Activity 2 Salem Telephone case
As you think about your answer to this question, keep the following questions in your mind: 1) Is it feasible to achieve profitability with Commercial usage? What is the evidence that supports your conclusion? 2) What would happen if Flores did not do anything? 3) How much fixed cost does Commercial cover? 4) What were the original reasons that Salem Telephone formed Salem Data services? Have they achieved these goals?
In responding to this final question, which relates your analysis to the strategic implications and management decisions for Salem Telephone, make sure you integrate the thinking from all activities related to this case including data and trends from the case, your calculations and analysis, and what you have learned from ICE’s and presentations.
1. Why did Salem Telephone form Salem Data Services?
2. How long does it take for a start-up company to become profitable?
3. What should Flores do?
Please use the case: “Salem Telephone Company” (Harvard Business School case, no. 9-104-086).
Salem Telephone Case
Formation of Salem Data Services
Salem Data Services was formed as a computer data service subsidiary of Salem Telephone. Before separation, both Salem Telephone and Salem Data Services operated as Salem Telephone Company. It was necessary to separate these two companies as Salem Telephone was a regulated utility while Salem Data Services was unregulated company. The purpose of this entity was to perform data processing for the telephone company and to sell computer service to other companies and organizations and reduce pressure for telephone rate increases.
Profitability of Start-Up Company
Profitability of a start-up is based on a number of factors like line of service, market presence, marketing efforts, cost structure, competition, and other unavoidable costs. A breakeven analysis should be …
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