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Visionary Design Systems Are Incentives Enough?

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    Visionary Design Systems was a systems integrator and Computer ost Aided Design (CAD) hardware and software reseller located in Sunnyvale, California. In its first three years, Visionary Design’s revenues jumped from $1. 1 million in 1990, to $5. 5 million in 1991, to $9. 8 million in 1992, to $17. 8 million in 1993, prompting local newspapers to pronounce Visionary Design Systems a Silicon Valley success story. The founders credited much of their success to the quality of their people and to their philosophy of empowerment combined with generous rewards for performance.

    The company was unusual both in the degree to which employees were granted autonomy, and in the way they were rewarded. Every employee was a shareholder, and earned significant compensation through commissions and bonuses. The company’s growth record and retention rate spoke to the success of this philosophy. Most employees raved that this was the best company they had worked for: “I feel good in this environment—we laugh together, everyone is pulling toward the same goals. It’s the people here who are special, and it starts at the top. VDS’s y or P future looked bright but for one cloud on t h e horizon.

    Product Data Management, one of the promising new complements to the Computer Aided Design market, was a struggling division within VDS. Product Data Management (PDM) was a critical market for the company and VDS had hired two experts in the field. Management offered significant incentives for growing the PDM business but the PDM experts would not take the reins and drive VDS forward in this industry. Things were not progressing quickly enough and top management did not know what to try next. The CAD Industry History

    Before CAD was available to mechanical engineers, designers stood at 3×4 foot drawing boards using rulers and compasses to design products. The limitation of working in two dimensions forced designers to create separate drawings for each dimension of every piece. Designing items such as car parts, vacuum cleaners, or dolls, required thousands of calculations and hours of drawing, measuring and erasing, before each piece fit correctly into the whole. Products designed in this way were extremely difficult to evaluate without physical prototypes since it was nearly impossible to visualize the end product and see how the pieces fit together.

    In addition, any changes in t h e product’s design required altering large numbers of drawings. The introduction of Computer Aided Design in the early 1970s automated the measuring of lines and angles, significantly reducing the amount of time it took to draw actual objects and making alterations easier and more timely. However the necessity of huge computers, extensive technical knowledge, and $150,000 per package, kept CAD out of all but the largest organizations. CAD usage spread to smaller companies with the proliferation of personal computers in the early to mid-1980s.

    But the early CAD programs did no more than computerize the manual drawing process, which continued many of the limitations of two dimensional drawing. Karin B. Monsler wrote this case under the supervision of Associate Professor George P. Baker as the basis for class Do Not Cop discussion rather than to illustrate ei ther effective or ineffective handling of an administrative situation. All names and numbers have been disguised to protect the privacy of the company.

    No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. By the early 1980s CAD producers developed 3-D wire modeling programs which, when coupled with the proliferation of PCs, brought affordable wire modeling technology to the market.

    3-D wire modeling displayed an object’s frame on the computer screen. Designers could rotate the picture and view the product from all angles. Objects were now easier to identify because ost the relationships between the sides of a piece were displayed as they would be in the final product. However, t h e wires delineating the front were indistinguishable from the wires delineating the back, making i t difficult to accurately visualize an object from its 3-D wire drawings. Three dimensional solids design, the newest CAD technology, included many new capabilities and provided clear discernible pictures with shading and depth.

    The image provided by 3-D solids modeling resembled an actual object, making it far easier to construct and evaluate product designs. Exhibit 1 demonstrates the clarity provided by 3-D solids modeling. In addition, advances in t h e machine-designer interface had made the actual drawing of parts significantly easier. For instance, i f a designer wished to change a dimension of a particular part, s/he could simply “grab” an edge and move it by the desired amount. Other features and dimensions would automatically adjust.

    Using solids modeling, designers could create an object in four hours, when it would have previously taken four days to create on earlier CAD systems, and weeks to create by hand. During the 1980s, prices of CAD hardware and software dropped from $150,000 per seat (seat y or P refers to one machine and software package) to as low as $15,000 for either the 3-D wire or better 2-D systems. Prices for these systems dropped another 50% from 1989 to 1994. These price drops significantly reduced the margins for producers of low-end systems. Basic CAD software had even entered the mass market, opening CAD usage to individuals and small companies.

    Solids modeling was developed for industry around 1980 but was so complicated and difficult to build and use that prices remained over $100,000 per seat in 1986. After 1988, prices for even these high-end products plummeted with the falling price of desktop workstations. In 1994, prices for solids modeling systems ranged from $20,000 to $75,000 per seat. Sophisticated 3-D solids modeling systems formed the high end of the market, capturing only 25% of the market while providing high profit margins to its producers. Prices and margins remained high because the systems were far more complicated than the simpler commodity software.

    Solids modeling provided many more capabilities and required designers to learn many new funtionalities. Companies purchasing 3-D solids CAD systems usually needed a partner CAD company to explain the system, instruct the designers, and help integrate the system into the organization. Recent Developments in the Industry As CAD systems became increasingly sophisticated in their ability to help designers actually draw and visualize products, they also became the building blocks for broader applications of computer technology in the product design process.

    The ideal design and manufacturing scenario involved getting all the details of design, prototyping, and production right the first time, and doing so quickly. Concurrent engineering— simultaneously designing, testing and manufacturing a product, worked toward this goal. Most developments in manufacturing technology contributed to automating one of these stages and integrating it into the rest of the product development process. Engineering Analysis Tools Engineering Analysis Tools automated the physical testing of parts created by a CAD system.

    Computers could verify product designs by simulating laboratory tests t h a t previously had to be performed on physical prototypes. The effects of temperature, air flow, stress and impact on a potential product could all be determined by computer simulations. These computer tests determined whether products would break if dropped from a certain distance, or if they would crack after being shaken for extended periods. Computer simulations verified production possibilities as well, by testing whether a plastic would flow through a particular mold completely, or if it would Do Not Cop cool correctly.

    Analysis tools identified weaknesses and flaws in early product designs, greatly reducing the time and cost of the testing period. Together, analysis tools and CAD dramatically shortened the length of the typical product cycle. Since a full 80% of a product’s life cycle cost was borne before the product went into production, shortening the design phase yielded high returns.

    This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright.  A product drawing in 2-D, 3-D wire, and 3-D solids modeling (Source: Company Documents) ost y or P Do Not Cop 3 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright.  Product Data Management software emerged in the early 1980s to store CAD documents in an organized manner. The database, much like an electronic vault, ost stored drawings with labels and dates to make recalling a specific version or set of drawings quick and easy.

    PDM’s capabilities expanded to include storing other product information such as marketing information or the current prices of input materials. All business divisions—management, engineering, marketing and manufacturing—could contribute to and access data in the PDM system. Since 80-90% of the information involved in the production of a product was non-CAD data, PDM presented a dramatic improvement in a company’s data management capabilities. PDM had also expanded to include a communications capability which linked its database or storage capacity, the CAD software, and t h e other computers within a company.

    This enabled individuals to send product drawings along with production or market information and personal communications to other people in the company. The ability to document, communicate, and change product information on-line opened countless opportunities to restructure old design processes. Change requests and change orders could now be sent and received instantly. All affected product specifications (drawings, bills of materials, manufacturing instructions, marketing information, etc. ) of all affected products could be instantly updated.

    These process changes enabled companies to re-engineer their design flow, maximizing t h e efficiency of the organization and their communications structure. Exhibit 2 diagrams this process change.  New companies were emerging rapidly with large parent companies or venture capital firms backing their initiation. PDM firms were battling for prospective customers, each hoping to make a name for itself and establish its product as the emerging market standard. But like many new fields, no one could predict when the market would take off. Plenty of the entrants were losing their investments as customers scaled down their requirements and delayed implementing their PDM programs. Visionary Design Systems Do Not Cop VDS had eleven satellite offices spread throughout the country that were accounted for as separate profit centers.

    Each office was opened by a Sales Representative and an Applications Engineer. The Sales Reps were the primary link to potential customers. They sold HP’s CAD hardware and software along with VDS’s integration services providing customized software, consulting and training. Applications Engineers were the consultants and trainers. They demonstrated the complicated systems during the sales process and provided post-sales training classes and on-site. This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright.

    Visionary Design Systems 495-011 consulting on how an integrated solids CAD system could work within a customer’s company. VDS also employed software engineers who wrote integration software and interfaces for the various programs used by VDS. Software engineers were beginning to write proprietary programs for VDS that increased process productivity such as an “out-of-the-box deliverable” PDM environment that accomplished 80% of what most customers needed to get started with their PDM software.

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