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AEGIS International Analytics - Case Analysis

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Strategic Alliances - Strategy and Execution

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AEGIS International Analytics - Case Analysis

  1. 1. Presented by Group I Alexander Christian (1342980602) Dina Sandri Fani (1342981574) Muhammad Irsan (1340001263) Puntin Kulmongkon (1342980514) Binus Business School, MM Executive Batch 20
  2. 2. 9/3/2015AegisAnalyticalCaseAnalysis 2 Table of Contents Aegis Case 01 Case synopsis 02 Problem(s) identification 03 Related theories/ frameworks/models 04 Case analysis & solutions 05 Recommendation
  3. 3. 9/3/2015AegisAnalyticalCaseAnalysis 3 Table of Contents Aegis Case 01 Case synopsis 02 Problem(s) identification 03 Related theories/ frameworks/models 04 Case analysis & solutions 05 Recommendation
  4. 4. CaseSynopsis TheHistoryofAegisAnalytical 9/3/2015AegisAnalyticalCaseAnalysis 4 1995 •Founded by Gretchen Jahn and Justin Neway in Lafayette, Colorado •Jahn: 20 years experience in information technology & integrated resources management •Neway: 20 years experience in pharmaceutical & biotechnology manufacturing 1999 (a) •Receive contract worth USD 1.3m from Aventis to develop their software “Discoverant” 1999 (b) •Receive funding USD 400,000 and USD 500,000 from angle investors and Sandlot Capital
  5. 5. CaseSynopsis TheHistoryofAegisAnalytical 9/3/2015AegisAnalyticalCaseAnalysis 5 1999 - 2000 •First version of product was developed 2000 (a) •Received fund USD 4.5m from GlaxoSmithKline’s investment arm, SR one and Aventis’s investment arm, Future capital (Germany) and Viscardi Ventures (Germany) •Team of applications & technical specialists, management team & advisory board of industry and regulator experts were set up 2000 (b) •July: successfully sold and implement first product
  6. 6. CaseSynopsis TheHistoryofAegisAnalytical 9/3/2015AegisAnalyticalCaseAnalysis 6 2001 •Sep: reject funding USD 4m because valuation is too low •Oct 2001: brought in funding USD 14.5m while other companies were failed to raise fund 2002 (a) •Growth journey •35 employees •Sales agreement with 8 corporate customers •25 sales in pipeline by the end of 2002 •Hired John M. Darcy as President and CEO 2002 (b) •Jahn moved into corporate development role to pursue new markets and develop alliances and market awareness
  7. 7. CaseSynopsis TheHistoryofAegisAnalytical 9/3/2015AegisAnalyticalCaseAnalysis 7 2001 •Sep: reject funding USD 4m because valuation is too low •Oct 2001: brought in funding USD 14.5m while other companies were failed to raise fund 2002 (a) •Growth journey •35 employees •Sales agreement with 8 corporate customers •25 sales in pipeline by the end of 2002 •Hired John M. Darcy as President and CEO 2002 (b) •Jahn moved into corporate development role to pursue new markets and develop alliances and market awareness
  8. 8. CaseSynopsis WhyDiscoverant:theexternalitieswereinfavorofthedevelopmentofaproductlikeDiscoverant 9/3/2015AegisAnalyticalCaseAnalysis 8 Environment landscape  Serious failures during manufacturing process lead to increasing needs from potential customers  Increasing pressure from consumer groups and the government  Big chunk of potential market, accounted for 77 percent or $464 million of the total potential market Why Discoverant? Time saver Reduce costs Help meet quality standards No direct competitors Non-experts can use
  9. 9. CaseSynopsis WhyDiscoverant:BottomLine 9/3/2015AegisAnalyticalCaseAnalysis 9 Advantages  Clients are #1: made to communicate with non-experts  Great customer service and consulting services  Neway’s 3D visual process signature  Customized product for each customer  Sales Team’s long term relationship Negatives? 1 3 cycles of completing a sale:  Head of Manufacturing will need 3 to 9 months to check for demand  Upper management will need 3 to 12 months  Purchasing & legal department will need1 to 6 months 2 Long, tedious sales cycle Total: 7 months to 2 years
  10. 10. CaseSynopsis TheStartofStrategicAllianceImplementation(1) 9/3/2015AegisAnalyticalCaseAnalysis 10 Gretchen Jahn “We understood the power of brand recognition and company reputation in reaching our target market. We need to form a strategic alliance with well-known service providers to increase our sales” Justin Neway  March 2002: formed strategic alliance with Honeywell POMS  Honeywell POMS had USD 24 billion annual sales, over 120,000 employees and operate in 95 countries  Aegis product was bundled and resold under name “POMS Explorer, powered by Aegis”
  11. 11. CaseSynopsis TheStartofStrategicAllianceImplementation(2) 9/3/2015AegisAnalyticalCaseAnalysis 11 Gretchen Jahn “We understood the power of brand recognition and company reputation in reaching our target market. We need to form a strategic alliance with well-known service providers to increase our sales” Justin Neway  April 2012: formed strategic alliance with Propack Data/Rockwell Automation  Rockwell Automation had USD 4.3 billion annual sales, over 23,000 employees and operate in 80 countries  Finder’s fee system: receive once referral led to actual sales
  12. 12. 9/3/2015AegisAnalyticalCaseAnalysis 12 Table of Contents Aegis Case 01 Case synopsis 02 Problem(s) identification 03 Related theories/ frameworks/models 04 Case analysis & solutions 05 Recommendation
  13. 13. Problem(s) Identification As a start-up,Aegis still need to find out its growth strategy 9/3/2015AegisAnalyticalCaseAnalysis 13 Operating Expenses & Net Operating Income  Revenues grew strongly in 2002 as Discoverant succeed in getting its 8 first customers  Operating expenses went high as Aegis still need high investment for product research & development  (Still) record a negative net operating income since 2002 1998 1999 2000 2001 2002 $8,053 $814,001 $670,754 $562,741 $2,513,267 Total Revenues CAGR: 320% 1998 1999 2000 2001 2002 Operating expenses $152,189 $1,239,510 $3,417,575 $5,128,508 $7,779,047 Net Operating Income $(144,136) $(425,509) $(2,746,821 $(4,565,767 $(5,265,780 $(6,000,000) $(4,000,000) $(2,000,000) $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 Operating expenses Net Operating Income
  14. 14. Problem(s)Identification ImplementationofalliancesstrategydidnotbringanysalesforAegis(1) 9/3/2015AegisAnalyticalCaseAnalysis 14 01 Aegis was not on the high priority list for the sales managers  Discoverant became just one item from Honeywell’s and Rockwell’s sales catalogue  The sales efforts of both allies were in no way focused on selling Aegis’ product, but were rather offering it as an “add-on” 02 Moral hazard  Aegis committed a huge part of their organizational resources to both alliances  In contrast, lack of commitment from both allies, thereby frustrating the Aegis team
  15. 15. Problem(s)Identification ImplementationofalliancesstrategydidnotbringanysalesforAegis(2) 9/3/2015AegisAnalyticalCaseAnalysis 15 03 Unnecessary procedures and bureaucracy  Due to the big size of both Strategic Allies  Longer sales cycle – affected prospective customer decision making process 04 High dependency to Allies  Communication between Aegis and Rockwell Pro Pack was suffering when the primary contact for Aegis left ProPack  Fragility of the position that Aegis has in terms of operational communications, the dependency on informal contacts, and the reliance on managers’ predisposition towards Aegis’ product
  16. 16. 9/3/2015AegisAnalyticalCaseAnalysis 16 Table of Contents Aegis Case 01 Case synopsis 02 Problem(s) identification 03 Related theories/ frameworks/models 04 Case analysis & solutions 05 Recommendation
  17. 17. Relatedtheory StrategicAlliances 9/3/2015AegisAnalyticalCaseAnalysis 17 Mission Objectives External Analysis Internal Analysis Strategic choices Strategy Implement ation Competitive Advantage Corporate Level Strategy Biz to enter? Vertical Integration Diversification Strategic Alliances
  18. 18. Relatedtheory TypesofStrategicAlliances 9/3/2015AegisAnalyticalCaseAnalysis 18 Non-equity alliance Equity alliance Joint venture Contracts based • Licensing • Supply & distribution agreements What is Strategic Alliances? Any cooperative effort between two or more independent organizations to develop, manufacture, or sell products or services Cross equity holdings Partners own stakes in each other Joint equity holdings Independent firm is created
  19. 19. Relatedtheory TheimplementationofV-R-I-Oto StrategicAlliances:maygeneratecompetitiveadvantageif combinationsofcomplementaryresourcesandgovernanceresponsesmeettheVRIOcriteria 9/3/2015AegisAnalyticalCaseAnalysis 19 Valuable Strategic Alliances can create value if: • Improve current operations • Shaping the competitive environment • Facilitating entry and exit Rare As a form of organizing economic exchange: NO! The sources of value creation within alliances may be rare, if: • firms may form a combination of complementary resources within an alliance that is rare • the stock of such complementary resources may be limited so that first movers have a rare combination Imitability As a form of organizing economic exchange: NO! The resource combinations that create value in alliances may be very costly, if not impossible, to imitate if: • the value creating combination depends on social complexity (trust), causal ambiguity, and/or historical uniqueness Organizing Two types of governance responses: Formal/codified Explicit contracts & legal sanctions: creates mutual understanding Joint ventures: aligns interests of partners through ownership of independent firm Equity investments: aligns interests of partners through ownership in each other Informal Trust Firm reputation
  20. 20. Relatedtheory AreStrategicAlliancessubstitutable? 9/3/2015AegisAnalyticalCaseAnalysis 20 Yes, they are! Two options available to substitutes strategic alliances Internal Development  Can be an option  No partner is available  transaction-specific investment is high  low uncertainty about the investment Mergers & Acquisitions  Can be an option  There are no anti-trust issues  Low uncertainty about the investment  Firms can be integrated easily  Value of combined firm is not tied to independence
  21. 21. 9/3/2015AegisAnalyticalCaseAnalysis 21 Table of Contents Aegis Case 01 Case synopsis 02 Problem(s) identification 03 Related theories/ frameworks/models 04 Case analysis & solutions 05 Recommendation
  22. 22. Aegis’ExternalAnalysis Aegis’FiveForcesModel 9/3/2015AegisAnalyticalCaseAnalysis 22 No. Threats Rating 1. Threats of new entrants High 2. Threat of competitors Low 3. Threats of buyer High 4. Threats of substitutes High 5. Threats of suppliers Low
  23. 23. Aegis’ExternalAnalysis PorterFiveForces:determinethethreats(1) Rivalry Potential Entrants Customers Substitutes Suppliers Low Consulting services and software provider to the pharmaceutical and bio-technology in States and Europe is an industry with a low threat level competitors. This is due to the investment in the product is high and has a risk level failure is high. In addition, the creative industries also have the opportunity to monopoly, which is due to the laws regarding patents or copyrights 9/3/2015AegisAnalyticalCaseAnalysis 23
  24. 24. Aegis’ExternalAnalysis PorterFiveForces:determinethethreats(2) High Consulting services and software provider to the pharmaceutical and bio- technology in the United States and Europe is the industry with the level of threat of new entrants is high. This is caused by the cost of exit-entry are low and the products offered are heterogeneous. Consulting services and software provider is the main capital of the creative industries is the power of human thought and creativity so that resources are not unlimited, other than that the industry has access to capital are high through venture capital. Rivalry Potential Entrants Customers Substitutes Suppliers 9/3/2015AegisAnalyticalCaseAnalysis 24
  25. 25. AegisExternalAnalysis PorterFiveForces:determinethethreats(3) High Consulting services and software provider to the pharmaceutical and bio-technology in States and Europe is an industry with a high level of bargaining power of buyers. This is due to the limited number of buyers and the products offered in the category are not essential to the current operation of the enterprise buyer’s pharmaceutical . Rivalry Potential Entrants Customers Substitutes Suppliers 9/3/2015AegisAnalyticalCaseAnalysis 25
  26. 26. Aegis’ExternalAnalysis PorterFiveForces:determinethethreats(4) High Consulting services and software provider to the pharmaceutical and bio- technology in States and Europe is an industry with a high level of threat of substitutes. This is caused by the presence of other companies engaged in manufacturing information system, which has the advantage of partnerships with company’s manufacturer’s pharmacy. Manufacturing information system and Aegis products are complementary, but did not rule out the potential to replace Aegis products due to economies of scale that are owned by the company manufacturing information systems such as Honeywell or Rockwell Rivalry Potential Entrants Customers Substitutes Suppliers 9/3/2015AegisAnalyticalCaseAnalysis 26
  27. 27. Aegis’ExternalAnalysis PorterFiveForces:determinethethreats(5) Low Consulting services and software provider to the pharmaceutical and bio-technology in States and Europe is an industry with a low level of bargaining power of suppliers. Raw material of this industry can be defined as human resources or human capital and financial resources Rivalry Potential Entrants Customers Substitutes Suppliers 9/3/2015AegisAnalyticalCaseAnalysis 27
  28. 28. Aegis’InternalAnalysis InitialStrategicPosture:consideredStrategicAllianceastheirCorporateStrategy 9/3/2015AegisAnalyticalCaseAnalysis 28 Formed non-equity alliances with two companies: Honeywell and Rockwell. The alliances were in the form of contractual agreements. Strategically, this provided Aegis the flexibility to exit the alliance easily. Strategic Choices Why Strategic Alliances Both leader in the Pharmaceutical Manufacturing Industry and sold complimentary products Allow Aegis to gain credibility and visibility  Reduce sales time  Reduce the amount of research done by Upper Management
  29. 29. Aegis’InternalAnalysis VRIOAnalysis 9/3/2015AegisAnalyticalCaseAnalysis 29 Value Discoverant was a highly innovative technology which would change the way data is collected, analyzed, and turned into reports. Rarity Discoverant was one-of-a-kind product, which provided Aegis with rarity as a source of competitive advantage. The product was user-friendly and didn’t require programming expertise to be used. Imitability Required substantial financial investments: an initial start-up investment of $1.3 million, followed by $4.5 million, and $14.5 for completing their product. This was a barrier to entry, which makes the development of this product difficult to imitate. Organization The resources of Aegis enable it to exploit an external opportunity by developing an innovative product like Discoverant. “May Gain a Competitive Advantage”
  30. 30. Aegis’InternalAnalysis WhyItDidNotWork 9/3/2015AegisAnalyticalCaseAnalysis 30 1 Struggling economy? 2 Lack of corporate spending across industry 3 Lack of communication Honeywell POMS 1 Group phone calls 2 Bi-yearly meetings 3 Sale calls 1 Loss of key personnel 2 Single point of contact
  31. 31. ProposedSolution(s) 3(three)alternativesavailabletobeoptedbyAegisManagement 9/3/2015AegisAnalyticalCaseAnalysis 31 Option 1: Exit the alliance, “going-it-alone” and reasons for the exit Because of the uniqueness of its product, Aegis could gain its position on the market by “going-it- alone”. Aegis already had two major client-investment partnerships and was consistently increasing their revenue The operating expenses were too high and growing at a steady rate Hiring additional sales staff to work with the alliance partners added to the operating expenses The current alliances were very costly to Aegis None of the contracts within the Strategic Alliance gave any exclusivity Focused on using its small size As their emergent strategy, Aegis should move towards direct sales Aegis spent lots of resources on training the alliance partners. When the level of transaction specific investment is high, it is recommended to go-it-alone
  32. 32. ProposedSolution(s) 3(three)alternativesavailabletobeoptedbyAegisManagement 9/3/2015AegisAnalyticalCaseAnalysis 32 Option 2: Improve current Strategic Alliances Improve Discoverant brand recognition within the partners’ sales catalogue by changing the contractual obligations Change the positioning of Discoverant to primary spot in the partners’ sales catalogues Improve incentives of the sales force Improve communication with Rockwell. Aegis should be able to interview reps of the sales force and select individuals who would be a good cultural fit for the alliance To ensure better commitment from partners, include sales targets (with specific numbers per FY) and implement penalties for lack of sales performance. This would incentivize the sales reps to add effort into their sales agenda
  33. 33. ProposedSolution(s) 3(three)alternativesavailabletobeoptedbyAegisManagement 9/3/2015AegisAnalyticalCaseAnalysis 33 Option 3: Consider a different type of Strategic Alliance Consider Equity Alliance Non-equity alliance might have hurt Aegis as the partners did not have any commitment to deliver Equity investments, we could have more commitment from the alliance partners Leverage further on the current alliance with their client- investment partners: Merck & GalxoSmithKline. Utilize such customers as partners to demonstrate the value of Discoverant to potential new customers As a way to reduce the Operating expense, reduce the sales cycle from up to two years to a shorter timeline. Aegis could achieve this by better targeting of decision makers at the potential customers Explore licensing option; engage independent resellers for distribution of their product. Wouldn’t require an additional investment on Aegis’ side. It would be a commission-per sales based contract.
  34. 34. 9/3/2015AegisAnalyticalCaseAnalysis 34 Table of Contents Aegis Case 01 Case synopsis 02 Problem(s) identification 03 Related theories/ frameworks/models 04 Case analysis & solutions 05 Recommendation
  35. 35. ProposedRecommendation WerecommendAegistoexittheallianceand“going-it-alone”whilegraduallyshiftingawayto licensingmodel 9/3/2015AegisAnalyticalCaseAnalysis 35 Combination of Option 1 & 3 Focus on uniqueness of its product to gain its position on the market by “going-it-alone”. Leverage further on the current alliance with their client-investment partners: Merck & GalxoSmithKline: utilize them as potential customers The operating expenses were too high and growing at a steady rate Thus; reduce the sales cycle from up to two years to a shorter timeline. Aegis could achieve this by better targeting of decision makers at the potential customers Focused on using its small size As their emergent strategy, Aegis should move towards direct sales Explore licensing option. It would be a commission- per sales based contract.
  36. 36. 9/3/2015AegisAnalyticalCaseAnalysis 36

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