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Medium Growth Strategy Market Entry New Product Development

Who Needs Flight Simulators?

#Aerospace & Defense #Manufacturing #Simulation Technology
ProHub Comment

This is a classic three-vector growth strategy case requiring the candidate to diagnose market saturation, then evaluate growth through new products and new markets using quantitative analysis. The case tests ability to structure growth options, perform breakeven analysis, and identify the revenue-maximizing combination of segments from a matrix of projected revenues.

Estimated Time 15 minutes
Difficulty Medium
Source Queen's
50 / 100
Your client is CAE Inc., a Canadian manufacturer of flight simulators for private airlines and several countries’ militaries. However, growth in this market has begun to slow, especially in the military segment. The CEO has hired you to devise a strategy to put them back on the path of growth. The CEO wants to focus on ways to profitably grow revenues, rather than cutting costs.

Clarifying Information

  1. Civil flight simulators growing at 3% CAGR – CAE growing at 5%
  2. Military flight simulators declining at -10% CAGR – CAE declining at 8% CAGR
  3. CAE achieves better than market growth rates because of its brand name. Market research indicates we will not be able to increase growth rates any further
  4. Four segments have expressed interest in simulators designed by CAE: medical, architectural, geological and electrical
  5. CAE has the resources to enter two of the four new segments at most. Assume that the costs of serving the segments are the same. Further, revenues are the only focus, not costs. Assume entering one segment only will cost the same as entering two.
  6. Current clients would be willing to pay $500 monthly fee for training service
  7. Cost of training services: $100 labour/customer/month, $500,000 machines – depreciated over 10 years, $100,000 for marketing and $90,000 for administration