Attachment.ashx 5

Northeastern University’s
Huntington Management Consulting
Team 9
Greg Milne | Shilpi Roongta | Andrew Rothbaum | Nick Sammut

Situation Analysis
Environmental factors affecting iRobot

Robotics Industry

iRobot

Situation Analysis Alternatives Recommendation Implementation Results HMC

Situation Analysis

Global Market Trends Geographic Distribution

 Numerous industry applications

 Sensitive to economic downturn
Robotics Industry
– Industrial robots sold slumped 50% in 2009

 Strong recovery during 2010
iRobot
– 52% increase in units
– 58% increase in dollars

 Market sales expected to grow next three years
– Professional services robots growing 10 million
– 12 million household units will be sold


Situation Analysis

Global Market Trends Geographic Distribution

Robotics Industry

iRobot


Situation Analysis
iRobot’s current market position

Products R&D Financials IP

 Home Care Robots:
– Cleaning: homes, pools, gutters
Robotics Industry – 5 million sold worldwide
– 30 national retailers; international retailers
– 55% of revenues
iRobot
 Government and Industrial Robots:
– Ground and maritime unmanned vehicles
– Divisions of U.S. military
– 46% of revenues


Situation Analysis


Year Spend
2005 8.17%
Robotics Industry 2006 9.01%
2007 6.86%
2008 5.71%
iRobot 2009 4.94%
5 Year Average 6.94%

 2/3 funded by contracts, 1/3 internally
 47% of employees within R&D
 Three methods of research


Situation Analysis


iRobot Revenue Growth
$300,000
$250,000
Robotics Industry $200,000
$150,000 Product Revenue
$100,000 Contract Revenue
$50,000
$0
iRobot 2005 2009

 Declining revenues in 2009
 Cost-cutting measures to stay profitable
 Cash position increased to $72 million
 Long-term debt reduced to $4 million


Situation Analysis


iRobot Patents
160
140
Robotics Industry 120
100
80
60 Patents
iRobot
40
20
0
U.S. Patents Pending U.S. International Pending Foreign
Patents Patents Applications

 Patents held begin to expire in 2019


2010 Performance
Highlights of iRobot’s most recent year

 Successfully grew revenues 33% to $400 million

 Addition of $40 million in cash to balance sheet
– $110 million in reserves, cash-to-sales ratio of 27%

 Expansion into new markets
– New Markets: Chile, Mexico, Brazil

 Sales office in Miami


Alternatives
Evaluating possible alternatives for iRobot

Decision Criteria

Leverage R&D Across Complement Core
Promote Future All Business Competencies w/
Innovation Segments Strategic Alliances


Alternatives
Evaluating possible alternatives for iRobot

Decision Criteria

Leverage R&D Across Complement Core
Promote Future All Business Competencies w/
Alternatives Innovation Segments Strategic Alliances

Focusing On One
Business Segment

Acquisition Within
Health Care Robotics

Universal Growth
Strategy


Recommendation
Steps to iRobot’s continued success

1 Objective: Maximize value before patent expiration

Focus on creating awareness for iRobot capabilities

2 Objective: Complement core competencies with informal alliances

Leverage existing R&D across business segments

3 Objective: Continue to maintain relevance through innovation

Develop and foster new talent and product pipeline


Three Step Approach
Enhancing iRobot’s product and contract strategies

Maximize Patent Value Leverage R&D Promote Innovation

Awareness Campaign Mitigate Contract Risk Robotics Competition

International Presence Create® for Military Academic Research

Customer Adoption Informal Alliances weRobot Solutions


Three Step Approach





Goal: Customer recognition of existing product line


Maximize Patent Potential
Addressing patent issues moving forward

Issues Solutions

Pending patent • Market consumer
expiration 2019 products heavily prior
to patent expiration

• Complement social
High sunk costs in media with
R&D demonstrations

iRobot needs product awareness, not competitors


iRobot’s Target Consumer
Characteristics of a Roomba customer

Customer Traits
Above average income
Meticulously clean homes
Belief in technology

In Need Of:
Proof
Brand trust

Source: Q3 2010 Earnings


iRobot’s Target Consumer
Characteristics of a Roomba customer

Customer Traits
Above average income
Meticulously clean homes
Belief in technology

In Need Of:
Proof
Brand trust

How is this accomplished?
Source: Q3 2010 Earnings


“Choose Your Dirt”
Building brand loyalty through proof of concept

 In-mall demonstrations of product effectiveness
– NYC, Miami, Hong Kong, Santiago and London
– Defined area in mall space with different flooring panels
 Ex. wood, tile and carpet

 Participants select material to cover the floor
– Ex. dirt, sand and other synthetic materials

 Sales reps provide information and answer questions
 Ability to purchase Roomba after demonstration
Cost Return Strategic Benefit
• 2011: $22,400 • 2011 Sales: $64,000 • Creating believers


The Adoption Process
Taking the consumer from start to finish

Step Goal Met?

Awareness

Interest

Evaluation and Trial

Adoption


Three Step Approach





Goal: Complement core competencies with informal strategic alliances


Revenue Stream Analysis
Concentrated areas of revenues

Revenues
5%
Government
40%
Contracts
Home Robots

55% Other

“Want to continue to leverage R&D across business
segments, as well as a create a 3rd party development
community”
– 2009 iRobot 10K Report

How do you hedge against this contract risk?

Market Opportunity
Broad products result in greater prospects

Broad product

Semi-specialized
As product …Market
specialization opportunity
increases… decreases

Niche


iRobot “Construct”
A military grade, field tested version of the iRobot Create

 Develop customizable platform for defense businesses
– Leverage iRobot Create for military applications

 Use field-tested robotic hardware with open platform
– With intention of creating informal strategic alliances

 Sturdy and scalable base
– Ability for 3rd party government contractors to build upon

 Indirectly capture additional government funds


Sample Informal Strategic Alliance
Synergies between iRobot and similar government contractors

 Raytheon designs a variety of sensors
– Ex. radioactive materials
– Useful in current Japan crisis
 iRobot robotic base for Raytheon’s sensory technology
 Both firms create defense products



Three Step Approach




Customer Adoption Informal Alliances iRobot SPIRAL Initiative

Goal: Build product pipeline and develop “Blue Ocean” markets


Blue Ocean Strategy
Creating and supplying demand in unknown markets

 Future robotics consumption remains undefined
 Demand has to be created, and not competed over
 “robotics” technology has endless applications
 CleanTech, Pharmaceutical, Automotive, Healthcare, Food & Beverage

 Buyer value is promoted and raised by:
 Offering products the market has never seen
 Product positioning along the technology adoption curve

Market
Market Instigator Potential


Blue Ocean Strategy
Capitalizing on the two sides of new market growth

 Future robotics consumption remains undefined
 Demand has to be created, and not competed over
 “robotics” technology has endless applications
 CleanTech, Pharmaceutical, Automotive, Healthcare, Food & Beverage

 Buyer value is promoted and raised by:
 Offering products the market has never seen
 Product positioning along the technology adoption curve

iRobot Market
iRobot
Support new market Market Instigator Potential
Develop additional
leaders markets


“iRobot Innovation Challenge”
Promote and identify innovation within robotics technology

 Host Annual Robotics Competition
 Building on the FIRST model
 Initial launch in two U.S. markets
 Boston, Massachusetts & Cupertino, California

 Engineering Research Center (ERC) Partnerships
 Industrial partner with ERC’s focused on robotics
 Identify


Supporting New Market Demands
Promote and identify innovation within robotics technology

 Blue market demand is generated by industry incumbents
 Existing


XXX
XXX



Robotics Competition

 Locations:
– Massachusetts: MIT, Olin Engineering, UMass Amherst
– California: CalTech, Stanford, UC Berkeley, UC Los Angeles

 Marketing:
– University-based programs utilizing social and traditional
– Robotics clubs and engineering forums
– Flyers and school newspapers
– Guest speakers from iRobot and other industry members

HMC

Red Ocean Versus Blue Ocean Strategy

Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space Create uncontested market spaces
Beat the competition Make the competition irrelevant
Exploit existing demand Create and capture new demand
Make the value/cost tradeoff Break the value/cost tradeoff
Differentiation OR low cost Differentiation AND low cost

HMC

Timeline
Schedule of important events

2011 2012 2013 2014 2015+

Choose Your Dirt

iRobot Construct

New Competitions

School Research

iRobot SPIRAL

HMC

Summary
Results of implementation

Initiative Impact

“Choose Your Dirt” Awareness & Adoption

iRobot Construct Hedging Contract Risk

Robotics Competition
Technological Leadership
& SPIRAL


Q&A
Appendix
Financials Strategy Implementation IDEA Box IDEA Box

Awareness Choose Your
Why Chile? Refer A Friend Control-A-BOT
Campaign Own Dirt

Cost-Return-
Blue Ocean vs. International
Strategic Risks Bottom Billion
Red Ocean Opportunities
Benefit

Market Capture Why Not India Potential Joint
Competition XX
Scenarios or China? Venture

Team
XX SWOT Analysis XX Radioactive
Biographies

Why Chile?

 U.S. Chile Free Trade Agreement established 1/1/2004
 Benefits
– Lower duty rates
– Stronger protection and enforcement provisions for
copyrights, trademarks, patents, and trade secrets
– Removal of restrictive regulatory barriers in place for US service
providers
• Distributor TD S.A.
– 36 Falabella department stores
throughout Chile
• 14 Falabellas within Santiago area
• Upper-middle-income country with per
capita GNP PPP of $13,440
• ~90% of Chileans own televisions
• ~82% own cell phones HMC

Blue Ocean vs. Red Ocean

Red Ocean Strategy Blue Ocean Strategy
Complete in existing market space Create uncontested market space
Beat the competition Make the competition irrelevant
Exploit existing demand Create and capture new demand
Make value/cost trade-off Break the value/cost trade-off

iRobot Blue Ocean Strategy
iRobot Military Construct Create uncontested market space
Provide platform for competitors Make the competition irrelevant
Contracts that were unreachable Create and capture new demand
Become only robotic option Break the value/cost trade-off

Source: http://www.roisbs.com/uploads/HBR_Blue_Ocean_Strategy_white_paper.pdf

HMC

“Choose Your Dirt”

• Enter 5 cities over three years
– New York City; Santiago, Chile;
London; Hong Kong; Miami

• Rent large/open spaces in malls

• 2 sales personnel per location

• Month long demonstrations

HMC

Refer a Friend

 “Choose Your Dirt” promotion
– Participants receive 10% off

 Option to refer a friend
– Enter name and email address to provide friends and family with
10% coupon

 E-mail blast includes direct message connecting e-mail
receiver to the participant’s experience and coupon

 Spread knowledge of the demonstration and product
– Build brand awareness

HMC

Projected Revenues for Awareness Campaign

HMC

Why Not India or China?

China India
 IP issues, lack of patent • IP issues, lack of patent
protection protection
 Lack of infrastructure for • Lack of infrastructure for
distribution distribution
 Would need to create • Cultural differences
demand – Home care traditionally
 Inherent cultural designated to lower class
differences • Would need to create
demand

HMC

Product Line for “Bottom Billion”

 Opportunity to introduce disruptive technology to “bottom
billion” and cause systemic change
 Can dedicate portion of resources to developing tech for
economic segment
– Increase efficiencies in common processes such as: collecting
water and firewood
 Lower margins, volume based
– Opportunity to partner with Micro-Finance institutions to
provide small loans for purchasing power
 Bottom billion proven to pay premiums for valuable products
– Ex. Selco Solar Systems, Kickstart Technologies

HMC

Risks of Implementation

Risks Mitigation
Launch in two cities; resort to traditional
No traction from marketing efforts
marketing
Look for opportunities to expand into military
Development of Construct not feasible
niche segments

HMC

Cost-Return-Strategic Benefit

“Choose iRobot Innovation
Your Dirt” Construct Efforts
2011:
Cost Cost
$22,400

2011 Sales:
Return Return
$64,000

Creating Strategic Strategic
Believers Benefit Benefit

HMC

Joint Ventures

 Partner with another small technology startup

 iRobot would provide robotic end

 Acquired company would provide supplemental
technology.

 Ex. A small sensory manufacturer for home or military
applications

 Innovation through acquisition

HMC

Potential “Construct” Applications

 An iRobot Construct robot built with radioactive sensors

 Launch in highly radioactive areas in Japan

 Explore unsafe areas that humans are unable to

 Save lives while searching for survivors

HMC

“Control-A-BOT” Mobile Application

 Create a mobile application for the
Roomba

 Provide cleaning and runtime
statistics
– How many feet have been cleaned Control-A-BOT
since purchase
– Battery meter

 Allow users to change settings via
mobile application

HMC

Team Biographies

Gregory Milne Shilpi Roongta
• Concentrations: • Concentrations:
– Finance, Accounting – Marketing, Finance, Social
• Work Experience: Entrepreneurship
– Insurance, Computer Security • Work Experience:
– Insurance, Microfinance

Andrew Rothbaum Nicholas Sammut
• Concentrations: • Concentrations:
– Finance, Accounting – Finance, Marketing
• Work Experience: • Work Experience:
– Private Equity, Venture Capital – Asset Management, Venture
Capital, Investment Banking

HMC

International Opportunities

 THALES Corporation (France) Foreign Defense
 OHB Corporation (Germany) Contractors

 ITAR Regulation
– Sell goods via partnerships or strategic alliances
– Ex. Lockheed Martin has ITAR approval for a certain product

HMC

Market Capture Scenarios

Market Share Revenue
5.00% $200,000,000
5.10% $204,000,000
5.20% $208,000,000
5.30% $212,000,000
5.40% $216,000,000
5.50% $220,000,000

6.00% $240,000,000
7.00% $280,000,000
8.00% $320,000,000
9.00% $360,000,000
10.00% $400,000,000

Assumed capture of $4 Billion vacuum market of $200 or less HMC

Competition

Company Competes with
AB Electrolux Roomba vacuum cleaner
Alfred Kärcher GmbH & Co. Roomba vacuum cleaner
Samsung Electronics Roomba vacuum cleaner
QinetiQ Unmanned vehicles (PackBot)
Lockheed Martin Unmanned vehicles (PackBot)

HMC

SWOT Analysis

Strengths Weaknesses
• Large R&D budget • Limited visibility
• Existing alliances • Patents expiring in less than 10 years
• Healthy financial positioning • Dependent on 3rd party suppliers
• Long-term manufacturing contract • Highly dependent on government
• Government contracts • Sensitive to economic climate
• U.S. market penetration

Opportunities Threats
• Expand marketing efforts • Competitors have more money and
• Entry into new markets knowledge in consumer space
• Product expansion • Other companies copying IP
• Lower-tiered / priced goods • Reduced government spending
• International presence • Break-up / non-renewing alliances
• Employees leaving

HMC

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