Essay on Computer and Salem Data Services

1913 Words Apr 13th, 2014 8 Pages
For the exclusive use of R. Ortega

9-104-086
REV: NOVEMBER 1, 2005

WILLIAM J. BRUNS, JR.
JULIE HERTENSTEIN

Salem Telephone Company
In April 2004, Peter Flores, president of Salem Telephone Company, was preparing for a meeting with Cynthia Wu, manager of Salem Data Services. An agreement with the state Public Service
Commission had permitted Salem Telephone to establish Salem Data Services, a computer data service subsidiary, to perform data processing for the telephone company and to sell computer service to other companies and organizations. It was necessary for these two companies to be separate because Salem Telephone was a regulated utility, and Salem Data Services was an unregulated company. Flores had told the
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For the exclusive use of R. Ortega
104-086

Salem Telephone Company

Salem Data Services started operations in 2001, and as was typical for most start-ups, there had been some problems. Equipment deliveries were delayed. Personnel had commanded higher salaries than expected. And most important, customers were harder to find than earlier estimates had led the company to expect. By the end of 2003, most of these problems had been overcome.
In 2003, the income of Salem Telephone was so low that the report to shareholders revealed the lowest return on investment in seven years. At that time, Flores felt it was necessary to reassess Salem
Data Services. Wu had asked for more time, as she felt Salem Data Services would be profitable by
March. But when the quarterly reports came (Exhibits 1 and 2), Flores called Wu to arrange their meeting. Flores received two reports on the operations of Salem Data Services. The summary of computer utilization in Exhibit 1 shows the hours of computer time that were available and how they were used. Computer service was offered to commercial customers 24 hours a day on weekdays and eight hours on Saturdays. An outside contractor who took the computer off-line for eight hours each week for testing provided routine maintenance of the computers and upkeep during the weekend shifts not used for commercial customers. The reports for the quarter revealed a persistent problem: the hours still available to sell (as shown

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