(all details discussed in this case study have been taken from the Extreme CCTV case study as presented in Cases of entrepreneurship: the venture creation process (Morse & Mitchell, 2005))
Student Name: Katrina BinottoStudent Number: S3172726
Course: BUSM 2367 – Business Enterprise One
1.If you were Jack Gin, what would you do: acquire Derwent Systems, based in Newcastle, UK, to extend its reach into Europe, or focus on the IPO?
When assessing if Jack Gin should acquire Derwent Systems or focus on IPO it is would be best suggested to undertake a review of the attractiveness and competitive position of the proposed acquisition. One method of doing this is through the use of the Boston Consulting Group (BCG) Matrix. This matrix assesses the competitive position of the business in its current form, and the aspects of the proposed businesses, against their respective market attractiveness. (Robbins, et al. 2009) The BCG considered businesses in terms of a Cash Cow, Star, Problem Child or Dog.
The case study tells us that Extreme CCTV is a growing company with specialized products that produce positive cash flow for the business, which makes it a Cash Cow. Derwent, although they had difficulties with cash flow at the current time, have a specific product base and have a recognized brand name, which sits this business in the Problem Child area of the Matrix. In order to develop a business which could become a star, Derwent would be able to provide the brand and provide recognition, and Extreme is able to provide the business the necessary cash flow to achieve a possible Star business.
Therefore I believe that Jack Gin should invest into Derwent Systems as it will allow the acquisition of a recognized product with the ability to sustain positive cash flows assisting in long term sustainability of the business.
2.Briefly outline the risks associated with your recommendation and how the company could manage these risks.
There are risks associated both with acquisition and passing the opportunity;
Not Acquiring Derwent
•Will lose access to a high quality high performing product •May risk market saturation
•Ability to provide competitive pricing structure for current product range should competitors produce the same products
•Cash flow – does Extreme have enough cash flow to support Derwent requirements in the short term •Change management issues in merging businesses and associated staff cultural issues •If competitors are already engaging in the market Extreme is trying to break into – do they have a market dominance •Geographical issues – managing businesses on two sides of the globe •Globalisation and workforce diversity issues
3.List the benefits, and why you believe they outweigh the risks
•Increased market share
•Ability to offer the market more products
•Acquiring the good will of Derwent customers
•The additional Intellectual property from Derwent research and development •Additional staff and their knowledge and experiences
•Ability to proposed more competitive pricing structures as inputs may be cheaper as business will have greater turn over and thus may be able to purchase components in bulk •Economies of scale – not only for tangible inputs but labour inputs •Increased borrowing power with the merger of two businesses – increased assets.
4. Analyse Extreme CCTV’s competitive landscape using
Porter’s Five Forces
Porter’s Five Forces consist of the following;
oThis component could be considered as high as with a larger volume of component turnover Derwent could access better trading terms and stronger relationships with suppliers. This would result in more reliable and competitive supply of components and with good relationship management, such as ensuring on time invoice payment, Derwent may be able to become...