Open System Theory Capstone Project

Pages: 4 (1216 words)  ·  Bibliography Sources: 4  ·  File: .docx  ·  Level: Master's  ·  Topic: Economics

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The first simulation was run using the default values. During this simulation, after the first year the X5 had market saturation of 31%. This means that the X5 is in the growth phase of the market. This has lasted for one year and may last 1-2 more years. The X6 has a market saturation of 18%, heralding the beginning of the growth phase. The X7 has a market saturation of 3%, so the product is still in the introductory phase.

In subsequent years, the X5 remains in the growth phase for 2006 and 2007, but enters the mature phase in 2008 and 2009. The X6 lags the X5 by a year, growing through 2008 and entering maturity in 2009. The X7 never enters the growth phase during the length of the simulation. This hints at two key issues to address during this simulation. The first is going to be determining when to cut the X5 from the lineup. Under the default condition, the X5 makes money through 2008 but loses money in 2009. The second major issue is going to be to spur the X7 into the growth phase. Under the default scenario, the X 7 finishes the simulation with 2 million customers out of a total possible of 15 million. The other products reach saturation, so the best opportunity for growth beyond the default scenario lies with the X7.

The final score for the default simulation was a profit of $1.165 billion. The total profit declined every year, such that 2006 saw the highest profit at $505 million (43% of the final total). The following graph shows the profits for the different products for the four years:Buy full Download Microsoft Word File paper
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Capstone Project on Open System Theory Assignment

This graph illustrates the strategic issues that are being faced. The X5 holds a slender profit in 2008 but loses money in 2009. Clearly, it will need to be cut by that year. Part of the problem for the X5 is that it has high fixed costs - $70 million per year -- which means that it will be profitable for less time than the other two products. The X7 begins to show strong profitability by 2009 even though it has not even entered the growth phase. In that year, it accounts for 75.8% of total profits. The implication for this is that the primary profit driver for the last year -- maybe the last two years -- is going to be the X7. The strategy undertaken should ensure that this product is well into the growth phase during these two years. It is also worth taking into consideration that while under normal circumstances a nice mellow growth trajectory for the X7 would be acceptable, in this scenario any unutilized potential X7 market is wasted -- you don't get to count 2010 results. It may be best, then, not to leave any sales on the table for this product.

That reality makes the X7 the most interesting case. This product has the highest margins, so has the most flexibility in terms of pricing. For the SLP2, the objective with regards to the X7 is going to be to lower the price in order to spur sales. If we consider what the X7 is, it is clear that this is a low-end piece of equipment. Porter would prescribe a cost leadership strategy. Customers of this product may respond to enhanced features, but they definitely want a fair price. The fact that this product never hits the growth phase is indicative that the market does not see this as offering a compelling value proposition.

Whereas price is a decision that does not involve other products, R&D spending does. The… [END OF PREVIEW] . . . READ MORE

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