ORION CONTROLS (A) Harvard Case Solution & Analysis

ORION CONTROLS (A) Case Solution

Question 1

            If Armstrong makes the decision to design and deliver the new valve regardless of the economic consequences in order to uphold the reputation of his firm as the industry leader, then the company will have to go through all the stages of the super smart valve development from development of the new software to valve redesign. The decision tree for this scenario would be as follows:

            The probabilities at each stage of the valve development process and the relative cash flows could be seen in the above decision tree. Based upon the assumptions in this scenario, the total expected monetary value for developing the new valves for Avion is $ 105500. However, if the company plans to deliver the old valves, then the expected monetary value would be equal to the profit for delivering 50 valves. This is equal to $ 100000. It could be seen that the expected monetary value for designing and delivering the supersmart valves is higher than the value of the old valves therefore, it is recommended for Orion to develop and deliver the supersmart valves since it would yield higher value and profitability for the business.

Question 2

            In this question now if we assume that the economic consequences are also important for Orion then that means that if the improvements in the valve are modest then Orion would decide to deliver the old valves. Also, if the short cut method for the development of the software fails, then again Orion management would decide to supply the old valves to Avion. The decision tree based upon these assumptions with all the relative cash flows and probabilities at each stage of the process could be seen in the decision tree diagram below:

            Based upon the above set of the assumptions, the total expected monetary value for developing the new valves for Avion is $ 225000. However, if the company plans to deliver the old valves then the expected monetary value would be equal to the profit for delivering 50 valves. This is equal to $ 100000. It could be seen that the expected monetary value for designing and delivering the supersmart valves considering the importance of the economic consequences is higher than the value of the old valves therefore, it is recommended for Orion to develop and deliver the supersmart valves since it would yield higher value and profitability for the business.

Question 3

            If we want to compare both the previous approaches in terms of the probability or the chances of developing a new dramatically improved valve, then it could be said that approach 1 in question 1 has the greater chances of developing a new dramatically improved valve. This is because in the first approach Armstrong would not consider the importance of the economic consequences and he would continue with the software development with the additional cost of $ 240,000 if the short cut method fails. However, the probability of failure of the short cut method is 25% which not significant. Also, the probability of dramatic improvements in the valve is 80% which is quite significant. Therefore, the chances of developing a new dramatically improved valve are much higher under approach 1.

            Apart from this, if the objective of Armstrong is to achieve favorable short term financial performance, then he needs to give importance to the economic consequences and adopt approach 2. However, if his objective is long term to enhance customer satisfaction, market development and improve the performance of the company in terms of product reliability, leading edge technology, willingness to design customized products and enhance customer relations, then he needs to adopt approach 1 and go ahead with the design of the improved super smart valve....................

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