Introduction
Clipboard Tablet Co. will be going through some major upswings in the year 2106 as the new marketing initiatives are put in place. The recommended marketing and pricing strategies show a shift from the last four years in many ways and are all designed to increase the profitability of the company. In an effort to illustrate the financial impact of these changes and introduce you to the analysis of prior years the following will serve as an analysis and growth for the future.
It is apparent from the review that no changes were made to R&D (research and development), pricing and several other areas in the last four years. The products that did not receive any changes are X5, X6, X7. In order to do an effective change a diagnosis of the prior years has been performed to recommend improvements. The organizational diagnosis is a process that leads to recommendations for change improvement .
Price and Performance
At the end of 2011, the total profit was $81,571,138. The profit is based upon just two products X5 and X6. X7, on the market only since 2014, is implicit in the assumption that customers care about price and performance. Profitability for both X5 and X6 were at 16%. The market potential for X7 is not as yet known at this time period.
In 2012, the following pricing strategies were in force to yield the above results.
X5 Price $285
X6 Price $430
X7 Price $190
In an effort to show the effect of R&D the R&D allocation for 2012 was divided equally among the three products. The rounding percentage was attributed to X6. Therefore:
X5 R&D Allocation: 33%
X6 R&D Allocation: 34%
X7 R&D Allocation: 33%
Since no products have been discontinued at this point the cost associated with discontinuing a product is not a factor.
Running the simulation changed the profit considerably to $270,573,835. The X5 performance appeared to run comparable to other sales in the same space. X6 sales are still considered in a growth phase and the sales for X7 actually were at a loss of $23,065,952 or -73%. Customers paid more for the X6 than any other products in the same space. The growth of X6 is not complete and all indications show a strong growth potential and a strong sales in the future years. X7 is expected to increase as the future gains some momentum. X5 is expected to remain strong.
The decision to keep the R&D expenses at an equal level, and several other missed opportunities resulted in lower profits than were attainable in the 2012 market. As the chart shows X5 was in a growth phase, reducing the price in a small way would have captured a larger market for the future for X5. In the same way, X6 could be priced somewhat higher because it was a the time judged to be a better product than the others in the category. It is an assumption that if prices were higher because of the superiority of other products in the clipboard categories. The higher pricing prohibited some people from trying the X5 thereby reducing sales. A higher R&D percentage would have increased potential sales for 2012.
In 2013 there are several strategic decisions that have kept profits lower in 2013 and also for the next two years. An attempt to show the changes this process would have caused is as follows. Introducing the new assumptions into the simulation, the profit at the end of 2013 was $830,740, 435. In the simulation the adviser said that the X7 was prices higher than the others in the category. According to the advisor, X7 was priced higher than peers but did not have the performance capabilities so that it is still considered in its growth phase. However, X5 is gaining the market saturation that often comes with the product becoming obsolete.
The potential for X7 is expected to overcome the saturation and encourage additional sales from the satisfied customers of X5 as they look to upgrade. This makes the potential sales for X7 much more inviting and in addition, the sales of X6 are strong. The sales predictions are on target for a equal product. However the X7 is more expensive and is expected to surpass the sales of X5 and X6.
It is the expected increase in sales that was missed by not increasing the R&D. In the business of clipboard Tablets, the cost-volume-profit analysis offers a guide for looking at the effects of differing levels of activity on the gains or losses that any one of the factors will have on the profitability of a company . This analysis is useful to predict the sales and profit levels of the cost structures.
In 2013 an increase in R&D would have maintained the position of top in the market for the X6. The X6 has been touted as offering superior performance so more R&D would have propelled the X6 project to higher levels. Since the X% is reaching maximum market saturation, less R&D should have been allocated. It seems rather foolish to keep on spending on R&D for an potentially short lived product. On the other side X7 was ramping up and was in need of higher R&D expenditures to increase the market advantage of this product quicker than happened in the normal cycle offered by lack of sufficient R&D expenditures.
In 2014, since the R&D expenditures were not allocated in 2013, a slower growth pattern for the newest product X7 occurred as expected. the product instead of capturing a high market share suffered from lack of R&D and slows the race to market. In 2014, X5 is at market saturation and X6 is closely approaching market saturation. No changes were made to R&D even at this point so as expected the market showed poorer results than achievable with some changes in the allocation of resources. This was an unfortunate, but predictable, result. In an effective R&D strategy, there is no magic bullet and that is true of the hindsight approach to the decisions of the former decision makers. However, without proper R&D, future profits are negatively affected and because the commitment to R&D was not apparently an important trade off the pricing and price performance going into 2016 has been negatively affected .
Research and Development Allocation Problems
The keeping of R&D consistent also was one of the factors on the almost flat performance of the three products. The simulation advisor said that the pricing of the products was competitive with other products. total profit at the end of 2014 was $1,319,039,222. Looking at the CVP for X5, it is evident that X5 is reaching its saturation point and still is receiving the benefit of equal R&D. Additionally, the X^ product is moving toward saturation as it has not received an increase in R&D for the prior years and the market place is showing signs of not growing at an acceptable rate. X7 is headed for this same path and should receive an input of a great deal of R&D. The market will appear as saturated if the product is not updated shortly.
That brings us forward to the most recent audit at the end of 2015. R&D for 2015 remained constant for all products. Two products have attained maturation, X% and X6. The profit at the end of 2015 was $1,513,237,527. R&D was continued in the year of 2015 for X5 and X6 even though the customer is only buying replacement parts basically on these products. The Clipboard Company needs to spend R&D funds wisely to encourage a growth spurt in X7 as it is the product with the most potential for future growth.
Companies that are involved in R&D activities are often considered to be competing in a race against each other for first to market with a new product or idea . clipboard is not any different in this process. The past process of allocating the same amount of R&D to each product in an effort to maximize profits from these products was flawed. R&D should be discontinued for products X5 and X6 and diverted to X7 and any future products that is being developed. The optimal allocation for X7 would be at a level of at least 75% of the available funds and the other 25% allocated to the future product development. Included in future plans would be the redesign of X% and X6 so as to increase the continued sales of the current customers for these products.
This report serves as historical perspective on the underlying decisions that have lead the Clipboard company to receive less than their market share,. competitors have entered the market with increased viability and this has resulted in 2016 with Clipboard being a weaker market position with only one product to sell that has not reached the saturation point in the market. The implications of these past decisions is not good for the future and it is in this manner a handbook for the future of lessons well learned.
Conclusion
Going forward, hopefully with an increased R&D expenditures the profitability of Clipboard is struggling to attain high levels in light of the increased competition in the marketplace. The company will base its profits on the X& product. the X7 is a handheld product and, is priced higher at this point than the competitors. Examining the variable costs, they exceed the revenue. In applying a CVP to this product, it appears as though a loss is achieved each time one of these is sold. Therefore to stop the bleeding that exists, the R&D department will be directed to develop a process to reduce the CVP costs that are associated with the X7. Less emphasis on the X5 as it is of lower quality and lower performance to other products on the market.
In 2016, the goal of the X& is to outperform the competitors products. It is expected to be comparable in price to the competitors. It is important to monitor the financials and performance of the X7 so as to overcome the deficits in the market caused by the decline in X5 and X6. It is hoped that a new product, X8, will be offered to compete with others in the industry and to spur a new customer growth.
References
Basu, O. (1994). Cost-Volume-Profit Analysis. Academic Journal Article, [online] https://www.questia.com/library/journal/1P3-7406596/cost-volume-profit-analysis-uses-and-complexities. Accessed January 2016.
Gerchak, Y. (1999). Allocating resources to resrach and development projects in a competitive environment. IIE Transactions, [online] doi: http://link.springer.com/article/10.1023%2FA%3A1007618531516#page-2. Accessed Janaury 2016.
Hayes, J. (2014). The Theory and Practice of Change Management. Palgrave Macmillian: [online] https://books.google.com/books?hl=en&lr=&id=-jMdBQAAQBAJ&oi=fnd&pg=PP1&dq=change+management+scholarly&ots=50Wh6AnHMr&sig=C0W--QEsy_EvFORE5riLjGecb4E#v=onepage&q=119&f=false. Accessed January 2016.
Pisano, G. P. (2012). Creating an R&D Strategy. Harvard Business REview, [online] doi:www.12-095_fb1bdf97-e0ec04a82-b67c0-42279dd4d00e.pdf Accessed January 2016.
