SD was meant to boost profits for SST, its parent company.
SST could not simple raise its rates due to regulations et by the Public Services Commission, Unfortunately, the subsidiary, SD, is not performing to expectations. Sect’s president, Peter Floors, needs to decide if he should cut his losses and shut down SD or keep SD open. Cynthia Www, the manager of SD, believes SO could be profitable in the near future. Key Problems In an effort to not raise the rates for its customers, SST was hoping their subsidiary, SD, would perform. Unfortunately, that was not the case, the Startup proved not to be the simple solution as planned. SST had one Of its worst years; however, there was a light at the end of the tunnel as there were light improvements With the startup, SD. Peter Floors needs to decide Whether to cut his losses or allow the SST more time to show profits.
On the flip side, by cutting his losses and eliminating SD, Floors would have to figure out another way to bring in money and not raise rates for his customers.Floors is risking the chance of walking away from an investment that the company had invested years into, which might to be worthwhile in the end and having to purchase these services elsewhere, which might not be good for business, cost wise, in the long Potential Solutions I _ Keep Salem Data Services open and increase the price of services, (Solution 2. Keep Salem Data Services open and louver the price of services to increase volume. (Solution b) 3. Keep Salem Data Services open and increase promotions to drive up sales. (Solution c) 4.Eliminate/outsource certain fixed costs or convert them into variable costs.
5. Close Salem Data Solutions. Proposed Solution It would be beneficial for Sotto keep SD in operation. Despite the fact that they are not meeting the profits that Floors had planned, Www is correct; SD might be on the verge of becoming a successful operation. As evidence, from February to March there was a ten percent increase in sales (Table 2). Adjusting pricing up or down, proved not to be an effective solution to get SD in the black, however, by increasing promotions the company would see a profit.
Solution c) Furthermore, from February to March there was a $1000 increase in promotions, this was the only change when sales increased. SD provides valuable seer. ‘ices tort SST customers, a data service; these are potential savings to the company up to 582,000 a month. On a side note, shutting down SD would cause SIC to incur additional expenses, expenses that were not apparent when looking at the accounting reports.
Recommendations SD should focus on increasing promotions to get new business. Ay increasing promotions by 30%, they Will be securely making a profit (Solution lb).Increasing price did not make up for the loss in volume and lowering the price to get more volume, did not earn a profit (Solution B & b). By increasing promotions, SD does not risk alienating any oftener current customers. By increasing promotions, SD Will prove to be the profitable subsidiary that SST ad intended and will save SST operation costs in the long run (Solution c). Lastly, as an added suggestion, SST could look into removing some of its fixed costs or converting fixed costs into variable costs, in an effort to reduce the burden of the underperforming SD, temporarily.