Computer Data Services (CDS) performs routine and custom information systems services for many companies in a large metropolitan area.
CDS has built a reputation for high-quality customer service and job security for its
employees. Quality service and customer satisfaction have been CDS’s primary subgoals—
retaining a skilled and motivated workforce has been an important factor in
achieving those goals. In the past, temporary downturns in business did not mean
layoffs of employees, though some employees were required to perform other than
their usual tasks. Three months ago, a new competitor began offering the same services
to CDS’s customers at prices averaging 20 percent lower than CDS. Rico
Estrada, the company founder and president, believes that a significant price reduction
is necessary in order to maintain the company’s market share and avoid financial
ruin, but is puzzled about how to achieve it without compromising quality,
service, and the goodwill of his workforce.
CDS has a productivity objective of 20 accounts per employee. Estrada does
not believe that he can increase this productivity and still maintain both quality
and flexibility to customer needs. CDS also monitors average cost per account
and the number of customer satisfaction adjustments (resolutions of complaints).
The average billing markup rate is 25 percent. Consider the following data from
the past six months:

1. Discuss the tradeoffs facing Rico Estrada.
2. Can you suggest solutions to his tradeoff dilemma?

Number of accounts Number of employees Average cost per account Additions to long-term lease JUNE 797 JULY AUGUST SEPTEMBER 803 869 784 OCTOBER 723 NOVEMBER 680 40 $153 41 44 43 43 $153 $158 $173 $187 41 $191 commitments for equipment Average salary per employee $3,000 $3,000 $3,000 $10,000 per month $3,000 $3,000 $3,000