ESLSCA Business School Strategic Management Dr. Sanya By Atef Abdelfatah Tarek Abdelmonem on 22-04-2017

1. Strategic Management
Group 52 A
A123 Systems Strategic Case Study
By
Atef Abdelfattah Atef
Tarek Abdelmoniem Youssef

2. Case Study Overview
1. Company Overview
2. Mission Statement
3. Corporate Governance
4. Strategic Factors Analysis
5. Alternative Corporate strategies

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. BCG Growth - Share Matrix
(Consumer Batteries)
Relative Market Share
IndustrySalesgrowthrate
High
Med
Low
Med Low
• Low Market Share
• Moderate Industry Growth

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. 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. 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. 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. 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. 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. Strategy Implementation
Program Action Plan

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. References
•www.a123systems.com
•https://dmse.mit.edu/faculty/profile/chiang
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research%2Fstocks%2Fprivate%2Fsnapshot.asp%3FprivcapId%3D237866422&usg=AFQjCNFiw3tj8ZSem1NzbcVzWc-VAtsJvg&sig2=lpKNUcH9OqzGkLU_VFBSWA
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