Read the ROLM Corporation pricing narrative. Your team is to submit your pre- meeting notes that have answers to these questions: 1. What would you advise Ken Oshman, ROLM's President, to proceed or not proceed with the product launch and why? 2. If a 30% margin is required: a. what should your Target Cost be at a $100 selling price? b. what would your target selling price be if you cannot change the cost structure? 3. (a) What would you attack to make the product economically sustainable- cost or price? (b) What tool would you use to measure your progress? Solutions are to be submitted through Moodle by the end of day. Starting Up Silicon Valley log-on procedures to remote comput- ers. This made life much easier for users who often had one hand on a keyboard and the other holding a tele- phone, such as stockbrokers. The Digital Desk was on the mar- ket, with more to come-very soon. LA ROLMphones This publicity photo of Bob Maxfield using a on Parade Cypress with the pull-out keyboard retracted was signed by members of the Austin development The ROLMphone 400 was introduced tean. Photo courtesy of Bob Maxfield. in May 1983 as if it were a single product, a technological leap over the ETS 100. But in fact it was the premier member of the world's first family of digital phones, though no mention was made of that. The ROLMphones development project had begun back in mid-1980. It took three years from concept to ship. The process of development of these phones serves to illustrate how the team format functioned at ROLM and how the com- pany handled issues that arose during a typical product development Two key characteristics of successful development teams at ROLM were open communication and respect among team members for one another's differing skills and opinions. With these factors present, unani- mous team decisions could generally be reached on key issues, even after intense and wholehearted discussion with the company's and the prod- ucts (rather than the individuals) best interest in mind. ROLM's phone team, like most other development teams within the company, embodied these characteristics. The phones were initially conceived to function only with the USCBX. The development team started small within the Telecommunications Divi- sion, with product marketing manager Kathie Hullmann and USCBX hardware engineer Bruce Prentice nailing down specifications. 190 Telecom's Parade of Products When the USCBX project was cancelled, the scope quickly shifted to the CBX, and a fire was lit-these phones were needed sooner rather than later. The initial team expanded to include representation from all fac- ets of the products life cycle, from concept to specifications to design, implementation, manufacture, ship, and service. Marketing added Cheryl Booton and Janet Gregory, both reporting to Hullmann. Team meetings were held almost weekly. Team leadership shifted throughout the project, depending on which issue or phase of development was most relevant at the time. The precepts of design to manufacture and design to service were always priorities--they lowered costs to make the product and maintain it after it was in use. A hardware engineer, probably Bob Sheppard, remarked in a team meeting in 1981, "You know, someday everyone will have a portable, wire- less telephone. We'll talk on the phone walking down the street, in the grocery store, everywhere." Such a futuristic notion sidetracked the busi- ness at hand as the team speculated on the technological developments that would be needed to make such a wonder happen. And yet within two years, Motorola offered a two-pound, brick-size cell phone for $4,000 (equivalent to $9,400 today, compared to smartphones the size of one's palm that now cost a few hundred dollars). ROLM's family of phones would have three models. The smallest had twelve programmable feature buttons in addition to the twelve-button dial pad. The feature buttons provided single-button access to features, so users would not have to combine keys to create codes, such as # and then 7 to transfer a call. The middle-of-the-line phone had twenty-four keys that could be configured as lines or feature keys, and the high-end model had forty. They were christened the ROLMphone 120, 240, and 400, respectively. The 120 was a single-line phone, and the 240 and 400 had multi- ple-line capability. The 240 and 400 had integrated speakerphones. The 400 had an LCD display. The custom ROLMLink chip was embedded in all ROLMphones. Utilizing the data capability of the chip, however, was 191 Starting Up Silicon Valley RE ROL Mphane 120 ROLMIphone 400 ROLMphone 240 an extra-cost option. Initially, a terminal or personal computer could be connected only to a ROLMphone 400D, which had a connector for the terminal's cable. Later, all models had a data option available. Ben Yamada did the industrial design of the phonestheir shapes, color, look, and feel. He was originally hired to design a good-looking, efficient USCBX cabinet. Of course, this was before computer-aided design (CAD) existed. Yamadas tools for sketching and rendering were pencils and magic markers. He used drafting machines to make the mechanical drawings for each manufacturing part. Appearance models and prototypes were fabricated out of wood or plastic and required considerable sanding and painting. Numerous handsets and phone cases were crafted this way, "No one was even making models out of foam then, much less using com- puters," he said in a later interview. The ROLMphones business plan proposed that the most basic model in the family, the 120, would be priced at only a small premium over a Telecom's Parade of Products standard push-button phone. That aggressive pricing would result in such a high volume of sales that ROLM, for the first time, would need a high- volume assembly line. Manufacturing manager Dirk Speas was assigned to make that happen. Bob Michael, manufacturing engineer, kept a close eye on the manufacturability of hardware designs. The manufacturing line was established in a dedicated facility in Build- ing 7 on the corner of Patrick Henry Drive and Tasman Drive at Santa Clara headquarters. Robots and a computer-controlled process made it very dif- ferent from the meticulous, manual assembly of CBX system components that took place in Building 3. The ROLMphone production line used the latest best practices coming out of Japan, incorporating statistics and Tagu- chi Design of Experiment methods. Sald Ken Lavezzo, "We got so good at it that we eventually competed for the Japanese Deming Prize"-the gold standard for manufacturing, which emphasized continuous improvement through the process of total quality management (TQM). In the interest of cost savings, hardware engineer Walter Bell proposed eliminating the switch hook. All phones had a small switch in the handset cradle for the user to toggle in order to terminate one call and get dial tone for the next call without putting the handset into the cradle. Bell pro- posed, without a switch hook to toggle, that the user lay the handset into the cradle for a second, where it would be detected by magnetic relay-or if the phone was multiline, that the user push another line button, which would disconnect the first line. The proposal was studied for many weeks before the team agreed that the lack of a switch hook would cause no user resistance. Though no customer objection ever surfaced, the feature did not become a trend and phones today still have a switch hook. The 120 was to be priced so corporate decision makers would choose it over a $75 standard telephone almost all the time, which meant a price target no higher than $100. Despite considerable efforts to bring cost down, the initial cost of goods (COGS) of the ROLMphone 120 was $111. Cost was forecast to drop, however, as volume built up. Three months prior to launch, Hullmann presented the sales forecast under various Starting Up Silicon Valley pricing models for Top Management Team review. With aggressive pricing of $100 for the ROLMphone 120, the family of ROLMphones was fore- cast to generate a combined $75 million revenue within one year of the first shipment. Oshman seemed to think this was overly optimistic-upon hearing the figures, he exclaimed, "You're smokin' something!" Much discussion ensued regarding ROLMphone 120 pricing. Aggres- sive pricing could have a ripple effect: the low price would grab the atten- tion of the sales force and the marketplace and would drive sales and more volume would drive costs lower. Also, more CBX users with the 120-a good-looking, elegant phone that made features handy and acces- sible-would be happy users. And happy users might drive CBX system sales as word got around. But of course, until COGS came down, the more successful the 120 was, the more money would be lost. Read the ROLM Corporation pricing narrative. Your team is to submit your pre- meeting notes that have answers to these questions: 1. What would you advise Ken Oshman, ROLM's President, to proceed or not proceed with the product launch and why? 2. If a 30% margin is required: a. what should your Target Cost be at a $100 selling price? b. what would your target selling price be if you cannot change the cost structure? 3. (a) What would you attack to make the product economically sustainable- cost or price? (b) What tool would you use to measure your progress? Solutions are to be submitted through Moodle by the end of day. Starting Up Silicon Valley log-on procedures to remote comput- ers. This made life much easier for users who often had one hand on a keyboard and the other holding a tele- phone, such as stockbrokers. The Digital Desk was on the mar- ket, with more to come-very soon. LA ROLMphones This publicity photo of Bob Maxfield using a on Parade Cypress with the pull-out keyboard retracted was signed by members of the Austin development The ROLMphone 400 was introduced tean. Photo courtesy of Bob Maxfield. in May 1983 as if it were a single product, a technological leap over the ETS 100. But in fact it was the premier member of the world's first family of digital phones, though no mention was made of that. The ROLMphones development project had begun back in mid-1980. It took three years from concept to ship. The process of development of these phones serves to illustrate how the team format functioned at ROLM and how the com- pany handled issues that arose during a typical product development Two key characteristics of successful development teams at ROLM were open communication and respect among team members for one another's differing skills and opinions. With these factors present, unani- mous team decisions could generally be reached on key issues, even after intense and wholehearted discussion with the company's and the prod- ucts (rather than the individuals) best interest in mind. ROLM's phone team, like most other development teams within the company, embodied these characteristics. The phones were initially conceived to function only with the USCBX. The development team started small within the Telecommunications Divi- sion, with product marketing manager Kathie Hullmann and USCBX hardware engineer Bruce Prentice nailing down specifications. 190 Telecom's Parade of Products When the USCBX project was cancelled, the scope quickly shifted to the CBX, and a fire was lit-these phones were needed sooner rather than later. The initial team expanded to include representation from all fac- ets of the products life cycle, from concept to specifications to design, implementation, manufacture, ship, and service. Marketing added Cheryl Booton and Janet Gregory, both reporting to Hullmann. Team meetings were held almost weekly. Team leadership shifted throughout the project, depending on which issue or phase of development was most relevant at the time. The precepts of design to manufacture and design to service were always priorities--they lowered costs to make the product and maintain it after it was in use. A hardware engineer, probably Bob Sheppard, remarked in a team meeting in 1981, "You know, someday everyone will have a portable, wire- less telephone. We'll talk on the phone walking down the street, in the grocery store, everywhere." Such a futuristic notion sidetracked the busi- ness at hand as the team speculated on the technological developments that would be needed to make such a wonder happen. And yet within two years, Motorola offered a two-pound, brick-size cell phone for $4,000 (equivalent to $9,400 today, compared to smartphones the size of one's palm that now cost a few hundred dollars). ROLM's family of phones would have three models. The smallest had twelve programmable feature buttons in addition to the twelve-button dial pad. The feature buttons provided single-button access to features, so users would not have to combine keys to create codes, such as # and then 7 to transfer a call. The middle-of-the-line phone had twenty-four keys that could be configured as lines or feature keys, and the high-end model had forty. They were christened the ROLMphone 120, 240, and 400, respectively. The 120 was a single-line phone, and the 240 and 400 had multi- ple-line capability. The 240 and 400 had integrated speakerphones. The 400 had an LCD display. The custom ROLMLink chip was embedded in all ROLMphones. Utilizing the data capability of the chip, however, was 191 Starting Up Silicon Valley RE ROL Mphane 120 ROLMIphone 400 ROLMphone 240 an extra-cost option. Initially, a terminal or personal computer could be connected only to a ROLMphone 400D, which had a connector for the terminal's cable. Later, all models had a data option available. Ben Yamada did the industrial design of the phonestheir shapes, color, look, and feel. He was originally hired to design a good-looking, efficient USCBX cabinet. Of course, this was before computer-aided design (CAD) existed. Yamadas tools for sketching and rendering were pencils and magic markers. He used drafting machines to make the mechanical drawings for each manufacturing part. Appearance models and prototypes were fabricated out of wood or plastic and required considerable sanding and painting. Numerous handsets and phone cases were crafted this way, "No one was even making models out of foam then, much less using com- puters," he said in a later interview. The ROLMphones business plan proposed that the most basic model in the family, the 120, would be priced at only a small premium over a Telecom's Parade of Products standard push-button phone. That aggressive pricing would result in such a high volume of sales that ROLM, for the first time, would need a high- volume assembly line. Manufacturing manager Dirk Speas was assigned to make that happen. Bob Michael, manufacturing engineer, kept a close eye on the manufacturability of hardware designs. The manufacturing line was established in a dedicated facility in Build- ing 7 on the corner of Patrick Henry Drive and Tasman Drive at Santa Clara headquarters. Robots and a computer-controlled process made it very dif- ferent from the meticulous, manual assembly of CBX system components that took place in Building 3. The ROLMphone production line used the latest best practices coming out of Japan, incorporating statistics and Tagu- chi Design of Experiment methods. Sald Ken Lavezzo, "We got so good at it that we eventually competed for the Japanese Deming Prize"-the gold standard for manufacturing, which emphasized continuous improvement through the process of total quality management (TQM). In the interest of cost savings, hardware engineer Walter Bell proposed eliminating the switch hook. All phones had a small switch in the handset cradle for the user to toggle in order to terminate one call and get dial tone for the next call without putting the handset into the cradle. Bell pro- posed, without a switch hook to toggle, that the user lay the handset into the cradle for a second, where it would be detected by magnetic relay-or if the phone was multiline, that the user push another line button, which would disconnect the first line. The proposal was studied for many weeks before the team agreed that the lack of a switch hook would cause no user resistance. Though no customer objection ever surfaced, the feature did not become a trend and phones today still have a switch hook. The 120 was to be priced so corporate decision makers would choose it over a $75 standard telephone almost all the time, which meant a price target no higher than $100. Despite considerable efforts to bring cost down, the initial cost of goods (COGS) of the ROLMphone 120 was $111. Cost was forecast to drop, however, as volume built up. Three months prior to launch, Hullmann presented the sales forecast under various Starting Up Silicon Valley pricing models for Top Management Team review. With aggressive pricing of $100 for the ROLMphone 120, the family of ROLMphones was fore- cast to generate a combined $75 million revenue within one year of the first shipment. Oshman seemed to think this was overly optimistic-upon hearing the figures, he exclaimed, "You're smokin' something!" Much discussion ensued regarding ROLMphone 120 pricing. Aggres- sive pricing could have a ripple effect: the low price would grab the atten- tion of the sales force and the marketplace and would drive sales and more volume would drive costs lower. Also, more CBX users with the 120-a good-looking, elegant phone that made features handy and acces- sible-would be happy users. And happy users might drive CBX system sales as word got around. But of course, until COGS came down, the more successful the 120 was, the more money would be lost