Faced with the challenge of continuing to remain the leader in industrial valve systems, Orion Controls is required to decide whether or not to carry out product improvement redesigns. A successful redesign will secure the company an initial level of sales of 50 or 90 units to two new customers followed by the benefits of enjoying an innovator’s reputation.
An expected profit of $262,900 resulting from a product redesign given the information available with Orion and current commitments, the company is advised to carry out the redesign and sell to Avion Chemicals and Kemikal. Orion can make a profit of up to $655,000 if successful in achieving dramatic changes in its existing model SV44A-10 …show more content…
If the competitor develops the valve before Orion, there are severe consequences including the competitor being viewed as the innovator, a chance Kemikal will purchase from the competitor instead of Orion, and the long-term impact of losing their reputation in the industry for having taken too long to develop the valve resulting in a reduction in profits. The benefit of taking the risk and trying the short-cut approach of developing the software for the valve includes building a brand name as the innovator of the valve and making substantial profits. o If the competitor develops a dramatically improved valve, Orion needs a dramatically improved valve in order to compete. If Orion only produces a modestly improved valve, it will have to keep investing in improvements to produce a valve that can serve as a competing product in the market. o There is a bigger risk for Orion not to take action and improve the valves since the current valve is obsolete, neither Avion nor Kemikal is interested in purchasing the current model of the valve. o Orion has established its reputation in leading-edge technology, product reliability, customer relations and willingness to design customized products. Orion believes the new system can increase profits threefold. Either way using the short-cut approach or eight month approach, Orion will be able to develop the software. There will be a future demand for this product since improving phenol-handling has become a