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 - – increasing energy prices, wage bills are increasing, there is backlash against globalization, geopolitical disruptions, increasing commodity prices, increasing household debt because of falling income levels, banking and financial system is disrupted by Bitcoin and other crypto currencies,
supply chains are disrupted by pandemic , there is increasing trade war between United States & China, 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 -
Sustainable margins compare to other players in Innovation & Entrepreneurship industry
– Direvo Biotech AG firm has clearly differentiated products in the market place. This has enabled Direvo Biotech to fetch slight price premium compare to the competitors in the Innovation & Entrepreneurship industry. The sustainable margins have also helped Direvo Biotech to invest into research and development (R&D) and innovation.
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.
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.
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.
Effective Research and Development (R&D)
– Direvo Biotech has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Direvo Biotech AG - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Successful track record of launching new products
– Direvo Biotech has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Direvo Biotech has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
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.
High brand equity
– Direvo Biotech has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Direvo Biotech to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
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.
Learning organization
- Direvo Biotech is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Direvo Biotech is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Direvo Biotech AG Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
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.
Innovation driven organization
– Direvo Biotech is one of the most innovative firm in sector. Manager in Direvo Biotech AG Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
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 -
Interest costs
– Compare to the competition, Direvo Biotech has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Increasing silos among functional specialists
– The organizational structure of Direvo Biotech is dominated by functional specialists. It is not different from other players in the Innovation & Entrepreneurship segment. Direvo Biotech needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Direvo Biotech to focus more on services rather than just following the product oriented approach.
High operating costs
– Compare to the competitors, firm in the HBR case study Direvo Biotech AG has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Direvo Biotech 's lucrative customers.
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.
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.
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.
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.
Lack of clear differentiation of Direvo Biotech products
– To increase the profitability and margins on the products, Direvo Biotech needs to provide more differentiated products than what it is currently offering in the marketplace.
Products dominated business model
– Even though Direvo Biotech has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Direvo Biotech AG should strive to include more intangible value offerings along with its core products and services.
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.
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 -
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Direvo Biotech to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Direvo Biotech to hire the very best people irrespective of their geographical location.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Direvo Biotech can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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.
Using analytics as competitive advantage
– Direvo Biotech has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Direvo Biotech AG - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Direvo Biotech to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Direvo Biotech can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Direvo Biotech AG, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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.
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.
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.
Better consumer reach
– The expansion of the 5G network will help Direvo Biotech to increase its market reach. Direvo Biotech will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Direvo Biotech to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
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.
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.
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 -
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.
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.
Consumer confidence and its impact on Direvo Biotech demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
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.
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.
Increasing wage structure of Direvo Biotech
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Direvo Biotech.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Direvo Biotech.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
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.
Shortening product life cycle
– it is one of the major threat that Direvo Biotech is facing in Innovation & Entrepreneurship sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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.
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 .
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.
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.