Organizational Environment – 35 points (1,000 words limit)
Ernesto has been a sculptor for the past 17 years. He operates his small business under the name “Ernesto’s Fine Sculptures” out of a workshop in the southwest and makes custom pieces that appeal to an “artsy” market. Although his customers are mostly young, they are affluent and willing to spend money for unique, high-quality items, so “EFS” (as it’s commonly referred to) products command a premium price. Currently, the sculptures are produced in one workshop in Santa Fe and sold in only three locations in the U.S.:
Santa Fe, New Mexico; San Francisco, California; and to a limited market in Madison, Wisconsin (Ernesto is a University of Wisconsin graduate). Production is approximately 2,000 pieces per year, with prices ranging from $800 – $7,500 (and sometimes more) per item. The items are produced in quantities ranging from single, made-to-order, one-of-a-kind designs to limited-availability items of no more than 100. After Ernesto appeared on a popular cable television reality show, “Sculpting Wars,” his designs gained instant national recognition. Even though he was one of the earlier designers to be “fired” from the show, the publicity resulted in many fans for EFS designs. Now, people across the country want to have EFS pieces in their homes. Ernesto has been approached by a big design industry investment firm that is willing to fund his expansion. They have told him that, despite the bad economic conditions, they believe now is the time for him to expand to take advantage of the television boost to his popularity. In addition, they believe that there is now demand for his pieces in markets outside of the U.S. Since design trends are often fleeting, the investors advise Ernesto that he should “go big now” and try to capture as large a market share as possible. Of course, he would have to produce items in larger quantities and sell them at lower prices to do so. Ernesto is used to running a small business, but all of this is new to him. He knows the company will have to invest in more trained staff and production equipment to meet the increased demand.
Ernesto has hired you to give him advice about how he should proceed.
Answer the following questions about EFS. Be sure to state clearly any assumptions you make about the organization as part of the description of factors to consider and state the reasons for including each factor. Use organizational structure language and theory in your response.
- In deciding whether or not to produce larger quantities, what factors should Ernesto consider?
- What specific recommendations do you have for Ernesto?