AEGIS International Analytics - Case Analysis

Presented by Group IAlexander Christian (1342980602)Dina Sandri Fani (1342981574)Muhammad Irsan (1340001263)Puntin Kulmongkon (1342980514)

Binus Business School, MM Executive Batch 20

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Table of ContentsAegis Case

01 Case synopsis

02 Problem(s) identification

03 Related theories/ frameworks/models

04 Case analysis & solutions

05 Recommendation

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01 Case synopsis




05 Recommendation

Case SynopsisThe History of Aegis Analytical

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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


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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


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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


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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

Case SynopsisWhy Discoverant: the externalities were in favor of the development of a product like Discoverant

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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

Case SynopsisWhy Discoverant: Bottom Line

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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

Case SynopsisThe Start of Strategic Alliance Implementation (1)

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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”

Case SynopsisThe Start of Strategic Alliance Implementation (2)

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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

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01 Case synopsis




05 Recommendation

Problem(s) IdentificationAs a start-up, Aegis still need to find out its growth strategy

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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

Problem(s) IdentificationImplementation of alliances strategy did not bring any sales for Aegis (1)

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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

Problem(s) IdentificationImplementation of alliances strategy did not bring any sales for Aegis (2)

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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

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01 Case synopsis




05 Recommendation

Related theoryStrategic Alliances

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Mission Objectives

External Analysis

Internal Analysis

Strategic choices

Strategy Implement

ation

Competitive Advantage

Corporate Level

Strategy

Biz to enter?

Vertical Integration

Diversification

Strategic Alliances

Related theoryTypes of Strategic Alliances

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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 ineach other

Joint equity holdings

Independent firm is created

Related theoryThe implementation of V-R-I-O to Strategic Alliances: may generate competitive advantage if combinations of complementary resources and governance responses meet the VRIO criteria

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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 alliancesmay 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 inalliances 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

InformalTrustFirm reputation

Related theoryAre Strategic Alliances substitutable?

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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

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01 Case synopsis




05 Recommendation

Aegis’ External AnalysisAegis’ Five Forces Model

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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

Aegis’ External AnalysisPorter Five Forces: determine the threats (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

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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

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Aegis External AnalysisPorter Five Forces: determine the threats (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

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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

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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

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Aegis’ Internal Analysis Initial Strategic Posture: considered Strategic Alliance as their Corporate Strategy

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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

Aegis’ Internal Analysis VRIO Analysis

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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”

Aegis’ Internal Analysis Why It Did Not Work

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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

Proposed Solution(s)3 (three) alternatives available to be opted by Aegis Management

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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


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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


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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.

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01 Case synopsis




05 Recommendation

Proposed RecommendationWe recommend Aegis to exit the alliance and “going-it-alone” while gradually shifting away to licensing model

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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 weretoo 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.

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