TerraCog Case Analysis BUSA 305-02 Behavior in Organizations Austin Miller 11/12/2015
1 TerraCog is a privately held company that produces Global Positioning Systems (GPS) and fishing sonar equipment. TerraCog has been around since 1977 and over the years has built themselves a reputation for high-quality products, which they specifically market to campers, hunters, hikers, and fishers. In the past, the company has had no trouble not being the first to market. They have been free to lag a bit behind the competition because of the quality of their products and their customer satisfaction. The problem began in 2006 when Posthaste, a competitor, introduced a new GPS prototype dubbed BirdsI. BirdsI displayed satellite imagery by using static satellite photographs and stitching them together to create one image, much like Google Earth. At first, TerraCog dismissed this new product because they believed it did not offer that much of an improvement to the existing GPS technology. While they knew it had a visual appeal, TerraCog did not believe that BirdsI had a substantial performance improvement over their existing maps in TerraCog s GPS system. BirdsI launched in October 2006, successfully, earning impressive sell-through rates nationwide. TerraCog was still confident that the popularity of BirdsI would not last. Fast forward to the spring of 2007 and TerraCog starts noticing customers increase in demand for a GPS with satellite imagery like BirdsI. TerraCog realizes their mistake now and starts plans for their own satellite imagery GPS, which they name Project Ariel. In order to cut down on development time and costs, they decide to redesign their existing GPS product. After a couple of meetings with the higher-ups of the company, they find that the redesign is going to cost them a lot more than originally anticipated. The pricing team states
2 that $475 is the lowest they can sell Aerial for and still meet the margin. The sales team thinks that price is way too high and suggests a price of $425 to capture the market share that TerraCog has lost as of late. Basically, the decision has come down to Emma Richardson, the recently promoted Executive Vice President. TerraCog needs a go or no-go decision, and Richardson needs to push them to one side or the other. There are a few definite problems within TerraCog that are making things more difficult than they need to be. After reading the case, it is clear that during their meetings there is no clear cut leader. Conversations are free flowing and you also have people calling others out, such as when Ed Pryor, the vice president of sales, calls out Becky Timmons, the CFO, for not understanding how competitive the market is. At times, the conversations have even split off into smaller groups, even though they were all at the same meeting sitting at the same table. Another problem was how quickly they wrote off BirdsI. They could have done more research after BirdsI was announced showing that people wanted satellite imagery in their GPS. They ignored the buzz the product was getting and waited almost an entire year to respond with their own ideas. Another mistake was not being as innovative as they probably could be. They decided to just redesign their existing GPS system to save time and money. The problem is that TerraCog is known for their high-quality products. It wouldn t be surprising if their customers did not care for Aerial, since it was the same product, just upgraded a bit. With their resources, TerraCog could have designed the next big thing in the GPS market.
3 Ed Pryor also seems to cause a minor problem because he end of the first meeting, he says he won t even try to sell the product if the price is not lowered. It makes it seem like he cares about his own goals more than the company s. The main problems going forward with Aerial is that there is a rush to market before the holiday season and also because they have been lagging behind their competition for almost a year now. They need to decide on a price soon or they are just going to hurt themselves further. One organizational behavior theory you can apply to this case is the negotiation process. The negotiation process is a five-step theory t negotiation tactics. First, you want to start with preparation and planning. To do this effectively, it helps to goal set. TerraCog could have executed this step better by laying out a plan detailing how to respond to BirdsI. When they first heard of it, they mistakenly wrote it off as a fad and did not bother to come up with any ideas of how to compete with it. They were determined that it would just go away, and that is not a successful plan to lead a business with. The next step of the negotiation process is to define the ground rules. TerraCog partly did this in their first meeting, stating that they want to get Aerial on the market quickly, making clear that the processing speed of Aerial was not an issue and also saying that Aerial would have all the same features of their current GPS products. Once Aerial was designed, though, they were surprised by the cost that was required to build it. They could have laid down ground rules about how much they can or cannot spend.
4 After the ground rules are laid it is important to take the next step and make sure everyone is on the same page. Clarification and justification are necessary, but TerraCog did not do a great job of it in their meetings. At times, things got a little confrontational even. People kept bringing up the same things that had already been talked about, such as the processing speed of Aerial and telling the designers to cut back on costs again when they had already done everything they could. Bargaining and problem solving is the next step in the negotiation process. In the meetings when TerraCog is trying to decide on a price for Aerial, no one seems to have a solution to the problem. $475 is much too high for the sales team to even consider, but it s hard to push the price down because of the margin requirements. The negotiation is at a standstill at this point for TerraCog. Lastly, the final step in the negotiation process is closure and implementation. TerraCog needs to come up with a solution, and it seems like that has landed on Emma Richardson s shoulders. She needs to push one way or the other so that the company can come to a decision. The way I see it, there are a few options Richardson can pursue. The first option is to go ahead and market Aerial as planned with a $425 starting price. This would put them in the market again before the holiday season and stop them from continuing to lag behind their competition. They could continue to look for new ways to improve the design in order to cut more costs since they would be very close to their margin requirements if they sell Aerial for $425. The main problems with this are the decreased profit from the reduced price and it would also put more pressure on the design team to reduce costs even further.
5 Another option Richardson could look into is to scrap Aerial all together and look into underserved markets. The case mentions that in early 2007 TerraCog started looking into submarkets such as fitness and cycling. They could scrap Aerial altogether since they are lagging behind their competitors already and focus on a new market. They wouldn t have to decide on a price point anymore, which is putting a lot of pressure on all the team leaders. This option could take a lot of stress of everybody in the business and potentially make them a lot of money tapping into an underserved market. TerraCog would have an early mover advantage if they went with this option. Yet, this would also hurt their brand image by not focusing on the products that the company was founded on. One last option is to scrap the Aerial launch for now and go back to the drawing board. This would disappoint the design team but would be ideal for the rest of the company. The design team would have to put other projects on hold but if given more time, they could potentially design the next big thing in the world of GPS. The problem with this option is that it would cause them to lag behind their competitors even further, along with missing the holiday season. It s a high risk/high reward kind of move. Either they successfully design the next big thing in GPS or they try to and they fail, which would cause massive problems for TerraCog. Taking all things into account, my recommendation would be to go with the last option, to push the launch date back in hopes of launching the next big industry-changing product, just as the BirdsI was. As I said before this is high risk, but in the end it seems like a good idea. TerraCog is known for their high-quality products and has built a name for themselves in the GPS industry. Companies known for premium products can usually lag behind the competition for a bit as TerraCog has in the past. They would lose some money waiting for the new launch
6 but if they do design something amazing, they would surely gain back their market share. Their design team is one of the best in the business, and they also have a very motivated leader in Allen Roth. TerraCog s reputation is too much to risk if they chose another option. With this decision, TerraCog would maintain their status as high-quality producers.
7 References Robbins, S. P., & Judge, T. A. (2015). Organizational Behavior (16th ed.). N.p.: Pearson. Beer, M., & Yong, S. (2008, April 11). TerraCog Global Positioning Systems: Conflict and Communication on Project Aerial. In harvard.edu.