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A123 systems Case Study

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A123 systems Case Study

  1. 1. Strategic Management Group 52 A A123 Systems Strategic Case Study By Atef Abdelfattah Atef Tarek Abdelmoniem Youssef
  2. 2. Case Study Overview 1. Company Overview 2. Mission Statement 3. Corporate Governance 4. Strategic Factors Analysis 5. Alternative Corporate strategies
  3. 3. Company Intro Electronics batteries for consumers Transportation Batteries Electric Power Batteries • Founded in 2001 by MIT professor Yet-Ming Waltham, Massachusetts, based in Li-Ion Batteries using Nano Technology from MIT. • Included on the Guardian's "Global Cleantech Top 100” ( 2009 ) • Selected in world top 50 Most Innovative Companies “ Technology Review Magazine” ( 2011 ) • A123 Main Product Sectors:
  4. 4. Founded as as spunout of MIT • Wanxiang Acquisition [$ 260M] • Filed for bankruptcy • Fisker Auto Batteries recall [$ 55M cost] 2001 2005 Black & Decker Batteries Prod. line 2009 • NASDAQ IPO 2010 2012 2014 2015 2016 2017 Wanxiang sells power grid unit to NEC • Chrysler battery deal 2007 Acquisition of enerland Korea and hymotion 2011 Opens Romulus Miami plant • Fisker Auto. Battery Deal • SAIC Motors Joint Venture Law suite against apple for poaching A123 Engineers Company Overview Timeline Open new Czech plant Transportation batteries
  5. 5. Company Subsidiaries & Joint Ventures A123 Systems China Enerland Korea A123 Hymotion Canada A123 Securities Corporation Massachusetts A123 China Material co. Ltd A123 GmBH Germany A123 Systems Zhenjiang co. Ltd. China Changchun Farad Electric co. Ltd China Changchun Gouji Electronic co. Ltd A123 Systems Hong Kong A123 Systems Czech Joint VenturePartnership
  6. 6. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 A123 Systems Product Mix [Revenue %] Consumer Market Transportation Market Power Grid Market 2001 2007 2014 2017 Wanxiang Divest A123 power grid unit to NEC Product Segments Focus Founded Partnership with Cobasys [Automotive batteries ] Electronics Consumer Batteries Era Mixing Products Era Automotive Batteries Era •GM Spark EV - Volt •Fisker Karma •SIAC joint Venture •Black & Decker Products Open new Czech plant Transportation batteries
  7. 7. 2001 2009 2011 2012 2013 2016 2017 Company Strategies timeline Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Profit Mil $ 0 0 0 -5.6 -14.3 -15.8 -31 -80.5 -85.8 -152.6 -257.7 Open new Czech plant Transportation batteries •Cash Pumping •IPO - Huge Gov. Grants •Building plant on promises GM goes to LG - Tesla goes to Panasonic •Fisker karma problems •Batteries recall and cash problem •Bankrupcy Retrenchment - Divesting Stability - Profit Retrenchment - Bankruptcy Aggressive Growth - Diversification Growth - Concentration - Vertical Integration
  8. 8. Consumer Market • Sony • Panasonic • Samsung • LG Chem • Valence • E-one Moli Group Electric Grid • Saft • Altairnano • NGK Insulators • Prudent Energy • Beacon Power Corp Vehicles • NEC • LG • Samsung-bosch Li Motive • Panasonic / Sanyo • Hitachi • Sony • Toshiba Competitors Per Sector A123 14% [2015] A123 1-2% of market share[2009]
  9. 9. We design, develop, manufacture and sell advanced, rechargeable lithium-ion batteries and battery systems. Our batteries and battery systems provide a combination of power, safety and life that we believe no other commercially available battery provides. We believe that lithium-ion batteries will play an increasingly important role in facilitating a shift toward cleaner forms of energy. Using our innovative approach to materials science and battery engineering and our systems integration and manufacturing capabilities, we have developed a broad family of high-power lithium-ion batteries and battery systems. This family of products, combined with our strategic partner relationships in the transportation, electric grid services and consumer markets, positions us well to address these markets for next-generation energy storage solutions A123 Systems Mission Statement
  10. 10. EvidencestatusElementsNo Not clearly determined customersNoCustomer1 rechargeable lithium-ion batteries and battery systems YesProduct2 in the transportation, electric grid services and consumer markets YesMarket3 - lithium-ion batteries -Using our innovative approach to materials science and battery engineering YesTechnology4 Not clearly determinedNoConcern for survival, growth, profitability5 Play an increasingly important role in facilitating a shift toward cleaner forms of energy YesPhilosophy6 we believe no other commercially available battery provides YesSelf concept – Competitive advantage7 Not mentioned at allNoCSR8 Not mentioned at allNoConcern for employees9 Mission Statement Evaluation Matrix
  11. 11. Yet-Ming Chiang - Co-Founder ( 2001) Background • Professor Department of Materials Science at MIT • published 200 scholarly articles - holds about 20 issued patents • Co-founder of four companies: American Superconductor Corporation (NASDAQ: AMSC), A123 Systems (NASDAQ: AMSC), Entra Pharmaceuticals, and 24M Technologies. Practices • Foundation – The company was founded in 2001 by Dr. Yet-Ming Chiang, Dr. Bart Riley, and Ric Fulop • R&D Catalyst – He received in 2006 (with others at A123 Systems) the R&D 100 Award, and the R&D 100 Editor’s Choice Award, for developing a new lithium battery technology that today is helping to accelerate the adoption of electric transportation. ( R&D 100 Conference USA) Corporate Governance
  12. 12. David Vieau – CEO ( 2006 – 2012) Background • Bachelor of Science Degree in Mechanical Engineering from Syracuse University in 1972. • Held corporate officer positions at American Power Conversion [NASDAQ: APCC], serving as VP of Marketing and VP of Worldwide Business Development. Practices • Expansion – Has led the expansion of A123 from its initial creation to more than 2,500 employees. • Fundraising – Under his leadership, the company has received nearly $350 million in private financing and $249 Million Obama Grant Recipient • IPO - NASDAQ – Led the company through its initial public offering in September of 2009 Corporate Governance
  13. 13. Corporate Governance Jason Forcier – CEO – 2013 till Now Background • bachelor's degree in mechanical engineering from GMI Engineering & Management Institute (now Kettering University) • MBA - the University of Michigan. • Served as Vice President of Lear's global electronics business • North American President of Automotive Electronics for Robert Bosch LLC. 12 year career with Bosch, • Co-founder and CEO of ETAS, Inc., a Bosch Subsidiary. Practices • In 2013, guided the company through a sale and restructuring process that focused on its core automotive business • Cutting expenses without compromising R&D • Reduced health-care benefits for those who remained and trashed perks such as free food and the cappuccino machine. “We were running this place like we were Apple or Google,” he says. • Apple Settles Court Case With Battery Maker A123 System – The iPhone-maker was accused of targeting engineers from A123 in mid-2014 as it sought to build a large-scale battery unit - A123 had filed a claim Corporate Governance
  14. 14. Porter 5 Forces Model Bargaining Power Of Suppliers - A123 Vertical integration reduces the threats of supplier power Threat of new Entrants -Expensive Entrant for Li-Ion Industry -Batteries made Patient Rights Protection for its methodologies. Bargaining Power Of buyers - High threat of buyers power as there is many competitors ( historical incidents of customer leaving A123 for competitors ( GM - Tesla ) . Threat of Substitute Products - Lead Acid older batteries are current substitute in short term, while new technology has extra edge in long term. Competitive Rivalry -Japanese manufactures hold 40% market shares. - most market player are much larger size companies with specialized business unit.
  15. 15. Vehicle Industry Li-Ion Batteries KSF Key Success Factors for Vehicle Li-Ion Batteries Industry Weight A123 Systems SB Li-Motive LG Chem Sony Rate Wt. Score Rate Wt. Score Rate Wt. Score Rate Wt. Score 1- Brand Reputation 0.05 3 0.15 5 0.25 3 0.15 4 0.2 2- Price 0.05 3 0.15 2 0.1 5 0.25 3 0.15 3- Products Varieties 0.1 4 0.4 2 0.2 2 0.2 5 0.5 4- Distribution Channels 0.05 4 0.2 3 0.15 3 0.15 4 0.2 5- Financial Position 0.1 1 0.1 4 0.4 3 0.3 4 0.4 6- Performance Quality 0.1 5 0.5 4 0.4 3 0.3 3 0.3 7- Product Safety 0.15 4 0.6 5 0.75 3 0.45 4 0.6 8- CSR 0.15 1 0.15 3 0.45 4 0.6 4 0.6 9- Customer Service 0.15 4 0.6 4 0.6 4 0.6 4 0.6 10- marketing 0.1 3 0.3 3 0.3 5 0.5 4 0.4 Total Scores 1 2.15 2.5 2.45 2.5
  16. 16. A123 Systems SWOT Analysis INTERNAL FACTORS STRENGTHS (+) WEAKNESSES (-) Positioned Globally ( US - Europe - China ) Gov. Support of localizing Plants Using Advanced Nano Technology Strong R&D Vertical Integration Joint Venture ( SIAC ) Focus on transportation batteries Limited customers base Out of 2013 bankruptcy ( reputation ) Low profit and Financial Position High running cost EXTERNAL FACTORS OPPORTUNITIES (+) THREATS (-) High Industry Barriers High Oil Prices Demand growth ( future Technology Trend ) Increased car emissions regulations Dynamic new technology Tough Competition Politics and effect of Chinese ownership Small Market Share
  17. 17. A123 Internal Factors Analysis Internal Factors Analysis Weight Rating [1-5] Weighted Score Strength S1 Positioned Globally ( US - Europe - China ) 0.15 3.5 0.525 S2 Gov. Support of localizing Plants 0.05 2 0.1 S3 Using Advanced Nano Technology 0.05 2 0.1 S4 Strong R&D 0.125 2 0.25 S5 Vertical Integration 0.025 1.5 0.0375 S6 Joint Venture ( SIAC ) 0.1 4 0.4 Weaknesses W1 Focus on transportation batteries 0.1 4 0.4 W2 Limited customers base 0.1 2.5 0.25 W3 Out of 2013 bankruptcy ( reputation ) 0.1 2.5 0.25 W4 Low profit and difficult financial position 0.15 2.5 0.375 W5 High running cost 0.05 3.5 0.175 Total Scores 1 2.8625
  18. 18. A123 External Factors Analysis External Factors Analysis Weight Rating Weighted Score Opportunities O1 High Industry Barriers 0.15 2.5 0.375 O2 High Oil Prices 0.05 2 0.1 O3 Demand growth ( future Technology Trend ) 0.15 2.5 0.375 O4 Increased car emissions regulations 0.1 3 0.3 Threats T1 Dynamic new technology 0.1 3 0.3 T2 Tough Competition 0.275 4.5 1.2375 T3 Politics and effect of Chinese ownership 0.125 3 0.375 T4 Small Market Share 0.05 2.5 0.125 Total Scores 1 3.1875
  19. 19. A123 Strategic Factors Analysis Strategic Factors Analysis Weight Rating Wt. Score Duration Comments Short Med Long S1 Positioned Globally ( US - Europe - China ) 0.15 2 0.3 X Ease Access to all markets S6 Strong R&D 0.125 2.5 0.3125 X Provides the quality edge of A123 Batteries performance W1 Out of 2013 bankruptcy ( reputation ) 0.1 2 0.2 X X Low sustainability confidence will repel future investment W7 difficult financial position 0.125 2.5 0.3125 X raises questions on future coninuitiy O1 High Industry Barriers 0.15 2.5 0.375 X O4 Demand growth ( future Technology Trend ) 0.1 3 0.3 X guarantee increasing sales forecast T2 Tough Competition 0.15 3 0.45 X X low market share vs. Asian tech giants T3 Politics and effect of Chinese ownership 0.1 2 0.2 X insecurities about future policies Total Scores 1.00 2.45
  20. 20. Space Matrix 10 9 8 7 6 5 4 3 2 1 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7 8 9 10 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 Financial Position Competitive position Industry position Stability Position Aggressive Conservative Defensive Competitive A123 has good competitive advantage in a high growth industry • Product Development • Market Penetration
  21. 21. BCG Growth - Share Matrix ( Vehicles Batteries ) Relative Market Share IndustrySalesgrowthrate High Med Low Med Low • Low Market Share • High Industry Growth • Product Development • Market Penetration • Divesting
  22. 22. BCG Growth - Share Matrix (Consumer Batteries) Relative Market Share IndustrySalesgrowthrate High Med Low Med Low • Low Market Share • Moderate Industry Growth
  23. 23. A123 Systems Corporate Strategy Three alternative corporate strategy 1. Growth – Concentration – Vertical integration 2. Stability – Profit 3. Retrenchment - Divestment • For Corporate Strategy Parenting: ( no expected change as it is acquired by Wanxiang conglomerate )
  24. 24. A123 Systems Corporate Strategy 1.Growth – Concentration – Vertical integration Strategy: ConsPros 1. It requires a huge amount of investment 2. Diverse BU strategies & policies 3. It requires many resources and administrations overheads 1. Gives A123 more control over batteries business 2. Requires lower cost of transaction between business levels 3. It ensures a high level of quality certainty
  25. 25. A123 Systems Corporate Strategy 2. Stability – profit Strategy: ConsPros 1. Losing potential opportunities of growth especially the industry is in growth state 2. Hold all investment plans 3. Could loose its position among competitors 1. Achieving profits will enhance company image in the market 2. Covering the previous losses bad experience which re- encourage investors to invest more 3. Keep skilled staff working 4. Utilize current resources 5. Financial security
  26. 26. A123 Systems Corporate Strategy 3. Retrenchment - Divesting strategy: ConsPros 1. May let go of excellent employees 2. Losing potential opportunities of growth especially the industry is in growth state 3. It could form future competitor through sold business units 1. core competency focus 2. Improve performance 3. Financial security (raise cash & reduce debits)
  27. 27. Corporate / Business Strategy Recommended Corporate Strategy Stability – Make a profit 1. Achieving profits will enhance company image in the market 2. Covering the previous losses bad experience which re- encourage investors to invest more 3. Keep skilled staff safely working ( especially R&D) 4. Financial security For Stability - Profit corporate strategy, we will breakdown into competitive - Cost Focused Business Strategy:
  28. 28. Functional Strategy For Business competitive - cost focused Business Strategy HR Marketing Purchasing Operation Logistics R&D Financial -Appoint skilled employees who are cross-trained to participate in cross functional teams. -Outsourcing the lower skilled vacancies for lowering total labor overhead. -Follow Up KPIs : turnover % ( target <5%) - employee annual appraisal ( target 90% ) -Product development strategy - Skim Pricing for new developed products. - Follow Up KPIs : ( new product launches Max > 8 month ) -Continue R&D development to support Marketing Skim Pricing - Advanced processes to lowering overheads. -Costs Cut - multiple cost saving initiatives and projects - Sole sourcing : Supplier partnership to enhance long term low cost. - annual purchasing savings of ( min >15% ) - Outsourcing trend for lower cost. -Focus on Chinese low cost overheads plants , for lowering manufacturing cost. - minimize investment in US market, as higher manufacturing costs. -Focus on Lean production & minimize waste & non quality cost. ( 15% saving yearly )
  29. 29. Strategy Implementation Program Action Plan
  30. 30. Implementation Audit Finance •Income statement •ROI •ROA •Cash to cash cycle Purchasing •Saving report ( YTD savings ) •No. of vendors per item HR •Employees turn over report •Employees annual Operation •Lean six sigma projects Audits : • management review half annually meeting for Project plans follow up.
  31. 31. References •www.a123systems.com •https://dmse.mit.edu/faculty/profile/chiang •https://www.google.com.eg/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&sqi=2&ved=0ahUKEwjJp8z31bfTAhUGMJoKHVUQBDMQFgghMAA&url=https%3A%2F%2Fwww.bloomberg.com%2F research%2Fstocks%2Fprivate%2Fsnapshot.asp%3FprivcapId%3D237866422&usg=AFQjCNFiw3tj8ZSem1NzbcVzWc-VAtsJvg&sig2=lpKNUcH9OqzGkLU_VFBSWA •Compact Power, Inc. (CPI). (2010). Compact Power, Inc. (CPI) home page. Retrieved August 9, •2010, from http://compactpower.com/. •Deutsche Bank (2009). Autos & autoparts Electric Cars: Plugged in2. Retrieved August 17, •2010, from http://www.db.com •Kanellos, Michael (2009). By The Numbers:A123Systems' IPO Papers. Greentechmedia. •Retrieved August 5, 2010, from http://www.greentechmedia.com/articles/read/by-the-numbers-a123-systems/ •---. (2010a). A123Systems Finds New Way toSecure Customers: Give Them Money. •greentechmedia. January 14 Retrieved July 9, 2010, from •http://www.greentechmedia.com/articles/read/a123-systems-finds-new-way-to-secure-customers-give-them-money/. •---. (2010b). A123Systems, Black & Decker Have Grown Apart. Seeking Alpha. April 19 •Retrieved July 9, 2010, from http://seekingalpha.com/article/199376-a123-systems-black-decker-have-grown-apart. •Lee, Don. (2010). Fighting for 'Made in the USA'. Los Angeles Times. May 08, 2010 Retrieved •July 09, 2010, from http://articles.latimes.com/2010/may/08/business/la-fi-green-manufacturing-20100509. •METI. (2010). Battery Storage System Industry Report. Retrieved June 1, 2010, from •http://www.meti.go.jp/report/downloadfiles/g100519a02j.pdf. •NEDO. (2009). Outline of Li-EAD Project. Retrieved June 1, 2010, from •http://app3.infoc.nedo.go.jp/gyouji/events/FA/nedoevent.2009-05-12.5433825802/O-00%20H206210679c5831544a4f1a-NEDO5c0f6797-(67007d427248).pdf. •Nishino, Hiroshi. (2010). Key Technology for EVs;Lithium-Ion Secondary Battery. Retrieved •June 25, 2010, from http://mitsui.mgssi.com/issues/report/r1005j_nishino.pdf. •PRTM. (2010). Paving the Way for Electric Vehicles. from •http://www.prtm.com/uploadedFiles/Thought_Leadership/Perspectives/PRTM_Paving_th •e_Way_for_Electric_Vehicles.pdf. •Pure Green Cars. (2010). SAIC to Launch Roewe 750 Hybrid This Year. April 8, 2010.Retrieved •October 13, 2010 from http://www.favstocks.com/saic-to-launch-roewe-750-hybrid-this-year/087362/. •Voelcker, John (2007). Lithium Batteries Take tothe Road. IEEE Spectrum. Retrieved July 09, •2010, from http://spectrum.ieee.org/green-tech/advanced-cars/lithium-batteries-take-to-the-road/1 •Wright, Lawrence. (2010). Lithium Dreams. The New Yorker, March 22, 2010, 49-59

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