Zumwald case – session 4

The case is about a pricing dispute between the managers of two divisions of Zumwald AG, a german firm that produces and sells medical diagnostic imaging systems and biomedical test equipment. The company is very decentralized with large autonomy for each division. For instance, division managers are allowed to source their components from external suppliers. The case is rightly about the autonomy concerning sourcing, especially between ISD’s managing director Conrac Bauer and Paul Halperin, Heildelberg’s general manager.

Indeed, the dispute was caused by ISD’s choice to buy from an external supplier and not Heildelberg for some components of its new product the X73. Conrac Bauer chose the external firm because its price was lower than Heildeber in order to ensure a decent Return on investment.
Arguments of the main actors: * Conrac Bauer (ISD): * Heildeberg price are not aligned on the market * Conract Bauer thinks only about his ROI

* Paul Halperin (Heildeberg) : * Solidarity in the company * Heildeberg engineers participated in the design of X73 with no-mark-up over costs * Heildeberg also needs to earn a decent ROI

In short terms, if Zumwald wants to make profits, ISD needs to buy its components from Display Technologies PLC in order to maximize its ROI.
Nevertheless, in a long-term analysis, we can consider that Display Technologies PLC prices will increase in the future (its aggressive pricing strategy is just a way to enter the market), we can also consider that ISD will always make more profits by choosing an external supplier. So, the interests of the divisions within the whole company are contradictory.

In my opinion, Zumwald needs to change its management policy in order to bring more attention to the firm global interest. Zumwald has to foster ISD to buy its components from other