Philip Harding is an engineer at a small family business called Wonder
Products, Inc (WPI). The majority of WPI's work involves designing and producing parts for
larger products that are sold by other companies. WPI is under contract to design and
produce a complex component for General Farming Implements' (GFI) farm harvesting
Despite a nagging, though small, problem that does not find a 'perfect'
solution, WPI designs the part to GFI's satisfaction, The price is set at $100 for each
component. GFI orders 1000 components, with the likelihood that since things have gone so
well, they will be talking to WPI and Philip about other contracts.
WPI begins production and ships the first portion of the order to GFI
on time. GFI, at this point, is very happy with the component and wants WPI to ship the
final three quarters of the order as soon as feasible. As Philip is working on the
component he thinks of an apparent solution to the 'nagging problem' that bothered him in
the design. It would involve a small change in the production process, while increasing
the cost to three dollars more per component. Philip is convinced that, had they known
about this improvement earlier, GFI would have wanted it.
Since he is in a rush to complete the order, Philip does not have much
time to work on anything other than the order. Should Philip investigate this new idea
immediately, or wait until he has more time to test it?
Philip decides to spend the weekend experimenting with his new idea. He
quickly confirms the fact that the new design solves the problem. Philip brings the
development to the attention of other members of WPI. He says that although they can
fulfill the original contract and be safe from legal reproach if they say nothing to GFI,
they have an ethical obligation to offer the new design to GFI immediately, whether
or not WPI ends up picking up some of the costs for making changes. He contends that the
flaw in the initial design was an oversight on WPI's part. "We contracted with GFI
with the understanding that we would provide them with the best design we could come up
with," Philip says. "So we ought to tell them about the improvement."
The financial manager of the company, Connie, expresses her concern
about the three dollar per component cost increase. She says that they are working on a
narrow profit margin now; and, although this only represents a one percent increase in
cost, it adds up to $2250 plus costs associated with recalling and altering the components
already sent to GFI. She thinks that WPI would be better off introducing the development
if and when GFI makes another order.
Tim, in charge of Sales and Public Relations, suggests a compromise
between the two. He suggests that they offer to share in the cost of the new product.
Concerned with the image WPI projects, Tim worries about GFI later complaining about WPI
not coming to them with the development during the first order. Although they could insist
that the design change was not conceived of until after the first order was complete,
there would always remain the doubt, indeed a correct doubt, that WPI held out on GFI by
not offering them the best product. In the long term this could mean mistrust and, in the
worst scenario, a severing of business ties between the two. "Granted," Tim
acknowledges, "the withholding of this information would mean an increase in our
short term income. But it could mean a disaster to our future with GFI--and a setback in
our standing in the business community!"
They must now decide what it is best to do. What would you recommend
that WPI do?