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Northeastern University’s Huntington Management Consulting
Team 9
Greg Milne | Shilpi Roongta | Andrew Rothbaum | Nick Sammut
HMC
Situation AnalysisEnvironmental factors affecting iRobot
Robotics Industry
iRobot
Situation Analysis Alternatives Recommendation Implementation Results
HMC
Situation AnalysisEnvironmental factors affecting iRobot
Robotics Industry
iRobot
Global Market Trends Geographic Distribution
Situation Analysis Alternatives Recommendation Implementation Results
Numerous industry applications
Sensitive to economic downturn– Industrial robots sold slumped 50% in 2009
Strong recovery during 2010– 52% increase in units– 58% increase in dollars
Market sales expected to grow next three years– Professional services robots growing 10 million– 12 million household units will be sold
HMC
Situation AnalysisEnvironmental factors affecting iRobot
Robotics Industry
iRobot
Global Market Trends Geographic Distribution
Situation Analysis Alternatives Recommendation Implementation Results
HMC
Home Care Robots:– Cleaning: homes, pools, gutters– 5 million sold worldwide– 30 national retailers; international retailers– 55% of revenues
Government and Industrial Robots:– Ground and maritime unmanned vehicles– Divisions of U.S. military– 46% of revenues
Situation AnalysisiRobot’s current market position
Robotics Industry
iRobot
Products R&D Financials IP
Situation Analysis Alternatives Recommendation Implementation Results
HMC
2/3 funded by contracts, 1/3 internally 47% of employees within R&D Three methods of research
Situation AnalysisiRobot’s current market position
Robotics Industry
iRobot
Products R&D Financials IP
Situation Analysis Alternatives Recommendation Implementation Results
Year Spend
2005 8.17%
2006 9.01%
2007 6.86%
2008 5.71%
2009 4.94%
5 Year Average 6.94%
HMC
Situation AnalysisiRobot’s current market position
Robotics Industry
iRobot
Products R&D Financials IP
Situation Analysis Alternatives Recommendation Implementation Results
2005 2009$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
iRobot Revenue Growth
Product Revenue
Contract Revenue
Declining revenues in 2009 Cost-cutting measures to stay profitable Cash position increased to $72 million Long-term debt reduced to $4 million
HMC
Situation AnalysisiRobot’s current market position
Robotics Industry
iRobot
Products R&D Financials IP
Situation Analysis Alternatives Recommendation Implementation Results
U.S. Patents Pending U.S. Patents
International Patents
Pending Foreign Applications
0
20
40
60
80
100
120
140
160
iRobot Patents
Patents
Patents held begin to expire in 2019
HMC
2010 Performance
Successfully grew revenues 33% to $400 million
Addition of $40 million in cash to balance sheet– $110 million in reserves, cash-to-sales ratio of 27%
Expansion into new markets– New Markets: Chile, Mexico, Brazil
Sales office in Miami
Highlights of iRobot’s most recent year
Situation Analysis Alternatives Recommendation Implementation Results
HMCSituation Analysis Alternatives Recommendation Implementation Results
AlternativesEvaluating possible alternatives for iRobot
Decision Criteria
Promote Future Innovation
Leverage R&D Across All Business
Segments
Complement Core Competencies w/
Strategic Alliances
HMCSituation Analysis Alternatives Recommendation Implementation Results
Alternatives
Decision Criteria
AlternativesPromote Future
Innovation
Leverage R&D Across All Business
Segments
Complement Core Competencies w/
Strategic Alliances
Focusing On One Business Segment
Acquisition Within Health Care Robotics
Universal Growth Strategy
Evaluating possible alternatives for iRobot
HMCSituation Analysis Alternatives Recommendation Implementation Results
Alternatives
Decision Criteria
AlternativesPromote Future
Innovation
Leverage R&D Across All Business
Segments
Complement Core Competencies w/
Strategic Alliances
XXFocusing On One Business Segment
Acquisition Within Health Care Robotics
Universal Growth Strategy
Evaluating possible alternatives for iRobot
HMCSituation Analysis Alternatives Recommendation Implementation Results
Alternatives
Decision Criteria
AlternativesPromote Future
Innovation
Leverage R&D Across All Business
Segments
Complement Core Competencies w/
Strategic Alliances
XX
X
Focusing On One Business Segment
Acquisition Within Health Care Robotics
Universal Growth Strategy
Evaluating possible alternatives for iRobot
HMCSituation Analysis Alternatives Recommendation Implementation Results
Alternatives
Decision Criteria
AlternativesPromote Future
Innovation
Leverage R&D Across All Business
Segments
Complement Core Competencies w/
Strategic Alliances
XX
X
Focusing On One Business Segment
Acquisition Within Health Care Robotics
Universal Growth Strategy
Evaluating possible alternatives for iRobot
HMCSituation Analysis Alternatives Recommendation Implementation Results
RecommendationSteps to iRobot’s continued success
Objective: Maximize value before patent expiration
Focus on creating awareness for iRobot capabilities
1
Objective: Complement core competencies with informal alliances
Leverage existing R&D across business segments
2
Objective: Continue to maintain relevance through innovation
Develop and foster new talent and product pipeline
3
HMC
Three Step ApproachEnhancing iRobot’s product and contract strategies
Maximize Patent Value
Awareness Campaign
International Presence
Customer Adoption
Leverage R&D
Mitigate Contract Risk
Create® for Military
Informal Alliances
Promote Innovation
Robotics Competition
Academic Research
weRobot Solutions
Situation Analysis Alternatives Recommendation Implementation Results
HMC
Three Step ApproachEnhancing iRobot’s product and contract strategies
Maximize Patent Value
Awareness Campaign
International Presence
Customer Adoption
Goal: Customer recognition of existing product line
Leverage R&D
Mitigate Contract Risk
Create® for Military
Informal Alliances
Situation Analysis Alternatives Recommendation Implementation Results
Promote Innovation
Robotics Competition
Academic Research
weRobot Solutions
HMCSituation Analysis Alternatives Recommendation Implementation Results
Maximize Patent Potential
High sunk costs in R&D
Pending patent expiration 2019
Issues Solutions
• Market consumer products heavily prior to patent expiration
• Complement social media with
demonstrations
iRobot needs product awareness, not competitors
Addressing patent issues moving forward
HMCSituation Analysis Alternatives Recommendation Implementation Results
iRobot’s Target ConsumerCharacteristics of a Roomba customer
Customer Traits
Above average incomeMeticulously clean homes
Belief in technology
In Need Of:
ProofBrand trust
Source: Q3 2010 Earnings
HMCSituation Analysis Alternatives Recommendation Implementation Results
iRobot’s Target ConsumerCharacteristics of a Roomba customer
Customer Traits
Above average incomeMeticulously clean homes
Belief in technology
In Need Of:
ProofBrand trust
Source: Q3 2010 Earnings
How is this accomplished?
HMC
“Choose Your Dirt”
In-mall demonstrations of product effectiveness– NYC, Miami, Hong Kong, Santiago and London– Defined area in mall space with different flooring panels
Ex. wood, tile and carpet
Participants select material to cover the floor– Ex. dirt, sand and other synthetic materials
Sales reps provide information and answer questions
Ability to purchase Roomba after demonstration
Building brand loyalty through proof of concept
Situation Analysis Alternatives Recommendation Implementation Results
Cost• 2011: $22,400
Return• 2011 Sales: $64,000
Strategic Benefit• Creating believers
HMC
The Adoption Process
Step Goal Met?
Awareness
Interest
Evaluation and Trial
Adoption
Situation Analysis Alternatives Recommendation Implementation Results
Taking the consumer from start to finish
HMC
Three Step ApproachEnhancing iRobot’s product and contract strategies
Maximize Patent Value
Awareness Campaign
International Presence
Customer Adoption
Goal: Complement core competencies with informal strategic alliances
Leverage R&D
Mitigate Contract Risk
Create® for Military
Informal Alliances
Situation Analysis Alternatives Recommendation Implementation Results
Promote Innovation
Robotics Competition
Academic Research
weRobot Solutions
HMC
Revenue Stream Analysis
“Want to continue to leverage R&D across business segments, as well as a create a 3rd party development
community” – 2009 iRobot 10K Report
How do you hedge against this contract risk?
Situation Analysis Alternatives Recommendation Implementation Results
Concentrated areas of revenues
40%
55%
5%
Revenues
Government ContractsHome RobotsOther
HMCSituation Analysis Alternatives Recommendation Implementation Results
Market OpportunityBroad products result in greater prospects
Broad product
Semi-specialized product
Niche
As specialization increases…
…Market opportunity decreases
HMC
Develop customizable platform for defense businesses– Leverage iRobot Create for military applications
Use field-tested robotic hardware with open platform– With intention of creating informal strategic alliances
Sturdy and scalable base– Ability for 3rd party government contractors to build upon
Indirectly capture additional government funds
Situation Analysis Alternatives Recommendation Implementation Results
iRobot “Construct”A military grade, field tested version of the iRobot Create
HMC
Raytheon designs a variety of sensors– Ex. radioactive materials– Useful in current Japan crisis
iRobot robotic base for Raytheon’s sensory technology Both firms create defense products
Situation Analysis Alternatives Recommendation Implementation Results
Sample Informal Strategic AllianceSynergies between iRobot and similar government contractors
Cost Return Strategic Benefit
HMC
Three Step ApproachEnhancing iRobot’s product and contract strategies
Maximize Patent Value
Awareness Campaign
International Presence
Customer Adoption
Goal: Build product pipeline and develop “Blue Ocean” markets
Leverage R&D
Mitigate Contract Risk
Create® for Military
Informal Alliances
Situation Analysis Alternatives Recommendation Implementation Results
Promote Innovation
Robotics Competition
Academic Research
iRobot SPIRAL Initiative
HMC
Future robotics consumption remains undefined Demand has to be created, and not competed over “robotics” technology has endless applications
CleanTech, Pharmaceutical, Automotive, Healthcare, Food & Beverage
Buyer value is promoted and raised by: Offering products the market has never seen Product positioning along the technology adoption curve
Situation Analysis Alternatives Recommendation Implementation Results
Blue Ocean StrategyCreating and supplying demand in unknown markets
Market InstigatorMarket
Potential
HMC
Future robotics consumption remains undefined Demand has to be created, and not competed over “robotics” technology has endless applications
CleanTech, Pharmaceutical, Automotive, Healthcare, Food & Beverage
Buyer value is promoted and raised by: Offering products the market has never seen Product positioning along the technology adoption curve
Situation Analysis Alternatives Recommendation Implementation Results
Blue Ocean StrategyCapitalizing on the two sides of new market growth
Market InstigatorMarket
Potential
iRobot
Develop additional markets
iRobot
Support new market leaders
HMC
Host Annual Robotics Competition Building on the FIRST model Initial launch in two U.S. markets
Boston, Massachusetts & Cupertino, California
Engineering Research Center (ERC) Partnerships Industrial partner with ERC’s focused on robotics Identify
Situation Analysis Alternatives Recommendation Implementation Results
“iRobot Innovation Challenge”Promote and identify innovation within robotics technology
HMC
Blue market demand is generated by industry incumbents Existing
Situation Analysis Alternatives Recommendation Implementation Results
Supporting New Market Demands Promote and identify innovation within robotics technology
HMCSituation Analysis Alternatives Recommendation Implementation Results
XXXXXX
Cost Return Strategic Benefit
HMC
Robotics Competition
Locations:– Massachusetts: MIT, Olin Engineering, UMass Amherst– California: CalTech, Stanford, UC Berkeley, UC Los Angeles
Marketing:– University-based programs utilizing social and traditional – Robotics clubs and engineering forums– Flyers and school newspapers– Guest speakers from iRobot and other industry members
HMC
Red Ocean Versus Blue Ocean Strategy
Red Ocean Strategy
Compete in existing market space
Beat the competition
Exploit existing demand
Make the value/cost tradeoff
Differentiation OR low cost
Blue Ocean Strategy
Create uncontested market spaces
Make the competition irrelevant
Create and capture new demand
Break the value/cost tradeoff
Differentiation AND low cost
HMC
Timeline
2011 2012 2013 2014 2015+
Choose Your Dirt
iRobot Construct
New Competitions
School Research
iRobot SPIRAL
Schedule of important events
HMCSituation Analysis Alternatives Recommendation Implementation Results
SummaryResults of implementation
Initiative
“Choose Your Dirt”
iRobot Construct
Robotics Competition & SPIRAL
Impact
Awareness & Adoption
Hedging Contract Risk
Technological Leadership
Discussion
HMC
Q&AAppendix
Financials Strategy Implementation IDEA Box IDEA Box
Awareness Campaign
Cost-Return-Strategic Benefit
Market Capture Scenarios
XX
Why Chile?
Blue Ocean vs. Red Ocean
Why Not India or China?
SWOT Analysis
Choose Your Own Dirt
Risks
Competition
XX
Refer A Friend
Bottom Billion
Potential Joint Venture
Radioactive
Control-A-BOT
International Opportunities
XX
Team Biographies
HMC
Why Chile?
U.S. Chile Free Trade Agreement established 1/1/2004 Benefits
– Lower duty rates– Stronger protection and enforcement provisions for copyrights,
trademarks, patents, and trade secrets– Removal of restrictive regulatory barriers in place for US service
providers
• Distributor TD S.A.– 36 Falabella department stores
throughout Chile• 14 Falabellas within Santiago area• Upper-middle-income country with per
capita GNP PPP of $13,440• ~90% of Chileans own televisions• ~82% own cell phones
HMC
Blue Ocean vs. Red Ocean
Red Ocean Strategy Blue Ocean Strategy
Complete in existing market space Create uncontested market space
Beat the competition Make the competition irrelevant
Exploit existing demand Create and capture new demand
Make value/cost trade-off Break the value/cost trade-off
Source: http://www.roisbs.com/uploads/HBR_Blue_Ocean_Strategy_white_paper.pdf
iRobot Blue Ocean Strategy
iRobot Military Construct Create uncontested market space
Provide platform for competitors Make the competition irrelevant
Contracts that were unreachable Create and capture new demand
Become only robotic option Break the value/cost trade-off
HMC
“Choose Your Dirt”
• Enter 5 cities over three years– New York City; Santiago, Chile;
London; Hong Kong; Miami
• Rent large/open spaces in malls
• 2 sales personnel per location
• Month long demonstrations
HMC
Refer a Friend
“Choose Your Dirt” promotion– Participants receive 10% off
Option to refer a friend – Enter name and email address to provide friends and family
with 10% coupon
E-mail blast includes direct message connecting e-mail receiver to the participant’s experience and coupon
Spread knowledge of the demonstration and product– Build brand awareness
HMC
Projected Revenues for Awareness Campaign
HMC
Why Not India or China?
China IP issues, lack of patent
protection Lack of infrastructure for
distribution Would need to create
demand Inherent cultural
differences
India• IP issues, lack of patent
protection• Lack of infrastructure for
distribution• Cultural differences
– Home care traditionally designated to lower class
• Would need to create demand
HMC
Product Line for “Bottom Billion”
Opportunity to introduce disruptive technology to “bottom billion” and cause systemic change
Can dedicate portion of resources to developing tech for economic segment– Increase efficiencies in common processes such as: collecting
water and firewood Lower margins, volume based
– Opportunity to partner with Micro-Finance institutions to provide small loans for purchasing power
Bottom billion proven to pay premiums for valuable products– Ex. Selco Solar Systems, Kickstart Technologies
HMC
Risks of Implementation
Risks Mitigation
No traction from marketing efforts Launch in two cities; resort to traditional marketing
Development of Construct not feasible Look for opportunities to expand into military niche segments
HMC
Cost-Return-Strategic Benefit
“Choose Your Dirt”
2011: $22,400
2011 Sales: $64,000
Creating Believers
iRobot Construct
Cost
Return
Strategic Benefit
Innovation Efforts
Cost
Return
Strategic Benefit
HMC
Joint Ventures
Partner with another small technology startup
iRobot would provide robotic end
Acquired company would provide supplemental technology.
Ex. A small sensory manufacturer for home or military applications
Innovation through acquisition
HMC
Potential “Construct” Applications
An iRobot Construct robot built with radioactive sensors
Launch in highly radioactive areas in Japan
Explore unsafe areas that humans are unable to
Save lives while searching for survivors
HMC
“Control-A-BOT” Mobile Application
Create a mobile application for the Roomba
Provide cleaning and runtime statistics– How many feet have been cleaned
since purchase– Battery meter
Allow users to change settings via mobile application
Control-A-BOT
HMC
Team Biographies
Gregory Milne• Concentrations:
– Finance, Accounting• Work Experience:
– Insurance, Computer Security
Shilpi Roongta• Concentrations:
– Marketing, Finance, Social Entrepreneurship
• Work Experience: – Insurance, Microfinance
Andrew Rothbaum• Concentrations:
– Finance, Accounting• Work Experience:
– Private Equity, Venture Capital
Nicholas Sammut• Concentrations:
– Finance, Marketing• Work Experience:
– Asset Management, Venture Capital, Investment Banking
HMC
International Opportunities
THALES Corporation (France) OHB Corporation (Germany)
ITAR Regulation– Sell goods via partnerships or strategic alliances– Ex. Lockheed Martin has ITAR approval for a certain product
Foreign DefenseContractors
HMC
Market Capture Scenarios
Market Share Revenue
5.00% $200,000,000
5.10% $204,000,000
5.20% $208,000,000
5.30% $212,000,000
5.40% $216,000,000
5.50% $220,000,000
6.00% $240,000,000
7.00% $280,000,000
8.00% $320,000,000
9.00% $360,000,000
10.00% $400,000,000
Assumed capture of $4 Billion vacuum market of $200 or less
HMC
Competition
Company Competes with
AB Electrolux Roomba vacuum cleaner
Alfred Kärcher GmbH & Co. Roomba vacuum cleaner
Samsung Electronics Roomba vacuum cleaner
QinetiQ Unmanned vehicles (PackBot)
Lockheed Martin Unmanned vehicles (PackBot)
HMC
SWOT Analysis
Strengths• Large R&D budget• Existing alliances • Healthy financial positioning• Long-term manufacturing contract• Government contracts• U.S. market penetration
Weaknesses• Limited visibility• Patents expiring in less than 10 years• Dependent on 3rd party suppliers• Highly dependent on government• Sensitive to economic climate
Opportunities• Expand marketing efforts• Entry into new markets• Product expansion• Lower-tiered / priced goods• International presence
Threats• Competitors have more money and knowledge in consumer space• Other companies copying IP• Reduced government spending• Break-up / non-renewing alliances• Employees leaving
HMC
HMC