Summary of the Case Study
This case study involves MagRec, Inc., and the conflict caused by perceptions. This company produces magnetic recording heads, an essential device used for reading, writing, and erasing data on tapes and disks. Nine years ago, it was discovered that one of the parts to the magnetic recording heads had a design flaw due to calculations. The design flaw could be reworked to meet all specifications except one – life expectancy. The heads are sold to Partco – MagRec’s largest customer - with a guarantee to last 2 years or 6000 of actual usage. This design flaw will now cause the heads to be replaced every 12 to 18 months or 2500 hours. After consideration, the Vice President of Operations decided to move forward with the year’s production (about 5000 heads) and ship the defective parts knowing the rework would correct the problem for any future magnetic recording heads. MagRec’s experience told them that customers do not keep accurate records to determine actual usage and life, and if a customer did happen to complain about the actual life expectancy, the service technicians always gave a plausible explanation – such as the temperature must be higher than average – or the customer must be using the computer a lot.
Nine years later, after becoming Sales Manager, Pat is approached by Dinah Coates, the secretary of the Sales Department. While cleaning out old files, she came across the nine-year-old report about design and manufacturing defects in the Partco heads. Dinah was stunned that the company had deliberately sold products to Partco and others knowing they would not meet life requirements (Schermerhorn, J., Hunt, J., Osborn, R., & Uhl-Bien, M., 2010, p. W-106).
Dinah believes that fraud may have been committed nine years