How to make a strategic decision between two potential opportunities. Created for a consulting class.

1. How flexor should flex its muscles A strategic assessment by Devon Smith

2. Industry Analysis Current Situation Customer Segmentation Strategic Recommendations Execution Testing Strategic Roadmap Risks Agenda

3. Industry Analysis Structure: 5 competitors in old industry, with significant barriers to entry due to regulation. 6 clearly defined customer segments, B2B. Some product attributes highly regulated thus low threat of substitutes. Electric power is key supply input Conduct: Few new entrants Limited technological innovation Incremental capacity additions from incumbents Customer relationships and low cost are key Performance Stable pricing, low demand growth (5%), flat cost curve, generous profit margins

4. Situation

5. Customer Segments

6. Strategy Recommendations Based on likely scenarios, this strategy should result in a profit next year of ~$440M. However, in the middle term, we should be able to raise prices for S5-6, and regain profit advantage. Regardless, this is higher than the 80% value buyout offer.

7. Execution Testing

8. Strategic Roadmap Now w/i 2 months w/i 9 months Sales & Marketing Senior Mgmt Engineers

9. Risk Customers prefer new entrants to incumbents. Mitigate by forming long-term contracts. Regulators mandate technology specifications that can only be met through building a new plant. Mitigate by researching & lobbying regulators. Incumbents also pursue segments 5-6 to better effect. Mitigate by forming long term contracts. Additional scenarios arise after new plants have gone online. Mitigate by managing dynamically.

10. Questions?

11. 1. ICG Value Proposition 2. Key Uncertainties 3. Scenario Cube 4. Scenarios to Consider 5. Alternative Strategies 6. Payoff Matrix Appendix

12. Value Proposition Our competitive advantage lies in our deep knowledge of customer’s complex needs. While our factories might be older, our long standing relationships with each customer segment gives us an inside look into what they need most, and a superior ability to deliver on those needs.

13. Key Uncertainties

15. Regulation will be winner take all in favor of A, B, or C(urrent)Segments 5-6 Defects Stays Defects Stays Segments 1-2 A B C Regulation Adopted

17. Company A purposefully earned/influenced an earlier hearing with regulators

18. New technology bears some risk

20. Payoff Matrix Only scenarios and strategies considered likely and/or very different were selected for consideration. Each scenarios Expected Value should be weighed against the “gain” of selling out for 80% of value. Payoffs for each scenario based on profit loss of 40% for A, 25% for B, over current base of $500M. Power cost increases of 4% are same for all scenarios and thus ignored.