Management Chapter 1 Homework Several Stopgap Measures Were Proposed Elliotts Staff

Section C

Case Notes

Case 1

The Recalcitrant Director at Byte, Inc.

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Corporate Legality versus Corporate Responsibility

I. CASE ABSTRACT

Mr. James Elliott, CEO and Chairman of Byte Products, Inc., presents his

recommendation to the Board of Directors to purchase an existing plant in

Plainville as a temporary plant until the new one is online in three

years. All on the Board, except one (10–1), seem to favor the proposal.

What ensues is the discussion between Elliott and Kevin Williams, board

member, over the proposal to purchase a plant with the intention of

closing it in three years.

Byte Products has three existing plants operating at full capacity

(twenty–four hours a day and seven days a week). The new plant proposed

to be built in the southwestern United States will require three years

The discussion between Elliott and Williams focuses on the impact on the

town and on the potential 1,200 employees of opening this temporary

II. CASE ISSUES AND SUBJECTS

Corporate Governance

Local Community Strategic Alternatives

Board of Directors’ Role Communications

III. STEPS COVERED IN STRATEGIC DECISION–MAKING PROCESS

(See Figure 1.5 on pages 52 and 53)

Case 1

The Recalcitrant Director at Byte, Inc.

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Strategy Formulation

Strategy

Implementation

Evaluation &

Control

IV. CASE OBJECTIVES

1. To discuss the social responsibilities of a corporation regarding

the opening of a temporary plant and it is closing on (a) town, and

(b) potential employees.

2. To illustrate the role of board members in strategic decisions.

6. To show how one vote of dissent can sway a vote of the board after a

long discussion of the pros and cons of a proposal. Point: the

V. SUGGESTED CLASSROOM APPROACHES TO THE CASE

1. We ask the students to vote on the pending proposal before the board.

2. This case is excellent as an open class discussion case. We get a

3. Divide the class into two groups representing Elliott and Williams.

Case 1

The Recalcitrant Director at Byte, Inc.

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5. Have the class list all the corporate stakeholders who will

be affected by this decision. List all the alternative

solutions and how each group will be affected.

VI. DISCUSSION QUESTIONS

1. If you were one of the board members, how would you have initially

voted for the proposal? What would your vote be after the recess in

the meeting? Why?

2. Should the Byte executives tell the town administration and potential

employees that this is a temporary plant for three years?

VII. CASE AUTHORS’ TEACHING NOTES

None were available for this case.

VIII. STUDENT STRATEGIC AUDIT/STUDENT PAPER

A lack of solid planning and forecasting has resulted in Byte’s

current facility shortage. Construction on a facility that will take

three years to complete, should not begin when current facilities are

working at 100 percent capacity around the clock, and demand continues

to escalate. The state–of–the–art facility, to be located in the

southwestern United States, will supply enough capacity to meet demand

when it opens in three years, but it does nothing to stem the tide of

Case 1

The Recalcitrant Director at Byte, Inc.

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abandoned for eight years.

Elliott is aware of some problems with the proposed plant. The plant

would never be an efficient producer of Byte products. Profitability

Another option available to Byte is licensing, both domestic and

international, of Byte product and process technology. Domestic

licensing would result in higher production costs and lower margins

since the higher costs could not be passed on to the customer without

losing market share. International licensing goes against Byte’s

philosophy of remaining a domestic operation. Additionally, patent

issues could not be properly protected in the international

environment. Finally, both domestic and international licensing could

result in lower product quality—another threat to Byte’s market share.

Opposition did come in the single, but very strong voice of Kevin

Williams, an outside director, who vehemently opposed the temporary

facility on the basis of corporate responsibility. Williams stated the

Examining the issue from an objective position, several items appear

to require discussion. The temporary plant may supply enough products

to meet demand, but the location is far away from the market.

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Reprinted by permission of the authors.

This may ultimately cause distribution and service problems. For the

employee, the temporary plant is not a good solution. Not knowing the

Case 1

The Recalcitrant Director at Byte, Inc.

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The location of the temporary plant tends to make it ineffective. Lack

of warehousing facilities and transportation systems add to the

A thoughtful consideration of all the issues involved, with the

opening of the temporary plant in New England, reveals much

conflicting information. In some ways, as compared with licensing, the

temporary plant seems like the solution. In other ways it seems like

Byte would just be starting more problems. Both licensing and the

temporary plant share the same drawbacks: high production costs, lower

Recommendations

Opening a new temporary plant may be an ideal answer to the lack of

capacity, but the New England location is far from ideal. Elliott must

weigh the problems associated with the new plant to the benefits of

increased capacity. If all forecasts confirm the need for the

increased capacity before the new state–of–the–art facility opens in

three years, then perhaps Elliott should seek an alternative location.

Since the new plant will be located in the southwest, perhaps

temporary space could be found there. Another alternative would be to

plan the production of the new plant to open in stages. Perhaps that

IX. EFAS, IFAS, AND SFAS EXHIBITS

Were inappropriate for this case.

Case 1

The Recalcitrant Director at Byte, Inc.

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X. FINANCIAL ANALYSIS