hours per day, 240 days per
year. The job includes document reproduction plus other related tasks (e.g., processing repro tickets and
changing paper rolls). Operator wages are €31.82 per hour. The incumbent system experiences an
average of 8 paper jams per day and it takes the operator an additional ten minutes per jam (above and
beyond normal copying time) to correct the problem. If the operator work hours could be reduced, the
department would reassign him or her to other value-added tasks. Thus, any time savings created would
yield recoverable cost savings.

It takes a draftsman about 10 minutes to fill out a repro ticket and deliver an original set to the
Document Reproduction Department. Both full-time and part-time draftsmen are compensated at the rate
of €45.46 per hour. If a new system saved draftsman time, Croon would reduce the number of part-time
draftsmen. As with operators, surplus time would be translated into recoverable cost savings.

Each day a Croon Engineering Department accountant spends about one hour processing repro
tickets. Croon full-time and part-time accountant wages average €35 per hour. Once again, timesaving
would yield recoverable cost savings as part-time accountant positions could be reduced or eliminated.
 4

The incumbent system consumed electricity both while in use and in the standby mode. In-use
electrical costs could be calculated as follows. The incumbent system operated at a rate of speed of 120
length-meters of paper per hour (m/hr). While in use, the incumbent system consumed 2 kilowatts of
power per hour (kW/hr). The price of power is about €0.18 per kW per hour (€/kW/hr). There are some
8,760 hours per year. Of this total, the incumbent system is typically in use for 480 hours and in the
standby mode for 8,280 hours. Power consumption in the standby mode is 1 kW/hr.

Croon would need a maintenance contract. Although a system operator could handle most
problems, Croon would periodically require emergency support via telephone or on site calls. In
addition, a technical service representative would have to conduct routine, scheduled maintenance on the
system. Although Croon did not have data available on the cost of downtime due to document
reproduction problems, Fred stressed that copies are critical to the productivity of the department. He
also pointed out that Croon owned ten Océ office copiers and had a €10,000 per year maintenance
contract on them.

Although Fred neither informed Hoogervorst Printing nor Océ as to the final price they had
negotiated with the vendor of the incumbent system, he understood that both companies knew that the list
price of the incumbent system was €20,000 and the price for the annual maintenance contract was
€3,500. Both firms also knew that the predicted the lifetime of the incumbent system was five years.

HOOGERVORST PRINTING DEMONSTRATION AND SALES PRESENTATION

On July 2nd, Fred and his team traveled to Hengelo for a demonstration of the XES 870 DDS at
Hoogervorst Printing. At that time, Geert Hoogervorst provided Fred with performance data from tests
that his firm did comparing Croon’s incumbent system with the XES 870 DDS. Geert furnished Fred
with word equations and a cost savings summary table so that the Croon team could evaluate the TCO
results prior to the formal Hoogervorst sales presentation and negotiation session on July 5th.

Following the demo, the Croon team reviewed the data, word equations, and cost savings table,
verified the information, and constructed its own summary tables. Exhibit 1, column 3, contains
specifications and usage data for the XES 870 DDS that Geert gave Fred. Exhibit 2 lists the word
equations that Geert and his technical experts created to calculate cost savings that the XES 870 DDS
would deliver over the incumbent system.1 Fred and his team scrutinized these equations and agreed that
they were accurate and reasonable. Exhibit 3, column 2, presents Geert’s cost savings summary table
comparing the XES 870 DDS with the incumbent system. Reviewing the projected cost savings, the
Croon team concluded that they too appeared to be correct.

On July 5th, Geert Hoogervorst and a technical representative visited Croon Engineering
Department offices in Rotterdam to give a formal sales presentation. Years ago, Xerox maintained its
own direct sales force and service centers across Europe. Due to severe financial problems, Xerox
recently turned to a network of dealers to market its products.

Geert Hoogervorst, the outgoing and personable proprietor of Hoogervorst Printing, led the
presentation. To refresh Fred and the Croon team’s recollections of the demonstration he began with a
summary of the important features of the XES 870 DDS. As Fred recalled, Geert ran down a long list of

1
To calculate cost savings reported in Exhibit 4, insert appropriate incumbent system data into Exhibit 2
variables with “subscript A” and XES 870 DDS data into those with “subscript B”.
 5

technical and performance specifications. Fred’s technical teammates reassured him that most of those
characteristics adequately met Croon’s needs. There were several features that stood out in Fred’s mind.
 Along with a controller, copier, folder, and stacker, the XES 870 DDS came equipped with a
scanner, so it would be possible to input and save legacy blueprints as digital files.
 The system contained two paper trays equipped with three paper rolls. For an extra €3,500,
Hoogervorst Printing would install a fourth roll.
 The XES 870 DDS had a Xerox designed controller that ran on Xerox’s AccXES operating
system software. The controller could be electronically linked to the Croon computer network.
CAD diagrams could be routed directly from a draftsman’s equipment to the XES 870 DDS
without operator intervention. This would dramatically reduce the amount of time that both
draftsmen and operators would have to spend on document reproduction jobs. Furthermore, it
would eliminate the need for the inkjet printer. As a result, Croon would no longer need coated
paper or ink. The controller would automatically calculate the costs per repro ticket, summarize
daily data, and send results electronically to the accounting department via the firm’s enterprise
resource planning (ERP) system, thus eliminating the need for an accountant to do so manually.
 Print resolution from the XES 870 DDS was 400 x 400 DPI. As a result, the system produced
sharp images and could print jet-black backgrounds.
 The system was modular, enabling the customer to replace existing Xerox components with new
ones. For example, if Xerox introduced an innovative scanner, the customer could buy and
install it immediately without having to contend with the lack of system compatibility.
 Xerox driver programs could be downloaded for free when needed via the Internet. Currently, all
Croon CAD and printing systems relied on Océ drivers; however, Xerox drivers were fully
compatible and could readily replace the Océ programs.
 The XES 870 DDS standard stacker could hold 100 folded-sheets. Croon could purchase up to
nine additional stacker trays at the rate of €30 per tray (note: each additional tray holds 100
folded-sheets). Thus, maximum stacker capacity is 1000 folded-sheets.

Mr. Hoogervorst quickly turned to the TCO information and cost savings summary table his team
had prepared for Croon. Clearly, Geert had a lot of positives to discuss. He began by touting the labor
savings that the XES 870 DDS would deliver. By automating and electronically networking the entire
document reproduction process, Croon would save over €60,000 in draftsman wages, €38,000 in operator
wages, and €8,000 in accountant wages annually.

Then he identified inkjet printer paper and ink cost savings. Not requiring an inkjet printer, the
XES 870 DDS system would annually save Croon €3,040 on printer paper and about €1,660 on ink.
(Note: Croon managers estimated that the elimination of the inkjet printer would only reduce total paper
consumption by 2,000 m2 per year. They believed the new system would actually encourage draftsmen to
make more copies. Thus, coated paper and ink cost savings would in part be mitigated through increases
in plain paper and toner usage.) Due to automation, the number of paper jams would be dramatically
reduced as well. And, with an additional paper roll, operators would have to change paper less often.
So, Croon would realize around €6,364 and €1,273 in paper jam and roll change cost savings,
respectively.

The XES 870 DDS would yield power savings as well. The system ran twice as fast as the
incumbent and was more energy efficient. Combining this with less paper use, the XES 870 DDS would
annually save €117 in operating electricity expenses. The system’s added efficiency would also lower
standby power costs by €1,300 per year.
 6

At this point, Mr. Hoogervorst addressed an important though less tangible benefit -- technical
support service. Two in-house technical service representatives would furnish 24-hour telephone
trouble-shooting assistance and five field-representatives would handle on-site repair and maintenance
visits. Both in-house and field technical representatives would be based at Hoogervorst Printing
headquarters in Hengelo. Geert pointed with pride to several awards that Xerox had won recently in the
U.S. for the outstanding technical support service that its personnel provided for the XES 870 DDS
system.

Although it is not customary in the Netherlands to make direct comparisons to competitors, Geert
wasted no opportunity to identify advantages that the XES 870 DDS had over the Océ 950. For example,
he declared that the XES 870 DDS was the only model to have resolution of 400 x 400 DPI. He claimed
that all other systems had 400 x 200 DPI resolution and relied on software to extrapolate to 400 x 400
DPI. As a result, XES copy images would be sharper and backgrounds would be blacker. Geert touted
the fact that the XES 870 DDS utilized a true mini-computer “controller” that Xerox designed and
configured. Xerox created the AccXES operating system to exclusively handle business reproduction
requirements on the XES 870 DDS. All other reproduction systems used a personal computer that “you
could buy in any retail shop” and ran on the Microsoft Windows NT® operating system.

Geert mentioned that the XES 870 DDS came with only one paper cutter, while others had two
or more. “With more parts to buy and repair, no wonder that other systems and maintenance contracts
are far more expensive than ours. Xerox research suggests that one paper cutter is enough for most users.
Do you really want to pay more for features that you really don’t need?”, Mr. Hoogervorst asked.

As for price, Geert began citing the list prices of €68,000 for the equipment, €3,500 to add a 4 th
roll, and €5,500 for an annual maintenance contract. Following two hours of negotiations, Fred and his
team managed to win a few concessions. Hoogervorst Printing’s final quote came to €64,771 for a 3-roll
XES 870 DDS, €3,000 more to install a 4th roll, and €5,200 for the annual maintenance contract. Geert
said that the expected lifetime of the XES 870 DDS would be five years, if not longer. And, he
emphasized the fact that the XES 870 DDS’ modular design would enable Croon to replace obsolete
components rather than having to buy a new system.

In typical sales fashion, Mr. Hoogervorst closed his presentation pointedly “asking for the order”.
However, he knew full well that a team from Océ would give its presentation in a day or so and that the
Croon team would postpone its final decision until it had heard from both vendors. So, Geert
summarized the key benefits of the XES 870 DDS and encouraged Fred and his team to conduct a
comparative analysis with the Océ 950.

Croon Team’s Assessment of the Hoogervorst Sales Presentation

Later that day, Fred and his team gathered together to assess the XES 870 DDS. Overall, the
Croon team was quite impressed with both the XES 870 DDS and the Hoogervorst presentation. They
concluded that the new technology was far superior to the incumbent system. “For around €50,000 more
in price, we gain about €121,000 in annual cost savings (i.e., €605,000 for 5-years). That is certainly a
tradeoff Croon is willing to make!”

Agreeing with the gist of the TCO analysis, Fred and his team turned to those system benefits
and costs that could not be readily quantified. For starters, the operator on the team was disappointed
with the placement of the folder and stacker at the front of the machine. “We will have to move both
devices out of the way in order to open the XES 870 DDS’ front panel to add toner and switch paper
 7

rolls, as well as to reach the control panel. This will not be convenient at all, particularly for our shorter
and less athletically inclined personnel”, the operator complained.

An engineer added, “Having a custom designed controller and AccXES software sounds
appealing; however, my people feel comfortable using their personal computers and Windows NT. How
much time will they have to spend learning a new system?”

The team liked the fact that the XES 870 DDS was modular in design and that obsolete
components could be replaced with upgraded ones. However, one of Fred’s colleagues pointed out that
Xerox was in dire straits financially and might cease to exist in the near future. “In the short run, Xerox
probably does not have the R&D funds to develop new components. I also find it hard to believe that the
Océ system is not modular. We will have to ask them to be certain,” she stated.

Fred and his team expressed some reservations over Hoogervorst’s technical service. “Given
that most technical service incidents are resolved via telephone, two in-house service representatives
appear at first glance to be too few. How can two representatives adequately cover all Hoogervorst
accounts in the Netherlands? As far as field service goes, my concern is that Hengelo is at least a two-
hour drive from Rotterdam. How long will we have to wait to get assistance? ” Furthermore, the team
questioned the value of the technical service award. “Xerox won the award for service it provides in the
U.S. How can we be sure their dealer in the Netherlands delivers the same quality?”

The draftsmen on the team did not buy the argument concerning the XES 870 DDS’ superior
resolution. “Of course, 400 x 400 DPI images would be sharper; however, blueprints tend to be coarse in
appearance,” one team member commented. “Furthermore, we almost never require a jet black
background. Sharper images and black backgrounds are probably important to commercial publishers
when printing up brochures, posters, or advertisements. We don’t need that level of resolution.”

Another observation concerned the number of paper rolls. “Although the three paper roll
standard model would enable us to handle 95% of our set requirements, it would still require that at least
one paper roll be changed each day. Moreover, I would not feel confident at all about running jobs at
night when an operator would not be present, particularly for the 5% of sets that require 4 or 5 sizes of
paper. Perhaps what we might do is to pay Hoogervorst €3,500 to install a fourth paper roll. By using
two of those rolls for meter-width paper, one for half meter-width paper, and one for text paper, we might
be able to move to one paper roll change every two days and to achieve limited overnight printing
capability. We won’t know definitely until we install the XES 870 DDS and use it under actual working
conditions. Do you think we should spend the extra money and take that chance?” Fred inquired.

Fred and his team did not see any of these limitations as a fatal flaw. Overall, they were well
pleased with the value the XES 870 DDS delivered above and beyond the incumbent system. All things
considered the XES 870 DDS would be far easier to use, more productive, and less costly than the
incumbent system. Clearly, the Croon Engineering Department would be better off if they purchased this
system rather than a newer version of the incumbent.

OCÉ TECHNOLOGIES DEMONSTRATION AND SALES PRESENTATION

With the Hoogervorst Printing Services demonstration and sales presentation fresh on their
minds, Fred and his team traveled to Den Bosch on July 6th for a demo of the Océ 950. Bart van Asch
presented Fred with detailed test data and cost savings information from Océ’s competitive
benchmarking laboratory. The laboratory contained all Océ models plus those of major competitors. A
 8

staff of industrial engineers used the equipment to run comparative performance tests. The analyses that
Bart provided evaluated the Océ 950 not only with the incumbent system but also with the XES 870
DDS. In retrospect, Fred thought that it was curious that Mr. Hoogervorst did not give him data
comparing the XES 870 DDS with the Océ 950 nor did he mention them during his presentation.

Following the meeting, the Croon team incorporated the Océ data into their summary tables.
Exhibit 1, column 4, provides critical specifications and usage data for the Océ 950. Examining Bart’s
word equations, Fred found them to be almost identical to the ones that both Hoogervorst Printing and
Croon were using (see Exhibit 2).2 Exhibit 3, columns 3 and 4, contains Océ’s cost savings summary
table that compares the Océ 950 to both the incumbent system and the XES 870 DDS.

From an Océ brochure, Fred and his team were able to determine that the list price of the Océ
950 (i.e., with 5-rolls) was €85,000, the list price of adding a 6th roll was €10,000, and the list price of the
annual maintenance contract was €7,000. The Croon team created a new table (see Exhibit 4) as a
repository for all pricing information on the three systems. Exhibit 5 contains a photograph of the Océ
950 and the XES 870 DDS.

Department Preferences Survey

Reviewing the summary tables, Fred and his team realized that the Océ 950 provided more cost
savings than the XES 870 DDS. On the other hand, the final negotiated price of the XES 870 DDS was
more than €20,000 less than the list price of the Océ 950. Barring negotiated price concessions from
Océ, the difference in total quantifiable elements (i.e., cost savings and price) would favor the XES 870
DDS. The Croon team concluded that the qualitative benefits (i.e., those that his group could not
currently estimate in monetary terms) might determine the final purchase decision. To gain a better
perspective on the importance of these to Croon, Fred’s team surveyed all 50 employees of the
Engineering Department. In a brief questionnaire, the team asked them to rate the importance of a
variety of qualitative benefits on a scale from “5 = very important” to “1 = not important”. The top five
results are listed below.

Qualitative Benefit Average Rating

overnight printing capability 4.8
ease of use 4.6
lower ozone emissions 4.5
service organization quality 4.3
lower heat production 3.8

The team gleaned a number of insights from the poll. Perhaps most importantly, they learned
that personnel wanted overnight printing capabilities. In recent years, the number of jobs that Croon’s
Engineering Department handled had skyrocketed. And, clients vocally demanded that work be
completed faster. As a result, Croon draftsmen worked furiously until deadlines and often demanded
that set copies be made at the last possible moment. This placed a lot of stress on operators. Moreover,
failure to get sets made on time could be quite costly for the client and besmirch Croon’s reputation. For
example, if a final set were not delivered to a major job site at the beginning of a scheduled workday, 20
to 25 electricians would remain idle until the blueprints arrived. If Croon had overnight printing
capability, draftsmen could work beyond the end of the working day on a project, send the completed file

2
To calculate cost savings reported in Exhibit 5, insert appropriate incumbent system data or XES 870
DDS data into Exhibit 2 variables with “subscript A” and Océ 950 data into those with “subscript B.”
 9

to the print queue and either remain at the office or leave, print the file overnight without the assistance
of an operator, pick up the set copies the following morning, and deliver them to the client’s job site on
time. This would dramatically reduce stress levels for the draftsmen and reproduction system operators
alike.

Reviewing the two competing systems, the team concluded that a 4 paper-roll, XES 870 DDS
might provide limited overnight printing capabilities. On the other hand, the 5 paper-roll Océ 950 would
definitely meet overnight requirements including those 5% of sets that required 4 or 5 paper sizes. They
also realized that Croon management might achieve the same results without additional costs by simply
admonishing draftsmen to “get their work done well before deadlines”. However, such a dictate would
probably not go over well with employees.
 10

Of course, during informal discussions some draftsmen had raised the question, “What happens
if the machine jams overnight without an operator present?” To answer this question, Fred contacted a
few colleagues at other companies that owned either the XES 870 DDS or the Océ 950. Owners of the
XES 870 DDS said that it could be a problem in that if an operator were not present. Although the Croon
team used the conservative estimate that the Océ 950 experienced an average of one jam per day, owners
of the Océ 950 stated that it rarely jammed, particularly when left unattended overnight. And, if the Océ
950 did jam, its user-friendly design enabled any untrained user to readily correct the problem and
quickly return the machine to operations. These claims of overnight printing reliability were supported
in a laboratory research study published recently in What to Buy for Business, a United Kingdom based
magazine that rates office products for European businesses in much the same way as Consumer Reports
does for consumer products. The magazine honored the Océ 950 with its “Best Buy Award” for
document reproductions systems in terms of outstanding functionality, performance, and reliability.

The high scores for lower ozone emissions and heat production surprised Fred and his
colleagues. At first they attributed this to Croon’s long-standing philosophy of environmental
stewardship. With a little investigation, they turned up a more pressing reason. The document
reproduction system was located in a central room at Croon’s facility in Rotterdam. That room had
limited ventilation and no air conditioning. During the summer months, the temperature in the room
while the incumbent system was operating often exceeded 30°C, the maximum level that ARBO (i.e.,
ARBeids Omstandigheden, the Dutch government’s working conditions board) had set. Even more
troubling were excessive ozone emissions that made breathing in the room a problem. Fred learned that
operators had complained to Croon’s “workers council” about the two problems. To date, the worker’s
council had taken no action. However, if they formally complained to ARBO, Fred predicted that Croon
would have to spend at least €25,000 installing ventilation equipment for the incumbent reproduction
system.

On the other hand, a new and more efficient document reproduction system might eliminate the
two problems altogether. Examining the competing products’ specifications and usage data, the team
concluded that the Océ 950 would readily meet ARBO’s heat and ozone emissions standards. The team
saw the potential performance of the XES 870 DDS as being right on the borderline. Until the XES 870
DDS was up and operating at Croon, there would be no way of knowing definitively whether it would
meet or fail to meet ARBO standards. If the XES 870 DDS failed to meet those standards, the team
estimated that Croon would likely have to immediately install a €10,000 ventilation system. This troubled
Fred in that senior management would hold his team accountable for such a miscalculation.

Preparations for Océ Presentation

Fred challenged his team to prepare for the upcoming meeting with Océ. “Now we have a
clearer idea of the importance of the qualitative benefits that our colleagues require. However, we don’t
really know how much of a price premium that Croon should be willing to pay for them. The spread
between the final price that we negotiated for the XES 870 DDS and the list price for the Océ 950 is over
€20,000. I wonder if we can get a better deal from Océ as we are under pressure from senior
management to reduce our operating costs. In the next few days, we must agree upon the tradeoffs in
features versus price that we are willing to make and formulate our negotiation strategy and tactics
shrewdly.”

THE OCÉ PRESENTATION BEGINS

 11

As the Croon and Océ teams settled into their seats in the conference room for the Océ 950 sales
presentation on July 9th, Fred introduced his Croon colleagues and turned the proceedings over to Bart.
 Exhibit 1
Reproduction Systems Specifications and Usage Data

Incumbent System XES 870 DDS Océ 950

Solution Configuration inkjet printer na* na
analog copier digital, laser copier digital, laser copier
offline paper folder online paper folder online paper folder
two paper drawers and rolls two paper drawers, 3 or 4 rolls three paper drawers, 4 to 6 rolls
50 folded-sheets stacker 100 folded-sheets stacker 100 folded-sheets stacker
na* digital scanner digital scanner
na mini-computer controller personal computer control device
na AccXES Operating System Microsoft Windows NT operating system
na connectivity to CAD system connectivity to CAD system
na job interrupt button na
na one paper cutter three paper cutters
Image Resolution 400 x 200 DPI 400 x 400 DPI 400 x 200 DPI (extrapolated higher)
Paper Data
Annual coated paper usage (m2) 8,000 na na
Annual plain paper usage (m2) 40,000 46,000 46,000
Annual length-meters of paper 57,600 49,200 49,200
Coated paper price (€/m2) €0.68 na na
Plain paper price (€/m2) €0.40 €0.40 €0.40
Ink/Toner Data
Ink price per m2 paper €0.23 na na
Toner price per m2 paper €0.03 €0.03 €0.03
Labor Data
Operator hours per day 6 1 1
Operator wages (€/hour) €31.82 €31.82 €31.82
Annual work days 240 240 240
Paper jams per day 8 3 1
Minutes to fix a jam 10 10 10
Paper roll changes per day1 2 1 .5
Number of jobs per year 16,000 16,000 16,000
Draftsman minutes per job 10 5 5
Draftsman wages (€/hour) €45.46 €45.46 €45.46
Minutes to process accounting
data per day 60 0 0
Accountant wages (€/hour) €35.00 €35.00 €35.00
 Exhibit 1 (continued)

Reproductions Systems Specifications and Usage Data

Incumbent System XES 870 DDS Océ 950

Electricity Data
System speed (m/hour) 120 240 270
Operating power use (kW/hour) 2 1.5 1.7
Price of Power (€/kW Hour) €0.18 €0.18 €0.18
Standby power use (kW/hour) 1 0.12 0.015
Total hours per year 8,760 8,760 8,760
Annual hours in-operation 480 205 182
Annual standby hours 8,280 8,555 8578
Expected lifetime in years 5 5 5

*na = not applicable

1
Océ 950 requires a paper roll change on average every other day.
 Exhibit 2

Word Equations
(System A = A, System B = B)

Paper Cost Savings = [(annual printer paper usage in m2 x coated paper price per m2) + (annual copier
paper usage in m2 x plain paper price per m2)]A – [(annual printer paper usage in m2 x coated
paper price per m2) + (annual copier paper usage in m2 x plain paper price per m2)]B

As an example, comparing the XES 870 versus Incumbent System:

Paper cost savings = [(8000m2 x €0.68 per m2) + (40000m2 x €0.40 per m2)]I –
[(0) + (46000m2 x €0.40 per m2)]X
= €3040.00 per year favoring XES

Ink Cost Savings = [(annual printer paper usage in m2 x ink price per m2) + (annual copier paper usage
in m2 x toner price per m2)]A – [(annual printer paper usage in m2 x ink price per m2) + (annual
copier paper usage in m2 x toner price per m2)]B

Operator Cost Savings = (operator hours per dayA – operator hours per dayB) x operator wages per hour
x annual work days

Paper Jam Cost Savings = (paper jams per day x minutes to fix jam/60 minutes per hour x operator
wages per hour x annual work days)A - (paper jams per day x annual work days x minutes to fix
jam x operator wages per hour)B

Roll Change Cost Savings = {[(minutes per day to change rolls/60 minutes per hour) x (number of paper
roll changes per day)]A - [(minutes per day to change rolls/60 minutes per hour) x (number of
paper roll changes per day)]B} x annual work days x operator wages per hour

Draftsman Cost Savings = (number of jobs per year) x [(draftsman minutes per job processing repro
ticketA - draftsman minutes per job processing repro ticketB)/60 minutes per hour] x draftsman
wages per hour

Accountant Cost Savings = [(minutes to process accounting data per dayA – minutes to process
accounting data per dayB)/60 minutes per hour] x annual work days x accountant wages per hour

Electricity Cost Savings = operating cost savings + standby cost savings

Operating cost savings = {[(annual meters of paper used)/(system speed) x operating power use per
hour]A - [(annual meters of paper used)/(system speed) x operating power use per hour] B} x price
of power per hour

Standby cost savings = [(annual standby hours x standby power use per hour)A – [(annual standby
hours x standby power use per hour)B] x price of power per hour

Standby hours = total hours per year – [(annual meters of paper used)/system speed]
 Exhibit 3

Cost Savings Summary Table

Incumbent System, XES 870 DDS, and Océ 950
(Figures reported on an annual basis.)

XES 870 DDS Océ 950 Océ 950

Compared with Compared with Compared with
Incumbent System1 Incumbent System2 XES 870 DDS2
Cost Savings
Paper € 3,040.00 € 3,040.00 € 0.00
Ink € 1,660.00 € 1,660.00 € 0.00
Operator Wages € 38,184.00 € 38,184.00 € 0.00
Paper Jams € 6,364.00 € 8,909.60 €2,545.60
Roll Changes € 1,272.80 € 1,909.20 € 636.40
Draftsman Wages € 60,613.33 € 60,613.33 € 0.00
Accountant Wages € 8,400.00 € 8,400.00 € 0.00
Electricity
Operating Power € 117.45 € 117.04 -€ 0.41
Standby Power € 1,306.61 € 1,467.24 € 161.63
Total €120,957.19 €124,300.41 €3,343.22

1
Data supplied in part by Hoogervost Printing Services. Assumes XES 870 DDS has 3 paper rolls and 5-year lifetime.
2
Data supplied in part by Océ Technologies. Assumes Océ 950 has 5 paper rolls and 5-year lifetime.
 Exhibit 4

Pricing Summary Table

Incumbent System, XES 870 DDS, and Océ 950

Incumbent System1 XES 870 DDS2 Océ 9503

Negotiated Negotiated Negotiated
List Price Final Price List Price Final Price List Price Final Price

Equipment €20,000 €19,091 €68,000 €64,771 €85,000 TBD4

Extra Roll na* na* € 3,500 € 3,000 € 10,000 TBD

Annual
Maintenance € 3,500 € 3,500 € 5,500 € 5,200 € 7,000 TBD
Contract

1
Base model has 2 paper rolls and 5-year lifetime.
2
Base model has 3 paper rolls and 5-year lifetime.
3
Base model has 5 paper rolls and 5-year lifetime.
4
TBD = to be determined
* na = not applicable, an extra paper roll cannot be added.
 Exhibit 5

The Océ 950

Exhibit 5 (continued)

The XES 870