Working with Intrinsic Controls and ActiveX Controls Project 2.
Tennessee controls 2
Transcript of Tennessee controls 2
TENNESSEE CONTROLS
Nathan Croswell, Hady Youssef, Hector Ruiz Rebellon, Du Xinying
OUTLINE
• Tennessee Controls Corporation objective for the
Process Controls Division had been to develop
another major business.
• Judy Starnes had the decision to make from:
• 3 Proposals: 1) Develop New Products for High Volume Market Segment
2) Develop High Technology Control Systems
3) Acquire MDA
- Each Proposal is Ranked by the Strategic Ranking Index.
- Anything greater than 10 on the SRI index will be
considered.
PROPOSAL 1:DEVELOP NEW PRODUCTS FOR HIGH
VOLUME MARKET SEGMENT
Steve Gregg: 40, Electrical Engineer (MBA)
• - Focus on low price, high volume
• Outstanding salesman with deep customer and
product knowledge
3 6 9
2 4 6
1 2 3
Lacks Strong Champion and/or Team
Average Team/Champion
Proven Champion and Team
Strong Strategy,
Segmentation, Product
definition and Competitive
Assess
Strategic Marketing Content
Champion Commitment
Some Strategic analysis: Inadequate on Market Environmental and or Ignores Significant Strategic Factors
Little/Poor Strategic Analysis: Only Product Plan or “Hipshot” Strategy
SRI Credibility Index
CREDIBILITY = 9
• Proven Champion and Team Member
• Strong Strategy, Segmentation, Product Definition and
Competitive Assess.
• Entire Career at Tennessee Controls, started at
Process Control Division in 1978
• Deep customer and product knowledge
• Had persuaded corporate management on a dual
strategy using independent distributors and
commissioned salesmen in the past.
5 3 1
7 5 3
10 7 5
Me too or copy able Product, No Unique Technology or
Distribution Channel
Volatile Product and/or Distribution Hook (6-12 Month Lead)
Strong Technical and/or Distribution Hook
(Defendable for 2+ Years
Leadership Product,
Expected to be Industry
Market Share Leader
Timeliness/Market Share
Product Uniqueness
“Neck and Neck” Product; Expected Relative Market Share to be 50-100% of Market Leader
Trailing Product, Expected Relative Market Share Below 50% of Market Leader
SRI Risk Factor
RISK = 3
• Strong Technical and Distribution Hook (Defendable
2+ Years)
• “Neck and Neck” Product; Expected Relative Market Share
to be 50-100% of Market Leader
• Priced at 1/3 of 005 Line, while delivering roughly
equivalent capability.
• Large market potential
• Included scenarios if competition enters the market.
As competitors did with the previous product: 005.
Year 1 Year 2 Year 3 Year 4 Year 5
TCC
Share
40% 50% 55% 60% 65%
Sales
$M
28.1 40.2 50.9 64.5 82.0
Gross
Profit
11.2 16.1 20.4 25.8 32.8
Year 1 Year 2 Year 3 Year 4 Year 5
TCC
Share
40% 50% 50% 45% 40%
Sales
$M
28.1 40.2 46.3 48.4 50.4
Gross
Profit
11.2 16.1 18.5 19.4 20.2
Assuming Not Followed:
Assuming Followed:
STRATEGIC RANKING INDEX
SRI = Credibility X Financial Return / Risk
Financial Return Factor =
(Original Profit Over Product Life / Maximum Negative Cash Flow) X (Life Cycle / Years to Maximum Negative Cash Flow
(39.8m / 17) X (15/2) = 17.5588 Financial Return Factor
SRI = Credibility X Financial Return / Risk
(9 x 17.55888) / 3
= 52.65 Proposal 1
PROPOSAL 2:DEVELOP HIGH TECHNOLOGY
CONTROL SYSTEMS
• Steve Mowry (PH.D Electrical Engineering) – Division
Engineering and Development Manager.
• Played a large role in every product development
effort of the Division.
SUPERVISORY CONTROL AND DATA ACQUISITION STRATEGY (SCADA)
• Market Potential is huge
• Large demand
• Recommendation of hiring four individuals from the
industries that are initially targeted
• Plan to add one industry every year.
• Key is to be First in this business. Must start
Immediately
SCADA FORECAST MARKET DETAIL BUILDUP
1991 1992 1993 1994 1995
Industries 3 4 5 6 7
Sales 30,000 40,000 73,300 99,925 129.376
Custom
Cost
4,950 5,610 6,267 7,034 7,337
Total Cost 13,950 20,610 28,257 37,011 46,150
Gross
Profit
16,050 29,390 45,043 62,914 83,227
3 6 9
2 4 6
1 2 3
Lacks Strong Champion and/or Team
Average Team/Champion
Proven Champion and Team
Strong Strategy,
Segmentation, Product
definition and Competitive
Assess
Strategic Marketing Content
Champion Commitment
Some Strategic analysis: Inadequate on Market Environmental and or Ignores Significant Strategic Factors
Little/Poor Strategic Analysis: Only Product Plan or “Hipshot” Strategy
SRI Credibility Index
CREDIBILITY: 6
• Proven Champion and Team member
• Some Strategic Analysis: Inadequate on Market
Environmental and Ignores Significant Strategic Factors.
• What if not First into the market? Competition Analysis?
5 3 1
7 5 3
10 7 5
Me too or copy able Product, No Unique Technology or
Distribution Channel
Volatile Product and/or Distribution Hook (6-12 Month Lead)
Strong Technical and/or Distribution Hook
(Defendable for 2+ Years
Leadership Product,
Expected to be Industry
Market Share Leader
Timeliness/Market Share
Product Uniqueness
“Neck and Neck” Product; Expected Relative Market Share to be 50-100% of Market Leader
Trailing Product, Expected Relative Market Share Below 50% of Market Leader
SRI Risk Factor
RISK = 3
• Volatile Product, Expected to be industry Market
Share Leader
• Volatile product and distribution hook (6-12 Month lead)
Biggest concern is that they will not be first in the market and
are not able to target and get into the industries that are planned to get into.
STRATEGIC RANKING INDEX
SRI = Credibility X Financial Return / Risk
Financial Return Factor =
(Original Profit Over Product Life / Maximum Negative Cash Flow) X (Life Cycle / Years to Maximum Negative Cash Flow
(44.5m / 16.4) X (15/3) = 13.567Financial Return Factor
SRI = Credibility X Financial Return / Risk
(6 x 13.567) / 3
= 27.13 Proposal 2
PROPOSAL 3: ACQUIRE MDA
• Craig Neirman (MBA) 34, Division Controller
• Advocate of requiring new products and markets
• Purchase of small, high potential businesses
• MDA needed capital to finance continued growth, seemed to be good fit with Tennessee Controls
MDA
• Existing customer base (200)
• Start making profit immediately
• Provide economies of scale
• Excellent reputation for meeting commitments and
solving problems
• Same quality philosophy as TCC
Highly aggressive and talented sales force
10 % commission
PROFIT PROJECTIONS MDA ACQUISITION
1991 1992 1993 1994 1995
Sales 55.0 71.5 93.0 116.2 143.2
COGS 33.0 41.5 52.1 63.9 78.4
PBIT 3.9 7.3 12.3 17.3 23.9
Project Projections of MDA ($ Million)
1991 1992 1993 1994 1995
Sales 60.5 82.2 111.6 143.3 188.9
PBIT 7.1 13.7 23.4 34.8 50.0
Total Impact of Acquisition of MDA ($ Million)
3 6 9
2 4 6
1 2 3
Lacks Strong Champion and/or Team
Average Team/Champion
Proven Champion and Team
Strong Strategy,
Segmentation, Product
definition and Competitive
Assess
Strategic Marketing Content
Champion Commitment
Some Strategic analysis: Inadequate on Market Environmental and or Ignores Significant Strategic Factors
Little/Poor Strategic Analysis: Only Product Plan or “Hipshot” Strategy
SRI Credibility Index
CREDIBILITY = 4
• Average team Champion
• Some Strategic Analysis: Inadequate on Market
Environmental and Ignores Significant Strategic Factors
• No competition analysis
• Did not adjust R&D costs and other G&A based on the acquisition.
5 3 1
7 5 3
10 7 5
Me too or copy able Product, No Unique Technology or
Distribution Channel
Volatile Product and/or Distribution Hook (6-12 Month Lead)
Strong Technical and/or Distribution Hook
(Defendable for 2+ Years
Leadership Product,
Expected to be Industry
Market Share Leader
Timeliness/Market Share
Product Uniqueness
“Neck and Neck” Product; Expected Relative Market Share to be 50-100% of Market Leader
Trailing Product, Expected Relative Market Share Below 50% of Market Leader
SRI Risk Factor
RISK = 3
• Strong technical and Distribution (Defendable for 2+
years)
• “Neck and Neck” Product, expected Relative market share
to be 50-100% of market leader
STRATEGIC RANKING INDEX
SRI = Credibility X Financial Return / Risk
Financial Return Factor =
(Original Profit Over Product Life / Maximum Negative Cash Flow) X (Life Cycle / Years to Maximum Negative Cash Flow
(108.5m / 25) X (25/6) = 18.083 Financial Return Factor
SRI = Credibility X Financial Return / Risk
(4 x 18.083) / 3
= 12.06 Proposal 3
COMPARING SRI
• Proposal 1: 52.65 Develop New Products for High Volume Market Segment
•
• Proposal 2: 27.13 Develop High Technology Control Systems
• Proposal 3: 12.06 Acquire MDA
Proposal: High Volume Scada Tech MDA Acquisition
First Sales (Yrs) 1 1.5 Immediately
Peak Sales (Yrs) 10 5 15
Half-Peak Sales (Yrs) 15 15 25
Lifetime Profit ($) 39.8 44.5 108.5
Max Cum Negative Cash Flow - ($) 17 16.4 25
Max Cum Negative Cash Flow -(Yrs) 2 3 6
RECOMMENDATIONS
• We felt that Proposal 1 was the best decision based
off of:
• Steve Gregg was able to provide a competition analysis
• Even if followed, would still be making substantial profit
• Provided the least “lifetime profit” however it had the lowest Maximum Cumulative negative cash flow years (2)
• Open up two new markets:
• Low priced small I/O market and the drum timer replacement
market
ADVANTAGES / DISADVANTAGES TO SRI
• SRI Risk Factors only take into consideration the
“uniqueness” and “Timeliness/Market share”• Very Linear, does not take into account many important factors
• Should be focusing on the Financial risk and profit
associated with project
• Such as Maximum Cumulative Negative Cash Flows and net
profit.
- Does not take into consideration initial implementation cost
ADVANTAGES / DISADVANTAGES TO SRI
• SRI Credibility Index focuses on:
• “Commitment” to the company and “Strategic/Marketing
Content”
• Past performance is not necessarily a good indictor of future
performance.
• Difficult to consider all factors
SRI Financial Return Factor
- Very subjective in nature
What is criteria for each column?
- Difficult to put one number on so many factors
CONCLUSION
• We believe that Judy Starnes should go with the first
proposal based off of the information given.• Steve Gregg provided the best competition analysis and the proposal had low risk
There needs to be more consideration of which
project to pick other than the SRI index.
SRI index very linear, does not take into account all factors