AEGIS International Analytics - Case Analysis

Presented by Group I
Alexander Christian (1342980602)
Dina Sandri Fani (1342981574)
Muhammad Irsan (1340001263)
Puntin Kulmongkon (1342980514)
Binus Business School,
MM Executive Batch 20

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
Table of Contents
Aegis Case
01 Case synopsis
frameworks/models
05 Recommendation

CaseSynopsis
TheHistoryofAegisAnalytical
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

CaseSynopsis
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

CaseSynopsis
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

CaseSynopsis
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

CaseSynopsis
WhyDiscoverant:theexternalitieswereinfavorofthedevelopmentofaproductlikeDiscoverant
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

CaseSynopsis
WhyDiscoverant:BottomLine
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

CaseSynopsis
TheStartofStrategicAllianceImplementation(1)
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”

CaseSynopsis
TheStartofStrategicAllianceImplementation(2)
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
Table of Contents
Aegis Case
01 Case synopsis
frameworks/models
05 Recommendation

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

Problem(s)Identification
ImplementationofalliancesstrategydidnotbringanysalesforAegis(1)
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

Problem(s)Identification
ImplementationofalliancesstrategydidnotbringanysalesforAegis(2)
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
Table of Contents
Aegis Case
01 Case synopsis
frameworks/models
05 Recommendation

Relatedtheory
StrategicAlliances
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

Relatedtheory
TypesofStrategicAlliances
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

Relatedtheory
TheimplementationofV-R-I-Oto StrategicAlliances:maygeneratecompetitiveadvantageif
combinationsofcomplementaryresourcesandgovernanceresponsesmeettheVRIOcriteria
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

Relatedtheory
AreStrategicAlliancessubstitutable?
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
Table of Contents
Aegis Case
01 Case synopsis
frameworks/models
05 Recommendation

Aegis’ExternalAnalysis
Aegis’FiveForcesModel
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

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
23

High
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.
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
24

AegisExternalAnalysis
High
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
25

High
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
26

Low
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
27

Aegis’InternalAnalysis
InitialStrategicPosture:consideredStrategicAllianceastheirCorporateStrategy
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

VRIOAnalysis
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”

WhyItDidNotWork
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

ProposedSolution(s)
3(three)alternativesavailabletobeoptedbyAegisManagement
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

ProposedSolution(s)
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

ProposedSolution(s)
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
Table of Contents
Aegis Case
01 Case synopsis
frameworks/models
05 Recommendation

ProposedRecommendation
WerecommendAegistoexittheallianceand“going-it-alone”whilegraduallyshiftingawayto
licensingmodel
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

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