Cummins Strategic decisions Harvard Case Solution & Analysis

Cummins Strategic decisions: Case Solution 

Problem Statement:

The competitors of the company want to delay the production in order to get competitive advantage in the market whereas, the environmental agencies are not happy with this decision because old engines caused serious health issues for the community especially the children. The company knew that this is a very important decision for the company’s future because half of the sales of the company are due to Cummins Engine business. Furthermore, Cummins’ decision would impact the future of other competitors in the heavy-duty engine market.

Cummins should decide whether to agree with its competitors’ position and requestfor thedelay of the production of their new engine or it should launch a newly costly engine by October 2002.

Pros and Cons of both alternatives:

Option A: (Agree with competitors’ position)

If the company agrees with its competitor and delays the production of new engine, then it would face many problems as well as it would be able to reap some benefits out of this decision, which are listed below:

Pros:

  • Increase of Revenue (Stable Growth)
  • Customers’ satisfaction. (Low operating cost)
  • Competitive advantage. (High Market Share)
  • Low operating cost. (Affects TOC analysis)

Cons:

  • Penalty. (Significant Amount)
  • Environment issues. (Major Health Issues)
  • Bad image. (Poor CSR)

Option B: (Launching a new costly engine)

Pros:

  • Ecological factors achieved. (Good CSR)
  • Competitiveness in future. (Increase of revenues in future by value adding feature)
  • No penalty. (Saving of cost)
  • Strong Brand Image. (Creates Eco-customers)
  • Motivated Employees. (Increases production)

Cons:

  • High cost. (Maintenance, repairs, fuel)
  • Dissatisfaction of some customers. (Reluctant to change therefore, the company should convince them)
  • Revenue decreases. (In short, but in the long term there is growth potential)

Arguments by Qualitative and Quantitative evidence:

There are many arguments in favor and against of these two major issues faced by thecompany:

Operating cost:The operating cost is low in delaying the production of new engine however,the company has to pay a penalty which is a significant amount. Moreover, the company can build new engines with this cost instead of paying the penalty, as this would have been used for some productive work.

Ecological factors: Ecological factors are very important in today’s environment. The Marketing Manager is eco-conscious and if the company agrees with competitors’ decision, then it would create a bad image of the company since nitrogen causes major health issues to people especially children as it causes asthma.

Penalty:

Penalty is a significant amount for noncompliance, and the production cost of the new engine is less than the penalty. Moreover, the company should plan the production as suppliers are ready to deliver parts for the project and hence, the amount of penalty required in constructive work would be less.

Customers’ Expectation:

Some customers warned the company, however some customers wanted to change, therefore the company should try to bring the focus of its customers towards ecological behavior, which would cause serious damage to the society.It is a value-added feature, however the customers expect low operating cost, therefore this is a big challenge for the company to convince its consumers as they want low consumption and less maintenance cost.

Framework for study of Diesel Industry:

Porter Five Forces:

Bargaining power of Customer:

The bargaining power of customers is high because they have different preferences for the products, as there are six major manufacturers in the market. Moreover, the customers and agencies are the major stakeholders, and they must be kept satisfied for the company’s growth in the competitive industry where there are many competitors  in the market. On the other hand, the customers demand diesel engines with excellent fuel economy and low operating cost.

Bargaining power of Supplier:

Suppliers are prepared to provide new parts for the EGR system. Moreover, suppliers’ evaluation is essential for the growth of the company. In addition,the bargaining power of the suppliers is normal in this case as the production is going to be started, and the suppliers are ready to provide the parts to the company........................

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