Raymark Technology Inc-Scribd

8/18/2019 Raymark Technology Inc-Scribd

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RAYMARK

TECHNOLOGIES INC. Analysis of business problem examination

MEMBA 3

1

Yetunde Oladeji


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Contents2

Problem & recommendation

Executive summary

Background

Industry analysis

Company Analysis Key Challenge & Decision Criteria

Alternatives

Recommendation

Implementation


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Problem & Solution3

Problem

How should Steve Thomas shape the Raymark’s future relationship with Sentor to be in the long terminterest of the firm ?

Recommendation

Steve Thomas should offer to sell controlling stake in Raymark to Sentor. This would be a strategicalliance between both entities for the following reasons:

Raymark is a market leader in the electronic and computed based operator interfaces. The products are major components for Sentor’s products. Sentor has not been successful in

developing in-house competence for this technology.

Raymark does not have the market visibility and infrastructure to sell its products or obtainmarket intelligence on customer needs.

Raymark can leverage on Sentor’s size, infrastructure and resources to continue to develop itsResearch and development (R&D) and core competence.

Sentor can leverage on Raymark’s technology and also opportunity to diversify into new technological businesses as a niche market through Raymark.

The resources spent by Sentor in the bid to compete with Raymark can be channeled to otherneeds since any success by Raymark will be viewed as a collective success.


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Executive Summary 4

Raymark is a company that produces software and hardware interfaces for the industrial controlsindustry. For the past ten years, Raymark and Sentor have been in a commercial partnership whereRaymark produces the main components used for Sentor’s products. Sentor’s initial objective was touse this arrangement as a stop-gap measure pending the development of their in-house technology.However the relationship has been extended for 10 years largely due to the changing technologicalenvironment which Sentor appears to be unable to keep up with but remains an area of strength forRaymark. Raymark however relies heavily on Sentor for its sales and market infrastructure. Sales toSentor accounted for 75% of the company’s revenue in 1993.

A Sentor VP recently described Raymark as a ‘minnow swimming around a whale. One day the whale will flip its tail and quash the minnow’. This comment indicates that Sentor perceives its relationship with Raymark as temporary and would not hesitate to cut them off , if and when they successfully replicate their own technology. It appears they feel threatened by Raymark’s current diversificationdrive and may not spare resources to put Raymark in their place.

Raymark will struggle if Sentor withdraws their support, although it is not likely in the short term dueto their technological advantage but with Sentor’s vast resources they could eventually succeed inreplicating their own technology.

Raymark’s president should be proactive by offering Sentor a controlling stake in the business . Withtheir current position of strength they would be able negotiate better terms and have a strategicalliance . Sentor will feel they have more stake in the success of the business.


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BACKGROUND5


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Business Key Points6

Raymark Technologies is a company that produces hardware and software interfaces for industrialcontrol equipment.

The company was founded in 1976 by Steve Thomas.

Raymark is based in Ottawa Ontario.

In November1983, the company entered into a partnership with Sentor Equipment, a US based firmto provide computerised operator-interface technology to Sentor. The contract was for 5 years with arenewal option of another 5 years.

As at 1994, sales to Sentor accounts for 75% of the firm’s revenue

Raymark has grown from a less than $1m revenue, 15-man organisation in 1983 into a $50m revenue,425-man firm mainly due to the commercial partnership with Sentor.

Recently acquired two subsidiaries with complimentary competencies to Raymark’s current productlines. The subsidiaries contributed 15% to Sentor’s revenue.

The year in view is April 1994, with the contract with Sentor is due to expire by November 1994.

Sentor owns 50% of Raymark. Although Thomas has the casting vote on matters affecting theRaymark’s strategic decisions and operational matters.


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INDUSTRY ANALYSIS7


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Industry Analysis8

Raymark’s products are used as components in the industrial controls industry

The industrial controls industry is a mature market

Industrial controls were used in many industries (manufacturing and services).

Technological advancement and up to date innovation remain a key success factor in the business.

Traditional products were being replaced by electronics and computer based controls using

operator interfaces such as produced by Raymark. Companies in the industrial controls market such as Sentor are investing significantly in in-house

computer expertise.


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COMPANY ANALYSIS9


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SWOT ANALYSIS OF RAYMARK 10

Favourable Unfavourable

Internal Strengths

• The company is leader in innovation, has astrong R&D function and therefore able toadapt in the changing technology market.

• People-centred corporate structure has

helped in retaining the best staff • They have expertise in the future of the

industrial controls industry i.e technology.• Good leadership style of the president• Strength in management i.e consistent in

leadership hence they are able to achievetheir long term goals

• Faster decision making and competentlawyers helped them conclude

acquisitions faster.• Recently witnessing growth through

acquisitions and product diversification

Weaknesses

• Due to its small size, the company requires financial support to fundexpensive research anddevelopment programs.

• The company has limited marketexperience as it they do notinterface with customers

• They are not known in the market.Location in Canada might be adisadvantage as 90% of the firm’scustomers are in the US

• Overly dependent on one customer• They signed an exclusivity

agreement with Sentor whichrestricted their penetration into theUS and Canadian markets.


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SWOT11

Favourable Unfavourable

External Opportunities

• Potential to double revenue in themarket as products represent the

future of the industry. End user value of their product was $100m(twice their revenue).

• Opportunity to expand to othermarkets outside USA.

• New acquisitions has reduced thedependence on Sentor.

• Financial support through lowerinterest loan from the Ontario

Government.• Leveraging on Sentor’s market

infrastructure, purchasing power, brand name and cash flows.

Threats

• The company is at risk by being toodependent on Sentor for 75% of sales

•

Sentor views the commercial relationship asa stop gap measure• Reliance on Sentor for market

information/intelligence• Sentor is beginning to compete with the

company.


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KEY CHALLENGE & DECISIONCRITERIA

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Key Challenge13

The key challenge for Raymark is that their continued existence in business is threatened as Sentor’sinitial objective of the commercial arrangement is for stop gap measure until they develop their in-house technology.

Raymark is exposed to a single largest customer risk as Sentor accounts for 75% of the firm’s sales.

They are a weaker party in the partnership arrangement with Sentor, certain clauses in thearrangement put them at a disadvantage, for example, they signed an exclusivity agreement andcannot sell to Sentor’s competitors in North America, their products are brand-labeled for Sentor,

hence they are not known in the industry.

Sentor is beginning to view the company’s diversification strategy as a threat and seeking foropportunities to compete with them in those areas.

Raymark does not have the necessary marketing structures in place to be independent of Sentor.

Too dependent on Sentor for market intelligence, purchasing leverage (to maintain their coststructures), market recognition and cash flows support.


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Decision Criteria14

S/N CRITERIA COMMENT WEIGHT

1 Business continuity in thelong term

The company needs a sustainable strategy tohelp them continue to remain in business in

the long term.

This is a key limiting factor

2 Business opportunities/diversification

Alternative business opportunities to be ableto increase revenue from other sources andto minimise their dependence on Sentor.

3 Brand name The company has a core competence toprovide what the industrial control industry needs. However they are not visible in themarket as their products are under theSentor label. The company needs need todevelop their brand to give them visibility inthe industry and put them in a betternegotiating position.

The decision criteria for Raymark are:


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Decision Criteria15

S/N CRITERIA COMMENT WEIGHT

4 Revenue /Cash flows To optimise revenue by directly interfacing with customers. The company

requires cash flows to sustain their R&Dactivities in order to continue to maintainthe leading edge in technology to remainrelevant in the industry.

5 Market structures To keep up to speed with customer needsand be able to anticipate the direction of the market. The company needs bettermarketing structures to enable them have

better market intelligence. They also needto increase their distribution network.

The decision criteria for Raymark are:


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ALTERNATIVES (OPTIONS)16


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Options17

Raymark has the following options:

Maintain the current relationship with

Renegotiate the commercial contract

Sever the relationship with Sentor

Sell controlling stake to Sentor


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Option #1: Maintain currentrelationship

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Maintain the current relationship with Sentor and ensure that the firm continues to be ahead of Sentor in terms of technology to remain relevant.

Pros

This option will ensure the company continues to maintain revenue and cash flows in the shortterm.

The company can continue to diversify gradually and increase independence from Sentor.

Cons It does not ensure their long term sustenance. Sentor may terminate their relationship when their

in-house technology unit becomes successful.

They may never successfully develop their brand name or gain access to the market.


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Option #2: Renegotiatecommercial contract

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Raymark may renegotiate some terms in the commercial contract to be more favourable for thecompany- such as removal of the exclusivity clause, introduction of non compete clause for Sentor onRaymark’s areas , allowing joint access to customers, using of Raymark’s brand name etc.

Pros

The proposed revisions if accepted by Sentor will put the company in a stronger position,improve their brand recognition and will be able to develop its understanding of the marketand develop its customer base.

Raymark would be free to diversify and expand its business and grow alternative businessopportunities.

Cons

It is not likely that Sentor would agree to the revised terms. Apart from the technologicalstrength, Raymark does not have any other bargaining power. No one is indispensable, Sentormay call their bluff if they believe their demands are unreasonable and seek alternative solutions.This will negatively impact revenue and cash flows immediately. Raymark may not survive.

The company’s core competence in technology cannot sell products it needs in the market if Sentor does not agree to the revision. It will take a long time to replicate the kind of extensivemarket structures and brand recognition.

This option does not guarantee the long term sustainablity of the company. Even if Sentoraccepts they would still continue to seek to develop their in-house capability and would nothesitate to drop Raymark when they are able to.


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Option #3: Sever relationship20

Raymark should sever the relationship with Sentor and develop on its own in the market.

Pros

Help the company discover and diversify products and services.

Limited involvement of Sentor will ensure the company is independent and can build their brand and be known in the market

Pursue core business where they currently have core competence and compete with Sentor.

Cons

This is an aggressive option. In the short run the company will loose 75% of its revenue and cashflows and may never be able to recover. It does not resolve the problem of long term sustenance

How does Raymark fund the strategy to develop their own market if their main source of revenueis lost? As Sentor does not have any obligation to support the company.

The industrial controls industry is a mature market. It would be difficult for new entrants to break in unless clearly differentiated from competition.

Cannot provide immediate access to market structures. It would take time to develop its marketinfrastructure. This would also be costly.


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Option #3: Sell controlling stake21

Thomas should offer to sell controlling stake to Sentor with some conditions such as Raymark becoming the sole engineering and designs team for Sentor and freedom to chase other businessesnot currently in completion with Sentor.

Pros

With Sentor’s continued support, Raymark will remain in business in the long run as Sentor will no longer view them as a stop-gap measure but as part of Sentor.

As a subsidiary, Sentor is obligated to provide financing support in the short and long run.

Continued access to the market structures.Cons

Sentor might vote against diversification and impede their ability to develop other businessopportunities.

Thomas may no longer have a say in the operations of the business. As the core strength of thecompany (creativity and innovation) largely depends on Thomas’ leadership style. The company may loose this strength if Sentor decides to leave him out of the new business

Alignment of culture etc. Raymark’s corporate culture largely contributes to their core strength

while Sentor has not been able to successfully replicate same possibly because of their culture. Other issues such as staff retention, integration of businesses, strategy etc.


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Decision Criteria VS Options22

Long termContinuity

Diversification Brand/Market

structures

Revenue/Cashflow

Innovation

Option #1:Maintain

the current relationship

χ ✓ χ ✓ ✓

Option #2: Renegotiatethe commercial contract

χ ✓ ? χ ✓

Option #3: Sever therelationship with Sentor

χ ✓ ? χ ✓

Option #4: Sellcontrolling stake to

Sentor

✓ ? ✓ ✓ χ

The table below shows at-a-glace which option best solves the key issues / decisioncriteria.

✓

Meets criteria ✓

Does not meet criteria Χ

Cannot determine ?


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Recommendation23

Option #4, (i.e to sell controlling interests to Sentor) addressesmost of the key issues especially the problem of long termcontinuity in business.

It guarantees the needed market infrastructure to sellRaymark’s products, provide market intelligence to ensure

continued innovation.

Raymark’s products continue to leverage on Sentor’s brandrecognition and market goodwill.

Although this means the Steve Thomas the founder will loose hiscontrolling stake. Nevertheless it is better to have a little stake

in a prosperous and big business than a high stake in astruggling business.


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IMPLEMENTATION24


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Risks & Mitigation25

Although selling to Sentor will help address most of the challenges there are

some risks to this option as follows:

SN Risks Mitigation

1 Loss of controlling stake of Thomas may affect the firm’s

corporate culture andeventually their core strength increativity and innovation.

Raymark as part of negotiating the acquisition shouldrequest for clauses that give him power to continue to

oversee the operational aspect of the business. As Sentoris obviously struggling in this area Thomas will beclearly able to show them the need to give the company freedom to maintain their innovation.He could also ensure he still maintains at least 20% so asto retain significant influence in the affairs of Raymark.Or even negotiate a stake in the overall business (i.ecombined Sentor).

2 Raymark’sidentity is subsumedunder Sentor. They might beconstrained from continuingtheir diversification drive if Sentor does not support

Thomas and his team would need to clearly demonstratethe benefit diversification will add to Sentor. In additionif Sentor no longer sees them as a threat, it would beeasier to see the value for all


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Risks & Mitigation26

Although selling to Sentor will help address most of the challenges there are

some risks to this option as follows:

SN Risks Mitigation

3 Other issues typical of mergers-integration, staff retention etc.

The team of Raymark’s competent lawyers should work out the details to ensure Raymark employees are not

worse off. Regular consultations with staff andmanagement of both companies is key to the successfulintegration of both entities.


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Selling a controlling stake to Sentor will be a win-

win situation for both entities, Sentor would notneed to spend time and resources trying toreplicate the technology where Raymark is already the market leader. Raymark would be able leverageon Sentor’s established structures, resources and

goodwill. Both parties rather than compete willcomplement each other.

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