Global Innovation’s Challenges Case Study

From the Case we can tell that Peter Vyas has been very effective in dealing with the tricky situation of his Unit. He in fact managed to rebuild a low morale and a high turnover Unit selecting entrepreneurial minded people. He truly believes in the skills of his team and had faith in its project, which has been discharged by previous management, and succeeded in motivating the team to pick up the project again and develop it further. In Cynthia Jackson’s words, VP of the divison, he “seems to be an excellent talented manager”.

In fact he rather brilliantly coped with the global challenges of his cross cultural and cross continental Unit, fixing the communication issues between Wagner and the ITC during the critical phase 2 of the third launch. Also managed to convince the ITC technicians to keep on working on the project even after their disappointment arising from the shift in target market. Jackson managed to give a sound structure to the Filtration Unit business proposals by making them walk through a 3- phase process. In this sense Jackson represented a true element of discontinuity prompting a virtuous circle in the Unit.

In fact she actively took part in the revision of the proposal at each of the 3 phases by challenging the data and helping them through the most critical parts. Specifically, during phase 2 she helped Vyas in exploiting ART’s internal expertise by putting him in contact with other high skilled technicians of company’s different divisions. The company as a whole has always been committed in supporting innovation through encouraging employees to adopt the “thinker time” culture. ART celebrates the “worth attempts” even if proven unsuccessful. Moreover knowledge sharing is another key point of ART philosophy.

It is not uncommon, in fact, that some experts go “on loan” in other divisions allowing for a true transversal cooperation among divisions. From the forecasts provided by the team working on RIMOS project in Ex 5 we can tell that the demanding performance objectives (10% sales growth, 15% pretax margins, 20% ROIC) set by ART top management are fairly met. In fact, if we assume that there are no interest expenses, and therefore operating income would match pretax margins, the projections clearly show a high profitable investment, apart from the launch year where only the O.

I. are 5% less than the target. With some calculations, we can deduct that, given the 2M$ investment, the ROIC will be always higher than 20% and, the sales growth, even though in a descending trend, stands in a range between 30% and 20%. Finally we can say that the payback period is roughly more than 3 years, which, for a product with innovative technology, makes a rather safe investment. In the more likely case that capital loans are actually present, forecasted pretax margins could be lower than O. I.

Notwithstanding, two out of three index of profitability (sales growth and ROIC) are higher than ART targets, which still makes the investment desiderable. Nevertheless it would be advisable for the team to acquire information on the WACC and a target IRR in order to make more reliable assumptions on the profitability of the project. Finally, there are further interesting possibilities for the product to be employed in the original application in developing countries, these were not accounted for in the business plan but could be pursued if the product gives evidences of market appreciation.

To sum up, considering the above mentioned economics, the strong commitment of the team, the applicability of the project on other markets and the ability of Vyas himself as a manager, which could successfully mitigate the risks shown in Ex 6, it is a safe bet to say that Vyas would be confident in supporting the team 2M$ funding request. Jackson would have similar feelings about the effort put in the project, given that she has hands on experience of the whole third launch attempt.

She knows that the team has proven to be disciplined and successfully responded to the strict 3 phase process. In addition, during the development of the product, in true ART spirit, the team activated a full range of synergies with the ITC, HVAC and Healthcare divisions. Coming to a higher perspective, considering the critical situation in which the Filtration Unit is, an above-the-target performance of the project would bring up the value of the entire Unit; this might not be enough to mitigate the bulky yearly losses, though.

In fact, a logic of divesting the BU might be the one Jackson would look at. Such an investment, in fact, even if does not turn out to be at ART standards might still represents a high performance for other companies. In the end such an investment can make a BU with chronic losses like the Filtration Unit a more valuable asset to be sold. Furthermore is to be considered that 2M$ financing is a mere sum compared to the yearly 6M$ losses of the Unit, making it a low opportunity-cost investment.

The decision of Jackson would be to invest in the project but at the same time starting a cost reduction policy by focusing on the internal R&D center and by dropping the cooperation with ITC which proved to be time consuming and communicatively challenging. The objective would be to wait for a revaluation of the Unit before divesting it or, in case RIMOS performance beats the forecast to an extent that outbalances the Unit losses, keeping it and supporting it.