Case: Organizational Diagnosis, SLP: Time Warp! 1
Starlette Price
[University]
Comparative Analysis of Schmoe’s Strategy with Star’s Strategy
After a period of five (5) years or from 2011 to 2015 Star showed a much performance than Schomoe. This performance is a true example of the need to review the year performance and make changes, or corrective measure to remedy factors that showed negative results.
The decisions however had to be quickly done and the decision maker has to have the courage to take the calculated risks and make the decision. This is the fault of Schmoe. Schmoe was satisfied with the status quo thinking perhaps that this is a safe strategy rather than plunge into something in the future.
Of course, we realize that the decisions make by managers is dependent on their aversion to taking bold steps and are more comfortable to just sit and wait.
The Schmoe’s strategy is not to make changes on his previous periods strategies. In other words, Schmoe merely maintain the status quo. There were no changes in pricing, in the yearly R & D. As a result Schmoe made a net profit of $1,021,244,375 from revenue of $4,074,246,106, or a net profit rate of 25.07%. Without the changes made on pricing and on R & D costs the contribution margin rate was 15%.
On the one hand, Star made some changes with the objective to improve on Schmoe’s performance for the same period. As a result of the changes made in strategy on the product lines of X5, X6, and X7 Star made better performance than Schomoe. These improvements were in the increase in revenues, higher contribution margin rate. These changes showed a net profit performance of $3,353.393.569 and a net profit rate of 26.42% compared to Schmoe’s of 25.07%.
The increase in net profit rate and in amount of sales was achieved by Star for the simple reason that the prices were increased while the unit variable costs were maintain. Thus the contribution margin rate of Star’s of 42.67% very much higher than Schmoe’s 15% only. This is a good lesson in pricing strategy. When prices are increase while maintaining the unit variable costs the net contribution margin goes up both on the rate and on the absolute amount.
Schmoe’s Year by Year Decisions: Pricing & R&D Allocations
PRODUCT
DECISION
2012
2013
2014
2015
X5
Price $ 285 $ 285 $ 285 $ 285
R&D %
33%
33%
33%
33%
Discontinue?
NO
NO
NO
NO
X6
Price $ 430 $ 430 $ 430 $ 430
R&D %
34%
34%
34%
34%
Discontinue?
NO
NO
NO
NO
X7
Price $ 190 $ 190 $ 190 $ 190
R&D %
33%
33%
33%
33%
Discontinue?
NO
NO
NO
NO
Star’s Year by Year Decisions: Pricing & R&D Allocations
PRODUCT
DECISION
2012
2013
2014
2015
X5
Price $ 295 $ 305 $ 315 $ 325
R&D %
43%
53%
63%
73%
Discontinue?
NO
NO
NO
NO
X6
Price $ 430 $ 430 $ 430 $ 430
R&D %
34%
34%
34%
34%
Discontinue?
NO
NO
NO
NO
X7
Price $ 190 $ 190 $ 190 $ 190
R&D %
33%
33%
33%
33%
Discontinue?
NO
NO
NO
NO
Totals
Variable Name
2011
2012
2013
2014
2015
Star's Total Schmoe's Total
Revenue
