Disruption Strategy

1. German Jordanian University
Master of Science in Engineering
Management (MSEM)
Industrial Engineering Department
MBA 743 –
Strategic
Management &
Business Policy
Analysis of the case study: iRobot in 2018:
Can the Company keep the Magic?
Instructor: Dr. Maen Nsour
Student Name: Osamah Mohammad Abdallah Yousef
Student ID: 20218118007
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2. Problems in the case:
After reading the case study of iRobot, the main issue it was dealing with was
the emergence of serious competitors who in most cases were offering similar
products at lower prices. Another issue it had was dealing with privacy
concerns. iRobot planned for its high-end vacuums to collect data from houses
and identify the walls and rooms of a house, which would then extract that
data and send it to the companies such as Amazon, Apple, or Alphabet, which
resulted in receiving negative publicity.
Financial Analysis:
- Operating Profit Margin:
Formula 2016 2017
Operating Income/Sales Revenue $72,690/$883,911 = 8.22% $57,557/$660,604 =8.71%
The decrease in the operating profit Margin is probably due to higher costs of
production from the increase in tariffs or also the costs incurred in research
and development.
- Gross Profit Margin:
Formula 2016 2017
Sales Revenue-Cost of Goods
sold/Sales Revenue
$883,911-$438,114/$883,911 =
50.43%
$660,604-$337,832/$660,604
=48.86%
The Gross Profit ratio increased from 2016 to 2017, which indicates higher
sales volume and lower cost of goods sold in comparison to the increase.
- Price to earnings ratio:
Formula 2016 2017
Current Market Price/Earnings
Per Share
76.7/1.77 =43.33 58.45/1.48 =39.23
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3. This indicates that the company has a lot of avenues to grow and will help
increase its stock price in return.
- Debt to Equity Ratio:
Formula 2016 2017
Total Debt/Stockholders’ equity $221,195/$470,327 =0.47 $118,956/$388,956 =0.31
This indicates that the company has very little debt which will reinforce the
investors’ faith in the organization and will in turn help raise more capital and it
also indicates that the company is here to stay.
SWOT Analysis:
Strengths
-iRobot is a global business with around 60% of the global market
share.
-Partnerships with international distribution companies (SODC in
Japan).
-Consistent development of new innovative products through research
and development.
-They acquired Evolution Robotics Inc., a rival firm whose products
cleaned hard floor surfaces.
-iRobot has a first-mover advantage and name-brand recognition in the
RVC market.
-Broad set of quality product offerings.
Weaknesses
-Weaker market share in the international business segment.
-Higher costs than some competitors.
Opportunities
-Advanced mapping and user interaction through further cloud and
app development.
-Digital partnerships for the smart home.
-iRobot has envisioned a smart home that would connect a number of
robots to provide comfort, convenience, security, and efficiency to
consumers in their homes.
-Acceleration of new product developments to meet buyer demands
-Opportunities for growth in their international business by expanding
into new geographic locations.
-Marketing to more consumers through the expansion of company
product lines.
Threats
-Several emerging competitors offering similar products at lower
prices.
-Customer privacy issues.
-Threat of data leaks causing negative publicity.
-Threat of declining economic conditions in foreign countries where
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4. distribution channels are located.
Porter’s five competitive forces:
Competing sellers (strong)
-Direct competitors pose a high threat to
iRobot, as they have similar products for a lower
price range, catering to a wider target market.
-Buyers face heavy costs when switching
brands, due to the set-up of their home robots
and getting accustomed to it.
-Price-conscious customers will be inclined to
switch to competing brands, especially if iRobot
decides to shift the increased costs (due to
higher tariffs on products manufactured in
China) to the customers.
Potential new entrants (moderate)
-Low market penetration, which gives plenty of
room for growth.
-Many new entrants have entered the market
and are strongly competing with iRobot when it
comes to prices.
-Since RVC is a patent technology, it discourages
entry for many sellers.
-Very high capital investment is needed for R&D
and continuous upgrades of products.
Producers of substitute products (moderate)
-The RVC adoption rate is very low, which
indicates that people still find traditional
vacuums to be valuable.
-The threat of substitute RVCs is low, as there
aren’t many firms offering products that
perform RVC functions.
-There aren’t any readily available good
substitutes, as there isn’t currently any
technology or innovation happening that can
provide different and better functions than a
robot and still be successful.
-Most competitors offer similar features, with
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5. Buyers (High)
the difference being only in the price point.
-Buyers have the capability of delaying their RVC
product purchase, or even not purchasing it at
all, especially those with privacy concerns who
are satisfied enough to have a traditional
vacuum.
-Moderate switching costs for people who
would want to purchase an RVC. Also, they can
simply go back to traditional vacuums if they
desire.
Suppliers (weak to moderate)
-Difficult to integrate backward into producing
the required supplies.
-Because of the product’s technicality, having a
trusting relationship with suppliers is crucial, as
having to change suppliers would be very costly.
VRIN Test:
Valuable Rare Inimitable Non-Substitutable
Brand Identity Yes Yes Yes Yes
Purchasing Power Yes No No No
Distribution Network Yes Yes Yes Yes
Robots Yes Yes No No
Patents Yes Yes Yes Yes
Weighted Competitive Strength Assessment:
Factors Weight SR (iRobot) WS (iRobot) SR (Ecovacs) WS (Ecovacs) SR (Neato) WS (Neato)
Quality 0.2 8 1.6 7 1.4 7 1.4
Brand identity 0.1 7 0.7 7 0.7 7 0.7
Price 0.2 6 1.2 9 1.8 7 1.4
Market share 0.2 10 2 8 1.6 5 1
Product
innovation
0.15 9 1.35 7 1.05 6 0.9
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6. Distribution
capability
0.15 10 1.5 7 1.05 6 0.9
Total 1 _ _ _ _ _ _
Total strength
rating
_ _ 8.35 _ 7.6 _ 6.3
From the scoring table, it can be seen that iRobot takes first place when
competing with its closest competitors, as it scored 8.35, whereas Ecovacs
scored 7.6, and Neato scored 6.3. The only area in which iRobot did not
perform well was its price, but still, it overall performs better than its
competitors. It should strive to do better and maintain its position.
Suggestions:
Some suggestions can be made to work on iRobot’s situation, one being to
expand/ grow into new markets. If the company can look at whom other
companies are marketing to and figure out who is being left out, they can reach
another market and sell one of the many products they have. Another
suggestion would be to have a better privacy policy. Many consumers are
concerned when it comes to their protected privacy when using iRobot’s
products. If this is something that keeps their minds at rest, it would help
persuade them in buying the firm’s products instead of being paranoid.
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