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NAME: VAIBHAVMAHESHWARI ROLL No.: 111160 SECTION A

Introduction:
Voltamp Electrical Corporation is a nationwide company, which was incorporated in 1909, which undertook the designing, manufacturing, selling and servicing of a wide variety of electrical and allied products. As expansion of Voltamp in diversified fields occurred, the top management believed that centralized functional organization severely limits the efficiency of the company and causes more problems. Thus after considerable analysis of the situation in 1950, it was decided to shift the operations of Voltamp from a centralized organization along functional lines to a decentralized organization along product lines. In 1956, the company president set forth that, he planned to make section manager as much like a president, owning a small business unit as possible, within the company framework. Charters of each section broadly defined the responsibility of product lines, within the limitations of the charter the responsibilities of the section manager was to determine and implement policies, discontinuation or expansion of a particular product line, pricing and sales of the product. Personnel policies and general management were standardized throughout the company. Only the particular section could sell its products to outside customers license other manufacturers to produce it. This section charter was developed with the intention of precluding competition among different sections on the sale of a general product line to customers outside the company, but however not to diminish competition among sections in such areas as product development, production and sales of products within the company. In 1951, when the companys Advanced Development Laboratory developed a new theoretical concept of a magnetic material having properties like smaller size, considerably more strength and less cost than existing magnets. Advanced Development Laboratory approached the Magnetic Materials Section, as they were primarily engaged in the manufacturing of magnets and magnetic materials. However, this section was already engaged in developmental research on a number of other magnetic products and its engineers questioned the developmental and commercial viability of such product. The Audio Products Section used magnets as component parts of three-quarters of their products and about half of these magnets were purchased from Magnetic Materials Section and the rest were manufactured at their own foundry. After Magnetic Materials Section turned down the offer of the developmental research of the new magnetic material, Mr. Carter reviewed the possibilities of the new material with his staff and agreed to accept this responsibility. In 1956 the developmental work lead to the discovery of the new magnetic material cost the Audio Products Section almost $500,000, and it was patented under the trademark of TWG. Mr. John Carter, manager of Audio Products Section faced a problem of how best to exploit the commercial possibilities of TWG. Mr. Samuel Grant, manager of the Magnetic Materials Section, approached Mr. Carter and told him that the best and most logical option is to turn over techniques and procedures for manufacturing TGW to the Magnetic Materials Section to exploit all the commercial possibilities of the new material. But Mr. Carter believed that this would allow outside Audio companies and all other Voltamp operating sections would buy TGW directly from Magnetic Materials Section, and that this arrangement will not be the best for Voltamp and also not acceptable to Audio Products Section.

Problems Faced by Audio Products Section:

3 1. Recoupment the developmental investment of $500,000 of TGW. 2. He feared that such an initiative not only might not benefit fully from any results achieved, but might in fact be penalized. 3. Whether or not to turn the TGW production to Magnetic Materials Section. 4. Protection of interest of his own section against its many competitors outside the company. 5. Whether Audio Products Section was the best section to manufacture TGW in the long run. 6. Whether licensing the manufacturing process of TGW would give Audio Products the protection it required.

Analysis of the Problems:

According to the company charter after the decentralization of Voltamp, Audio Products Section cannot sell any other product, but audio products outside the company, it can only manufacture TGW and sell it at a profit internally in Voltamp to those operating sections that used magnets as component parts of their products. And also the related section would be allowed to handle the anticipated long-run sales. Mr. Carter argued that since Audio Products had taken a sizeable risk by accepting the role for development and research on a concept which might easily have proven commercially useless, a risk that Magnetic Materials was not ready to assume. Hence, he should have been given protection against its competitors for a period of at least five years, during which Audio Products could establish product leadership in the field. The companys decentralization policy encouraged the operating sectors to take initiative and responsibility for new developments. He wondered if a section took the initiative for development had a risk for another section that might dispute its right to benefit from what it had developed, carried an incentive. Mr. Carter argues that since the TGW has been developed by Audio Products Section, and it also bore the developmental cost of the new magnetic material, hence the rights to manufacture TGW should remain within Audio Products section. However Mr. Grant questioned Audio Products Section, whether Audio Products was the best section to manufacture TGW in the long-run. He noted that even if a decision was made not to sell TGW outside the company for a five-year protection period, production facilities would eventually have to be located in the Magnetic Material Section. Mr. Grant points out that Magnetic Materials besides manufacturing, could license manufacturing process for TGW to competing companies, and the royalty payment would reimburse Voltamp and also perhaps Audio products directly for the developmental cost. But Mr. Carter pointed out that the magnetic component was a relatively insignificant cost factor in most products using it, and it might not give Audio Products the protection it seek. Mr. Carter thought that the competitors of Voltamp could unfavourably publicize the refusal by Voltamp to license or sell the product, they could make it seem as if Voltamp was arbitrarily preventing others from manufacturing and selling products that could improve upon the living standards, strengthening of the economy and promotion of national defense efforts, by withholding TGW.

Best Probable Solution to the Problem:

4 Audio Products should give the manufacturing rights to Magnetic Materials, as it has much more expertise in production of magnetic materials and trained employees to carry out the process. Magnetic Materials could gain product leadership in magnets and realize resulting profits for the company immediately, by selling TGW to customers outside the company. Also Audio Products need $750,000 worth of magnetic materials were for the products that comprised the remaining $24 million of the Audio sales. Also Magnetic Materials could sell magnets to customers outside the company. Anyhow after some time in the long-run due the company charter all the rights of manufacturing TGW would be transferred to Magnetic Materials. As a few operating sections of the company purchase magnets worth $2 million from outside sources, because the section could get the required magnets at a lower cost than the outside sources. The strength and stability of TGW surpassed the existing range of products and TGW could radically change many existing products. The major policy of Voltamp had been to make the only about company a leader in the fields of design, development and improvement of electrical products. TGW should benefit Voltamp by enhancing its position of leadership in the industry by using the new magnet as a component part in existing products and new products. TGW should be sold only to customers whose product do not compete with Voltamp products using magnetic components, and also to wholesalers who sold directly to dealers and to magnet users. The manufacturing process for TGW should licensed for the competing companies, and there should be a special agreement between Magnetic Materials and Audio Products on royalty sharing as the royalty generated will help Audio Products to realise the developmental cost and also generate revenue for the company in turn. Also this will make the production cost higher for Voltamp competitors because of the royalty and this would provide Voltamp a protection and competitive position.

Conclusion:
So it is concluded that the technology for manufacturing of TGW should be transferred to Magnetic Materials, and license its manufacturing for competitors. Internal sections of the company should source TGW from within and develop new products so as to incorporate the TGW in them. Both Magnetic Materials and Audio Products should work towards the profit of Voltamp as a single entity but not towards their individual sections and have competition with each other. Also at this stage the obvious potential of TGW in new and existing products in the industry could not be accurately forecasted. Successful exploitation of TGW by Voltamp at this time could not be translated accurately into anticipated increases in sales and profit.