Describes the financing and growth decisions facing Direvo, a young German biotech firm with a customer/partner that wants to become an investor. Also discusses the business model for Direvo's directed evolution technology, with applications in both industrial enzymes and pharmaceutical products, either through partnerships or its own product development, with very different risk/return structures. The resulting hybrid business model is a constant source of discussion between the Direvo management team and the lead investor, Techno Venture Management. How should Direvo extract value from the spectrum of business options to develop an optimal exit strategy?
Authors :: Michael J. Roberts, Vincent Dessain, Anders Sjoman
Swot Analysis of "Direvo Biotech AG" written by Michael J. Roberts, Vincent Dessain, Anders Sjoman includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Direvo Biotech facing as an external strategic factors. Some of the topics covered in Direvo Biotech AG case study are - Strategic Management Strategies, Decision making, Entrepreneurial finance, Growth strategy, Joint ventures, Product development and Innovation & Entrepreneurship.
Some of the macro environment factors that can be used to understand the Direvo Biotech AG casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, increasing inequality as vast percentage of new income is going to the top 1%, challanges to central banks by blockchain based private currencies, increasing commodity prices, talent flight as more people leaving formal jobs, increasing government debt because of Covid-19 spendings, increasing household debt because of falling income levels,
geopolitical disruptions, technology disruption, etc
Introduction to SWOT Analysis of Direvo Biotech AG
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Direvo Biotech AG case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Direvo Biotech, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Direvo Biotech operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Direvo Biotech AG can be done for the following purposes –
1. Strategic planning using facts provided in Direvo Biotech AG case study
2. Improving business portfolio management of Direvo Biotech
3. Assessing feasibility of the new initiative in Innovation & Entrepreneurship field.
4. Making a Innovation & Entrepreneurship topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Direvo Biotech
Strengths Direvo Biotech AG | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Direvo Biotech in Direvo Biotech AG Harvard Business Review case study are -
Strong track record of project management
– Direvo Biotech is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Analytics focus
– Direvo Biotech is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Michael J. Roberts, Vincent Dessain, Anders Sjoman can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Highly skilled collaborators
– Direvo Biotech has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Direvo Biotech AG HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Organizational Resilience of Direvo Biotech
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Direvo Biotech does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Diverse revenue streams
– Direvo Biotech is present in almost all the verticals within the industry. This has provided firm in Direvo Biotech AG case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Cross disciplinary teams
– Horizontal connected teams at the Direvo Biotech are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
High switching costs
– The high switching costs that Direvo Biotech has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Low bargaining power of suppliers
– Suppliers of Direvo Biotech in the sector have low bargaining power. Direvo Biotech AG has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Direvo Biotech to manage not only supply disruptions but also source products at highly competitive prices.
Digital Transformation in Innovation & Entrepreneurship segment
- digital transformation varies from industry to industry. For Direvo Biotech digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Direvo Biotech has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Operational resilience
– The operational resilience strategy in the Direvo Biotech AG Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Ability to recruit top talent
– Direvo Biotech is one of the leading recruiters in the industry. Managers in the Direvo Biotech AG are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Ability to lead change in Innovation & Entrepreneurship field
– Direvo Biotech is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Direvo Biotech in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Weaknesses Direvo Biotech AG | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Direvo Biotech AG are -
Slow decision making process
– As mentioned earlier in the report, Direvo Biotech has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Direvo Biotech even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Direvo Biotech AG, in the dynamic environment Direvo Biotech has struggled to respond to the nimble upstart competition. Direvo Biotech has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Direvo Biotech AG, is just above the industry average. Direvo Biotech needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Low market penetration in new markets
– Outside its home market of Direvo Biotech, firm in the HBR case study Direvo Biotech AG needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Need for greater diversity
– Direvo Biotech has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Direvo Biotech AG HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Direvo Biotech has relatively successful track record of launching new products.
Aligning sales with marketing
– It come across in the case study Direvo Biotech AG that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Direvo Biotech AG can leverage the sales team experience to cultivate customer relationships as Direvo Biotech is planning to shift buying processes online.
Slow to strategic competitive environment developments
– As Direvo Biotech AG HBR case study mentions - Direvo Biotech takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
High bargaining power of channel partners
– Because of the regulatory requirements, Michael J. Roberts, Vincent Dessain, Anders Sjoman suggests that, Direvo Biotech is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
High cash cycle compare to competitors
Direvo Biotech has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Direvo Biotech is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Direvo Biotech AG can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Opportunities Direvo Biotech AG | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Direvo Biotech AG are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Direvo Biotech can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Developing new processes and practices
– Direvo Biotech can develop new processes and procedures in Innovation & Entrepreneurship industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Direvo Biotech in the consumer business. Now Direvo Biotech can target international markets with far fewer capital restrictions requirements than the existing system.
Learning at scale
– Online learning technologies has now opened space for Direvo Biotech to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Direvo Biotech can use these opportunities to build new business models that can help the communities that Direvo Biotech operates in. Secondly it can use opportunities from government spending in Innovation & Entrepreneurship sector.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Direvo Biotech is facing challenges because of the dominance of functional experts in the organization. Direvo Biotech AG case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Innovation & Entrepreneurship industry, but it has also influenced the consumer preferences. Direvo Biotech can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Direvo Biotech can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Building a culture of innovation
– managers at Direvo Biotech can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Innovation & Entrepreneurship segment.
Buying journey improvements
– Direvo Biotech can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Direvo Biotech AG suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Leveraging digital technologies
– Direvo Biotech can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Direvo Biotech in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Innovation & Entrepreneurship segment, and it will provide faster access to the consumers.
Creating value in data economy
– The success of analytics program of Direvo Biotech has opened avenues for new revenue streams for the organization in the industry. This can help Direvo Biotech to build a more holistic ecosystem as suggested in the Direvo Biotech AG case study. Direvo Biotech can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Threats Direvo Biotech AG External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Direvo Biotech AG are -
Technology acceleration in Forth Industrial Revolution
– Direvo Biotech has witnessed rapid integration of technology during Covid-19 in the Innovation & Entrepreneurship industry. As one of the leading players in the industry, Direvo Biotech needs to keep up with the evolution of technology in the Innovation & Entrepreneurship sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
High dependence on third party suppliers
– Direvo Biotech high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Direvo Biotech in the Innovation & Entrepreneurship sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Direvo Biotech can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Direvo Biotech AG .
Easy access to finance
– Easy access to finance in Innovation & Entrepreneurship field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Direvo Biotech can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Environmental challenges
– Direvo Biotech needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Direvo Biotech can take advantage of this fund but it will also bring new competitors in the Innovation & Entrepreneurship industry.
Regulatory challenges
– Direvo Biotech needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Innovation & Entrepreneurship industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Direvo Biotech AG, Direvo Biotech may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Innovation & Entrepreneurship .
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Direvo Biotech with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Direvo Biotech will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Direvo Biotech business can come under increasing regulations regarding data privacy, data security, etc.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Direvo Biotech in the Innovation & Entrepreneurship industry. The Innovation & Entrepreneurship industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Weighted SWOT Analysis of Direvo Biotech AG Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Direvo Biotech AG needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Direvo Biotech AG is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Direvo Biotech AG is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Direvo Biotech AG is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Direvo Biotech needs to make to build a sustainable competitive advantage.
