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Intellex is a new high-tech development company focusing on the convergence between computing and telecommunications. Specifically, it is pursuing the “holy grail” of developing a personal digital assistant (PDA) that unites all of the features of a smartphone with the ability to deliver all of the data and applications available on a computer.
Intellex is led by its founder, Manfred Braun, an engineer who developed the original technology that sits at the core of the Intellex product. It includes a unique optically generated normal-sized keyboard that allows users of the PDA to type easily when accessing all of their data and applications. It also includes technology to provide secure remote access from the PDA to the server where all applications and data are stored. Even if the PDA is lost or stolen, the data remains safe behind a firewall.
Observers have said that the technology is brilliant and that if it can ever be commercialized, it will revolutionize the way people work and communicate. The difficulty is that Intellex is bleeding cash while it completes development. At present, it has only managed to sell a few beta versions of its product since potential buyers are hanging back waiting for the final fully-featured version.
The goal that Intellex has set for itself is complex and development costs are steep. What is more, the competitive environment is evolving rapidly. The market is already crowded with imitators, each of which is offering some part of the comprehensive solution that Intellex intends to deliver. Intellex needs to get to market quickly to establish a presence and a track record in order to deflect competitors.
Intellex also needs to go to market quickly to satisfy investors. To date, it has financed its operations through private placements which raised cash from investors in return for shares in the company. Each time a placement was effected, however, the number of shares outstanding increased: existing shareholders do not want their investment to be diluted any further. This financing strategy has reached its limit since shareholders are now determined to see sales and growth that will translate into a significant return on their investment.
At present, the company is spending about 4.8 million a year, half of it on R&D and the rest on marketing and administration. It currently employs 20 people, with eight of these in the R&D unit, 6 in marketing and the remaining 6 distributed through finance, legal, human resources and administration. The R&D staff costs Intellex an average of about 300,000 per head for salaries, equipment, office overheads, and other expenses associated with research. The marketing staff costs an average of about 200,000 a head for salaries, travel and other overheads. Similarly, the administrative staff costs an average of 200,000 for salaries, office space, and other overheads. Within that group, there are significant differences, however. As CEO, Braun takes a salary of 200,000 per annum plus overheads, while the other administrative staff incurs lower costs.
Current estimates are that at its current rate of development, the company will have to spend another year completing its work on the product. Braun has been informed by his chief financial officer that the company only has enough cash in the bank to cover four months of operating costs. As a result, he has called a crisis meeting of senior managers to discuss what to do next. The problem is stark but simple: Intellex needs to get to market immediately. It needs to boost sales not only to secure revenues but to convince the investment community that the company represents a viable prospect. In order to go to market, however, it needs to complete its development work and to do that, it needs more cash.
The meeting opens with a report prepared by Tamas Horvath, chairman of the company’s board. He had been brought onto the board because of his experience in the European telecommunications industry, where he has extensive contacts. In his report, he offers the following observations:
Intellex is faced with something of a “Catch 22” situation: it needs more money to get its product to market but it can’t raise the money because it hasn’t sold enough of the product in the market.
The way to break out of the Catch 22 loop is to find a partner that can help take the company to the next level.
The domestic market is highly competitive. Everyone is looking for the Holy Grail. Intellex is not likely to findpartners there, since anyone who knows anything about this technology is a direct competitor, and anyone who doesn’t is useless. Also it is not likely to find any additional financial resources in the domestic market since the tightly knit financial community is aware of Intellex’s situation and will not provide another dime without some evidence of stronger sales.
Horvath concluded this somewhat bleak assessment with some encouraging news. Through his previous contacts, he has found a potential partner in the European market. The prospective partner is from Norway, is large and has a strong position in the conventional cell phone business. It would like to compete against its European rivals by coming out with a fully featured PDA. There might be a good fit, between the two companies if an appropriate agreement can be negotiated. Clearly Intellex is reaching the limit of its available resources. It needs a creative set of solutions …
Rules:
This is worth 50 marks total; 10 marks for each question. Submit using the Assignments tab.
Read the case and answer all the following questions:
1. Discuss the financing options might be available to Intellex.
2. Discuss the R&D options that exist for Intellex.
3. Discuss 5 critical elements that should be in any communication strategy that Intellex devises.
4. Leadership will play a key role in the next few months at Intellex. What should Braun be particularly aware of when transforming his company?
5. Discuss how the 7D Cultural Dimensions Model could apply to Intellex’s situation.
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