Pain in the Chain

“Good Lord! What do we do?” Greg Sullivan, CEO of microcontroller giant iTech Inc., asked impatiently, looking at the blank faces. He was chairing an organization-wide all hands call in China. His forbearance was devastated just like the sales of his company. Did the company that he nurtured as his own child have to suffer this way?

Suddenly a murmur caught everyone’s attention. Tim Hanes, head of sales team-China with a lot of efforts put it across “But what can we do? We have been making all our e fforts.” Gearing up gradually as if he was in a hurry to push forward what he wanted to say, he said at a stance—“The question remains with the team that fixes the price. They do not understand the market and as a result, the pain exists here.”

In a quick shot to what Tim said, Jack Carlos, head of pricing team quickly justified—“We work closely with the sales team to evaluate the value delivered and ascertain the sales price. It is just that the sales team looks at their own compensation, so they choose low prices against value.”

People from Tim’s team felt offended. They resounded to show no confidence on what Carlos had just said. This debate was unending. The clock folded its arm to show 1:30 am. Greg took off his spectacles; he was tired after a long day he had. Though he wanted to conclude, he never intended to force his verdict on those working for him. His approach was rather to make his people realize their share of problems, work upon them relentlessly, and have empathy for each other.

Looking at the “no decision” for the day, Greg with his despondency said—“I would like you to work on this problem. Let’s get back tomorrow at 9:00 am.” Resting upward having the support of the table, his palm covering the cheeks, his fingers pointing upward, and stretching his forehead, he said,

I did not like what I saw today. In the haste of proving yourselves, I have seen you, “my people” arguing with each other rather than confronting the problems. I would like each team to work upon, and make a presentation on, how they operate so that each of us ends up on the same page.

With much trust and hope, he said, “Possibly we may be able to sort out our working differences.”

Leaning back into the seat of his Mercedes, while returning to the lodging that had been arranged for him, looking out the window, he reflected back at the yesteryears when he started operations in China. Apropos of increasing customer attractiveness toward touchscreen technology, inverter control washing machines, and smart microwaves, there are all possibilities that global microcontrollers (MCU) market possibly doubles in its value propositions in the next couple of years. Addressing the specific requirements against high demands of memory and programable microcontroller solutions from the consumer durables industry, Greg in consultation with his team formed different divisions for each range of product called memory solutions division (MSD) and programable products division (PPD). Each of these divisions was divided and comprised of an apps team for application development, a support team for product support, and a product marketing team. The sales and pricing teams were spread over the regions and worked across all divisions as horizontal segments. The Sales team of each region was given the responsibility for the sales of all PPD as well as MSD products. Each division covered a range of product lines. Over the period, the memory solutions division had grown its provisions to synchronous and asynchronous memory business unit, and ferroelectric random access memory (FRAM) business unit. Similarly, the programable product division had the wireless business unit, programable chip unit, and a touch solutions business unit. All these products had a wide range of applications in consumer durables such as television, microwave, washing machines, printers, storage devices, cameras, and medical devices such as scanners, etc.

After all, Sullivan carved and nurtured his microcontroller giant, iTech Inc., with a lot of care into a well-structured organization, spreading the advancements that the technology can bring across geographies.

With time as competition had grown, iTech also had gone through changes. Earlier iTech enjoyed the ecstasy of being the market leader and delivered high-performance, mixed-signal, and programable solutions. For sure, it enabled iTech to enjoy higher profit margins. However, with increasing competitiveness, and disruptive market entrants, sustaining the brand in the market would have required an appropriate pricing strategy. Unlike before, iTech could not have enjoyed situations of past. These situations were constantly pestering Greg. While technology change and enhanced competitiveness had driven his organization to reduce the price, organizational aspiration to attain a position in elite segments of the market, selling chips at a low price could have harmed the existing position. In conjugation, the threat of substitutes like higher bits microcontrollers had made the situations complex.

Deep in his thoughts, he looked at the different faces with whom he had dealt in the meeting that day. One of them was Paul Antony—business unit director in iTech Inc., based out of California, who heads the wireless controller unit. Then there were the Apps Development Team Manager—Andrew White, and Product Marketing Manager—Hill Goldstone, reporting to him.

Andrew’s team had won various awards related to new design development in the past year. They filed many patents for these developments. Wireless solutions were fast catching up in the technology world and overlooked a promising market. These developments were accolades in the past and had been posing the challenges for Hill’s product team to scout for various wireless applications, track the different new inventions in the wireless world, and understand the requirements of each of these applications and products. With a thorough knowledge of the working and implementation of the wireless business unit products, Hill’s team had to identify the opportunities for which these chip wireless solutions would be the best fit. Once the opportunity was identified, Hill had been instrumental in leading and supervising the product launch and marketing programs. They had provided inputs to the sales team for potential customer deals. Their primary objective had been to segment the customer base, target the best customer segments, and position each of the products well across all applications, thereby developing suitable marketing plans.

The main business of iTech was brought by the sales teams that were managed at a regional level. The majority of the wireless sales revenue came from the markets of China. Last year it was almost 83 percent of the sales revenue. As Tim Hanes headed the sales team, he had led a team of highly motivated sales executives. He and his team had been responsible for clinching deals with the customers and getting the actual dollars. The sales team through distributors interacted with the purchase department representatives of various client companies to understand the requirements and inform them about the product offerings. For the wireless products, Tim’s team had relied heavily on Andrew’s marketing team so as to identify the opportunities and best deals available in the market. Each sales representative had a part of his remuneration determined by the percentage of the number of deals won or sales made. Hence, their main impetus remained in converting the potential consumers into actual sales.

This activity was majorly controlled by the prices quoted for which Greg was advised by McQuinney during one of its process improvement projects to form a separate entity in the organization, the pricing team. Greg remembered how his company had invited McQuinney, a worldwide known consultant, for the process improvement of the project. It was McQuinney that had suggested Sullivan and Associates to create a separate pricing team. Headed by Jack Carlos, this team had to work across all regions and was to be responsible for the quotation of the sales prices of each and every product of iTech.

As Greg was anxious to see whether he was going to get a solution for his problem that day, he did not sleep last night. After the lame night, he was eager to be with his people. It was 9:00 AM. Each team had to make a presentation and put forward their side of the story. Jack Carlos initiated the process.

He said,

Good morning Ladies and Gentlemen,We all know the purpose of today’s meeting. Without beating around the bush, I would like to come to the point and present our side of the story. We fix up prices depending on the strength of the benefits we can offer to customers. Having clarity of what we can offer to customers over our competitors, we revise the prices. We focus on the price that we believe our customers are ready to pay, based on the benefits our business offers.

Further looking at his team members, he said, “Our team comprises specialists each of whom manages the pricing of the entire business unit.” Looking at a middle-aged man seating eagerly by his side, Jack waved at and introduced Michael. He added,

Michael understands the customer requirements from the Sales executives and the product offerings from product marketing team in California. Based on the value delivered in each case, he ascertains the price for each deal. We have been working hard with all our integrity, passion and dedication to bring goodness to our organization. This is all that I have to say.

It was Michael’s turn to put forward his perspective. Greeting the members, Michael enthusiastically said,

We negotiate with customers regarding the prices, and this justifies the quoted price. During this process, our objective remains in ensuring that optimal average selling price is maintained. This helps to maximize revenues earned from the wireless unit. At the end of the year, as each of us is aware, the sales analysis has been made, and our performance has been appraised. So when Greg holds the annual hands call organization-wide, each business unit presents the revenue earned, the pricing team presents the annual selling price variance, and the sales team presents the annual sales. Based on this they revise the booking process of products, and the business growth is determined, and this forms the basis of future business expansion plans.

With this, he calmly sat back into his chair and waited. It was Tim’s turn then. Tim presented the view of their team and functional problems they had faced. Greeting the members present in the manor, he said,

We heard the perspective of Carlos and his team. My team is worried because we find it difficult to work. The prices quoted by the pricing teams are very high, and hence, we fail in converting the sales, essentially in a market like China. However, at times to meet revenue targets set by the business unit heads, we are forced to make arrangements to sell units at lower prices to clinch a deal. This variance in the underlying objectives of each team has been causing a potential conflict of interest. As we would like to maximize the number of sales deals, we seek lower prices for deal conversion. Though we understand that the pricing team needs to maintain average selling price, hence they seek relatively normalized higher prices, these conflicts have been responsible for the random movement of revenue figures instead of a linear growth despite having huge potential in the wireless business.

This was all Tim had to say.

Having done with the presentations, Greg was looking for a more efficient model to be implemented which would optimize the operations of each of these teams. A suitable solution to streamline the entire process, minimizing the possibility of a conflict of interests has to be devised so as to ensure a more harmonized working environment.

Note:

All characters and organizations in the case are fictitious. Any resemblance or similarity to real persons, living or dead, or organization, is purely co-incidental. This case has been written purely for an academic purpose only.