Company B decided to make the investment because it would lower their manufacturing cost, increase production capacity, and they would be able to undercut Company A?s current prices by 5%.
Company B used the probable increase of their market share in their ROI calculations.
When Company B completed the improvements in manufacturing, which took two (2) years including planning, they learned that the manufacturing cost dropped another 5% below what they had predicted.
They dropped their prices considerably below what Company A was charging.
Their market share increased to 45% during the first six months of the new operation and then gradually increased to 65% during the next two years.
During this period, Company A realized they should have included something in their analysis concerning the probability of their competitors taking market share. They started the modernization of their factory.
The owners of the company were very dissatisfied with the performance of the company. After sacking the Board and certain members of management, they sold the company to Company B.
To the Chairman of the Board who had said, ?All is well!? the owners said, ?Farewell!?
Company B accelerated the modernization of the facilities of Company A to increase their production while lowering costs.
This was done in the face of the fact that Company C had lost market share to Company B but had responded rapidly and had just completed their modernization which would help them regain what they had lost and perhaps do more damage to Company B.
The war price war was on.
The above example is similar to that given at a management conference on managing technology I attended some years ago in Miami, Florida.
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