Case studies in organizational practice and research

Prestige Telephone Company

The theme of the given case study revolves around the motive of the managing authorities of the Prestige Telephone Company to analyze the standing of the corporation and developing the action plan that will serve the purpose to enhance the profitability and effectiveness of the newly introduced subsidiary, known as the Prestige Data Service. The subsidiary was acquired as a facilitator of the company profits on non-regulatory bases as well as ensuring the computer service in the vicinity of the Prestige Telephone Company. As a matter of facts the case study indicates that Prestige Data service is unable to meet the required task for which it was formulated in the Prestige Telephone Company. But after two years it began its operations at a pace that was required by the organization. In the entire case description the managing authorities of the Prestige Telephone Company are trying to come up with an accurate method to make the decision regarding the Prestige Data Service.

Case Analysis

In order to evaluate the two alternatives of whether the managing authorities of Prestige Telephone Company should retain the subsidiary or to eliminate its usage from the organization requires a detailed cost and benefit analysis of the Prestige Data Service. If the organization decides to sell the subsidiary then the only alternative the firm has is to arrange another computer system or rather outsource the service. This will result in an increased variable cost hence increasing the contributions as stated in the Exhibit 2. As a consequence this decision will also have an implicit cost for the prestige data service, which is non-refundable lease foregone. It can easily be deduced that the Prestige Telephone Company is not in a suitable position to increase its sunk cost from the Prestige Data Service and outsource the same service for a cost.

Similarly the other important parameter that the Prestige Telephone Company's executive and decision making authorities need to analyze is the cost and volume ratio of the Prestige Data Service with respect to its profitability. If the system is leased for four-year than by the breakdown of the cost into fixed and variable costs; the only two variable costs are the labor cost and the power require operating the system. But in the second scenario if the system is outsourced then the cost of outsourcing the service along with the internal as well as external labor and the power cost will drastically increase. Additionally the sunk cost of the lease forgone will also impact the income, which at this point is unaffordable for the firm.

Learning Outcomes

Throughout the case the management is determinant in finding the best alternative for the condition at disposal. The first alternative calls for the decision of either keeping the new subsidiary: the Prestige Data Service or selling it off. And the second scenario calls for a cost and volume analysis of the profitability generated by the Prestige Data service as a subsidiary of Prestige Telephone Company. The analysis and evaluation of the two crucial alternatives will be ultimately deduced from the information contained in the case study. The cost volume benefit analysis will include the findings from the installation of the Prestige Data Service till its organization wide implementation. These analyses will be performed by evaluating the revenues reported against the expenditures incurred. The second important issue is the anticipation of the future consequences if the prestige data service is permanently implemented organization wide. And the third important factor is to evaluate the accounting practices that will be used by the Prestige Telephone Company to evaluate the worth of the Prestige Data Service.