MGT401 SEU Strategic Management strategic Questions

Description‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 2
Strategic Management (MGT 401)
Due Date: 03/06/2023 @ 23:59
Course Name: Strategic Management
Student’s Name:
Course Code: MGT 401
Student’s ID Number:
Semester: Third Semester
CRN:
Academic Year:2022-23-3rd
For Instructor’s Use only
Instructor’s Name:
Students’ Grade: /15
Level of Marks: High/Middle/Low
General Instructions – PLEASE READ THEM CAREFULLY








The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Learning Outcomes:
1. Recognize the basic concepts and terminology used in Strategic Management. (CLO1)
2. Describe the different issues related to environmental scanning, strategy formulation, and
strategy implementation in diversified organizations. (CLO2)
3. Explain the contribution of functional, business, and corporate strategies to the competitive
advantage of the organization. (CLO3)
4. Distinguish between different types and levels of strategy and strategy implementation.
(CLO4)
5. Communicate issues, results, and recommendations coherently, and effectively regarding
appropriate strategies for different situations. (CLO6)
This assignment includes 2 sections:
I.
Case study
Assignment Question(s):
Read carefully case No 8 from your textbook (entitled ‘iRobot: Finding the Right Market Mix?) and
answer the following questions: (1 mark each question)
1.
2.
3.
4.
5.
Draw the SWOT matrix of the iRobot company.
What is the competitive strategy used by iRobot company?
Use the five forces of the M. Porter matrix to describe the robot-based product industry.
Describe the different functional strategies of the iRobot company.
Describe the relationship of iRobot with its primary stakeholders.
Suppliers:
6. Describe the core competency and the outsourcing strategy of iRobot.
7. What kind of strategic alliance is used by iRobot? Why does iRobot choose it?
8. What are the main challenges that iRobot faces?
9. Assess the competitive advantage of iRobot in its market.
10. Recommend solutions for iRobot to improve its competitive advantage.
II.
Mini-project
From real national/international market, select any type of strategic alliance between two firms and answer
the following questions: (1 mark each question)
1. Briefly introduce your chosen firms, partners of the strategic alliance (industry, nationality, size,
market position…). Max 150 words
2. What is the type of strategic alliance used by your chosen firms? Explain its different reasons.
3. What is the method used by the firms to manage their cultures after the alliance? underline the pros
and cons of this method.
4. Is this strategic alliance successful? Justify.
5. What recommendations can you provide to the managers of these firms to improve their
competitiveness?
Notes.
✓ Use at least 4 references for your answers to section II.
✓ All references used should be listed by the end of your analysis, using the APA style.
Answers
I.
Case Study
II.
Mini project
1.
2.

CASE
8
iRobot: Finding the Right
Market Mix?
Alan N. Hoffman
IROBOT CORPORATION, FOUNDED IN 1990 IN DELAWARE, designed and built a vast array of
behavior-based robots for home, military, and industrial uses. iRobot was among the first
companies to introduce robotic technology into the consumer market. Home care robots
were iRobot’s most successful products, with over 5 million units sold worldwide and
accounting for over half of its total annual revenue. iRobot had a long-standing contractual relationship with the U.S. government to produce robots for military defense.
iRobot was fully gauged toward first mover radical innovation with an extensive R&D
budget. Made up of over 500 of the most distinguished robotics professionals in the
world, it aimed at leading the robotics industry. By forming alliances with companies
like Boeing and Advanced Scientific Concepts, it is able to develop and improve upon
products that it otherwise is incapable of obtaining using only its own technology.
The company also has a healthy financial position with an excellent cash and long-term
debt rate.
Despite these competencies, iRobot still had serious concerns. Although the robotics
industry was not highly competitive, iRobot needed more competition to help build up the total
scale and visibility of the fledgling industry it had pioneered. Home care robots, its biggest
revenue source, was a luxury supplemental good. Times of economic recession could prove to
This case was prepared by Professor Alan N. Hoffman, Bentley University and Erasmus University. Copyright ©2010 by
Alan N. Hoffman. The copyright holder is solely responsible for case content. Reprint permission is solely granted to the
publisher, Prentice Hall, for Strategic Management and Business Policy, 13th Edition (and the international and electronic
versions of this book) by the copyright holder, Alan N. Hoffman. Any other publication of the case (translation, any form
of electronics or other media) or sale (any form of partnership) to another publisher will be in violation of copyright law,
unless Alan N. Hoffman has granted an additional written permission. Reprinted by permission. The author would like to
thank MBA students Jeremy Elias, Ryan Herrick, Steven Iem, Jaspreet Khambay, and Marina Smirnova at Bentley
University for their research. RSM Case Development Centre prepared this case to provide material for class discussion
rather than to illustrate either effective or ineffective handling of a management situation. Copyright © 2010, RSM Case
Development Centre, Erasmus University. No part of this publication may be copied, stored, transmitted, reproduced or
distributed in any form or medium whatsoever without the permission of the copyright owner, Alan N. Hoffman.
8-1
8-2
SECTION D
Industry One—Information Technology
be a problem for the sales of iRobot’s consumer goods given that discretionary budgets are
likely decreased. In addition, iRobot had over 70 patents, many of which will begin to expire
in 2019. In a rapidly advancing industry, technology can also become obsolete quickly and
render patents useless. Additionally, iRobot was highly dependent on several third-party suppliers to manufacture its consumer products. It also depends on the U.S. government for the
sales of its military products. Any volatility in its supply chain or government fiscal policy has
grave consequences for the company’s future.
Company History
In the late 1980s, the coolest robots in the world were being developed at the MIT Artificial
Intelligence Lab. These robots, modeled on insects, captured the imagination of researchers,
explorers, military, and dreamers alike. iRobot cofounders, MIT professor Rodney Brooks
and graduates Colin Angle and Helen Greiner, saw this technology as the basis for a whole
new class of robots that could make people’s lives easier and more fun. So, in 1990, the three
decided to work full time on fulfilling this promise and incorporated iRobot in Delaware.1
After leaving the MIT extraterrestrial labs, the three entrepreneurs focused their business
on extraterrestrial exploration, introducing the Genghis for robotic researchers in 1990. In 1998,
the founders shifted their focus onto military tactile robots and consumer robots after landing a
pivotal contract with the U.S. Defense Advanced Research Project Agency (DARPA). This contract provided the funding for necessary R&D to develop new technologies. As a direct result,
iRobot delivered the PacBot to the government in 2001 to assist in the search at the NYC World
Trade Center. In 2010, thousands of PacBots were serving the country on the war front.
In 2002, iRobot began selling its first practical and affordable home robot, the Roomba
vacuuming robot. With millions of Roomba vacuums sold, iRobot has continued to develop
and unveil new consumer robots such as a robotic gutter cleaner and pool vacuum. In 2005,
iRobot raised US$120 million in its IPO and began trading on the NASDAQ stock exchange.
iRobot’s Products and Distribution
iRobot designed and built robots for consumer, government, and industrial use, as shown in
Exhibit 1. On the consumer robots front, the company offered floor cleaning robots, pool
cleaning robots, gutter cleaning robots, and programmable robots. iRobot sold its home
robots through a network of over 30 national retailers. Internationally, iRobot relies on a
network of in-country distributors to sell these products to retail stores in their respective
countries. iRobot also sold its products through its own online store and other online stores
like Amazon and Wal-Mart.
Home robots have been the company’s most successful products with over 5 million units
sold worldwide. Sales of home robots accounted for 55.5% and 56.4% of iRobot’s total
revenue in 2009 and 2008, respectively.2 Currently, iRobot is exploring new technological
opportunities, including those that can automatically clean windows, showers, and toilets. The
potential to fully clean one’s house using automated robots is appealing to customers.
On the government and industrial robotics front, iRobot offered both ground and
maritime unmanned vehicles, selling the vehicles directly to end-users or through prime
contractors and distributors.3 Its government customers included the U.S. Army, U.S. Marine
Corp, U.S. Army and Marine Corps Robotic Systems Joint Program office, U.S. Navy
EOD Technical Division, U.S. Air Force, and Domestic Police and First Responders. For
2009 and 2008, 36.9% and 40.3% (respectively) of iRobot total revenue came from the
U.S. government.
CASE 8
iRobot: Finding the Right Market Mix?
8-3
EXHIBIT 1
iRobot Complete
Product Listing
Consumer Products:
Roomba floor vacuuming robot: vacuum floors and rugs at the press of a button
(US$129–US$549).
쏋 Scooba floor washing robot: preps, washes, scrubs, and dries hard floor surfaces
(US$299–US$499).
쏋 Verro pool cleaning robot: cleans a standard size pool in about an hour while removing debris
as small as two microns from the pool floor, walls, and stairs (US$399–US$999).
쏋 Looj gutter cleaning robot: simplifies the difficult and dangerous job of gutter cleaning
(US$69–US$129).
쏋 Create programmable robot: a fully assembled programmable robot based on the Roomba
technology that is compatible with Roomba’s rechargeable batteries, remote control, and
other accessories (US$129–US$299).

Government and Industrial Products:
iRobot 510 PackBot (advanced EOD configuration)
iRobot 510 PackBot (FasTac configuration)
쏋 iRobot 510 PackBot (First responder configuration)
쏋 iRobot 510 PackBot (Engineer configuration)
쏋 iRobot 210 Negotiator
쏋 310 SUGV
쏋 iRobot 1Ka Seaglider
쏋 iRobot 710 Warrior
쏋 Daredevil Project
쏋 LANdroids Project


iRobot’s distribution networks were carefully monitored. “We closely manage hand-picked
distributors, so that our involvement on the ground is critical as far as how to sell the product, how
to help them understand the product. But their local knowledge has proven to be equally critical in
finding the right sorts of distribution and handling the customers,” iRobot CEO, Colin Angle, said.4
Competition
The robot-based products market was an emerging market with high entry barriers as it required new entrants to have access to advanced technology and large amounts of capital to invest in R&D. As a result, the market had relatively few companies competing with each other.
iRobot competed with large and small companies, government contractors, and governmentsponsored laboratories and universities. It also competed with companies producing traditional
push vacuum cleaners such as Dyson and Oreck.
Many of iRobot’s competitors had significantly more financial resources. They include
Sweden-based AB Electrolux, German-based Kärcher, South Korea-based Samsung, UK-based
QinetiQ, and U.S.-based Lockheed competing against iRobot mainly in the robot vacuum
cleaning market and the unmanned ground vehicle market. The iRobot product (for example,
its Roomba vacuum robot) was not the most expensive but was rated the highest across the
majority of the comparison points.
AB Electrolux
Founded in 1910, Electrolux was headquartered in Stockholm, Sweden. It did business in
150 countries with sales of 109 billion SEK (US$15 billion), and was engaged in the
8-4
SECTION D
Industry One—Information Technology
manufacture and sales of household and professional appliances. Its Electrolux Trilobite
vacuum cleaner competed with the iRobot’s Roomba vacuum cleaner in the international
markets. Although Electrolux Trilobite is currently unavailable in the United States it was
anticipated to be sold on the company’s website. An Electrolux Trilobite was priced at about
US$1,800, much more than a Roomba, which retailed between US$200 and US$500.
Alfred Kärcher GmbH & Co.
Founded in 1935, Kärcher was a German manufacturer of cleaning systems and equipment,
and was known for its high-pressure cleaners. Kärcher did business worldwide, with sales of
€1.3 billion (US$1.7 billion). In 2003, it launched Kärcher RC 3000, the world’s first autonomous cleaning system that competed with the iRobot Roomba vacuum cleaner in the international markets. Kärcher RC 3000 is not currently sold in the United States but can be
purchased and shipped directly from Germany for approximately US$1,500.
Samsung Electronics Co., Ltd
Founded in 1969, Samsung was headquartered in South Korea. Samsung was the world’s
largest electronics company with revenue of US$117.4 billion in 2009. It was a prominent
player in the world market for more than 60 products including home appliances such as
washing machines, refrigerators, ovens, and vacuum cleaners. In November 2009, Samsung
launched Tango, its autonomous vacuum cleaner robot, which was available in South Korea.
In March 2010, the company launched the Samsung NaviBot, an autonomous vacuum
cleaner, in Europe. It was priced at €400 to €600 (US$516 to US$774).
QinetiQ
Founded in 2001, QinetiQ was a defense technology company headquartered in the UK with
revenues of £1.6 billion (US$2.4 billion). It produced aircraft, unmanned aerial vehicles, and
energy products. iRobot’s stiffest competitor in the unmanned aerial vehicles market was
QinetiQ, which had 2,500 Talon robots deployed in Iraq and Afghanistan. iRobot had
delivered more than 3,000 PackBot robots worldwide.
Lockheed Martin Corporation
Based in Maryland, the U.S.-based Lockheed was the world’s second largest defense
contractor by revenue and employed 140,000 people worldwide. It was formed by the merger
of Lockheed and Martin Marietta in 1995, and competed with iRobot in the unmanned ground
vehicle market.
Research and Development at iRobot
Research and development (R&D) was a critical part of iRobot’s success. The company spent
nearly 6% of its revenue on R&D. In 2009, its total R&D costs were US$45.5 million, of
which US$14.7 million was internally funded while the remaining amount was funded by
government-sponsored research and development contracts. iRobot believed that by utilizing
R&D capital it would be able to respond and stay ahead of customer needs by bringing new,
innovative products to the market. iRobot had 538 full-time employees, 254 of which were
in R&D.5
The company’s core technology areas were collaborative systems, semi-autonomous
operations, advanced platforms, and human-robot interaction. Each area provided a unique
benefit to the development and advancement of robot technology. Research in these fields was
CASE 8
iRobot: Finding the Right Market Mix?
8-5
done in three different methods: team organization, spiral development, and the leveraged
model.
Team organization revolved around small teams that focused on certain specific projects
or robots. They worked together with all different lines of the business to ensure that a product was well integrated. Primary locations for these teams were Bedford, Massachusetts;
Durham, North Carolina; and San Luis Obispo, California.
Spiral development was used for military products. Newly creatd products were sent into
the field and tested by soldiers with an in-field engineer nearby to receive feedback from the
soldiers on the product’s performance. Updates and improvements were made in a timely manner, and the product was sent back to the field for retesting. This method of in-field testing has
allowed iRobot to quickly improve its technology and design so it can truly fulfill the needs of
the end-users.
The leveraged model used other organizations for funding, research, and product development. iRobot’s next generation of military products were supported by various U.S. government organizations. Although the government had certain rights to these products, iRobot did
“retain ownership of patents and know-how and are generally free to develop other commercial products, including consumer and industrial products, utilizing the technologies developed
during these projects.”6 The same methodology holds true when designing consumer products.
If expertise was developed that would assist in governmental projects, then it is transferred to
the appropriate team.
iRobot’s continued success depended on its proprietary technology, intellectual skills of
the employees, and the ability to innovate. The company held 71 U.S. patents, 150 pending
U.S. patents, 34 international patents, and more than 108 pending foreign applications. The
patents held, however, will start to expire in 2019.
Financial Results
Sales, Net Income, and Gross Margins
From 2005 through 2009, iRobot total revenue more than doubled from US$142 million to
US$299 million. Revenues received from products accounted for nearly 88% of total revenue, far greater than the remaining 12% received from contract revenue, though contract
revenue showed a record high of US$36 million by the end of 2009. (See Exhibit 2).
Revenues from 2009 showed a decline of US$9 million from 2008 that was mainly attributable to a 6.3% decrease in home robots shipped. This decrease resulted from softening
demand in the domestic market. On a more positive note, the total US$30.9 million decrease
in domestic sales was partially offset by an increase in international sales (US$23.2 million).
Even though revenues declined in 2009, iRobot was able to control its costs and operating
expenses, resulting in an increase in net income of over four-fold from US$756,000 in 2008
to US$3.3 million in 2009.
Cash and Long-Term Debt
iRobot was in a strong financial position as it related to cash and long-term debt. In 2009,
iRobot increased its cash position by over US$31 million while decreasing the amount of longterm debt by about US$400,000. Its cash position by the end of 2009 was US$72 million
versus US$41 million in 2010, an increase of over 77%. This put iRobot in a good position to
continue investing in research and development even if sales began to slow. At the end of 2009,
iRobot’s long-term debt was just over US$4 million (see Exhibit 3). iRobot’s financial status
gives it a competitive edge as it should be able to withstand both current and future unforeseen
swings in sales, supplier issues, and cancellation of government contracts.
Learning Objectives
After reading this chapter, you should be able to:

Understand the benefits of strategic
management
쏋 Explain how globalization and
environmental sustainability influence
strategic management
쏋 Understand the basic model of strategic
management and its components

Identify some common triggering events
that act as stimuli for strategic change
쏋 Understand strategic decision-making
modes
쏋 Use the strategic audit as a method of
analyzing corporate functions and
activities
Environmental
Scanning:
Strategy
Formulation:
Strategy
Implementation:
Evaluation
and Control:
Gathering
Information
Developing
Long-range Plans
Putting Strategy
into Action
Monitoring
Performance
External:
Opportunities
and Threats
Natural
Environment:
Resources and
climate
Societal
Environment:
General forces
Task
Environment:
Industry analysis
Mission
Reason for
existence
Objectives
What
results to
accomplish
by when
Strategies
Plan to
achieve the
mission &
objectives
Policies
Broad
guidelines
for decision
making
Programs
Activities
needed to
accomplish
a plan
Budgets
Cost of the
programs
Procedures
Sequence
of steps
needed to
do the job
Internal:
Strengths and
Weaknesses
Performance
Actual results
Structure:
Chain of command
Culture:
Beliefs, expectations,
values
Resources:
Assets, skills,
competencies,
knowledge
Feedback/Learning: Make corrections as needed
3
8-6
SECTION D
Industry One—Information Technology
EXHIBIT 2
Consolidated Statement of Operations: iRobot Corporation (Dollar amounts in thousands per share of data)
Year Ending
REVENUE
Product revenue
Contract revenue
Total revenue
Cost of revenue
Cost of product revenue
Cost of contract revenue
Total cost of revenue
Gross margin
Operating expenses
Research and development
Selling and marketing
General and administrative
Litigation and related
expenses
Total operating expenses
Operating (loss) income
NET INCOME
Net income attributable to
common stockholders
Net income per common share
Basic
Diluted
Shares used in per common
share calculations
Basic
Diluted
January 2,
2010
December 27,
2008
December 29,
2007
December 30,
2006
December 31,
2005
$262,199
36,418
298,617
$281,187
26,434
307,621
$227,457
21,624
249,081
$167,687
21,268
188,955
$124,616
17,352
141,968
176,631
30,790
207,421
91,196
190,250
23,900
214,150
93,471
147,689
18,805
166,494
82,587
103,651
15,569
119,220
69,735
81,855
12,534
94,389
47,579
14,747
40,902
30,110
17,566
46,866
28,840
17,082
44,894
20,919
17,025
33,969
18,703
11,601
21,796
12,072
-85,759
5,437
$3,330
-93,272
199
$756
2,341
85,236
(2,649)
$9,060
-69,697
38
$3,565
-45,469
2,110
$2,610
$3,330
$756
$9,060
$3,565
$1,553
$0.13
$0.13
$0.03
$0.03
$0.37
$0.36
$0.15
$0.14
$0.13
$0.11
24,998
25,640
24,654
25,533
24,229
25,501
23,516
25,601
12,007
14,331
Marketing
iRobot’s promotion strategies varied by product group; however, neither its defense product
group nor its home care product group utilized television or radio advertising. Since defense
products were produced solely for the U.S. government, promotion was unnecessary. Home
care products, on the other hand, needed to be marketed to generate public demand. iRobot
aggressively utilized social media tools such as Facebook and Twitter primarily for promoting support services and brand recognition. For example, Facebook had at least 10 fan pages
for either iRobot Corporation or selected iRobot home cleaning products like Roomba.
Another branding strategy used by iRobot education. iRobot recognized that fewer and
fewer American children went into STEM (science, technology, engineering, math) areas.
Therefore, it launched the SPARK (Starter Programs for the Advancement of Robotics Knowledge) program to stimulate an interest in science and technology. The program catered to
students from elementary school to university. iRobot also initiated an annual National Robotics Week program to educate the public on how robotics technology impacts society. The first
national robotics week was held in April 2010 in the Museum of Science in Boston.
iRobot developed an education and research robot, the Create(R) programmable mobile
robot, to provide educators, students, and developers with an affordable, pre-assembled platform for hands-on programming and development. Students can learn the fundamentals of
CASE 8
iRobot: Finding the Right Market Mix?
8-7
EXHIBIT 3
Consolidated Balance Sheet: iRobot Corporation (Dollar amount in thousands)
Year Ending
January 2, 2010
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance of $90 and $65 at January 2,
2010, and December 27, 2008, respectively
Unbilled revenue
Inventory
Deferred tax assets
Other current assets
Total current assets
Property and equipment, net
Deferred tax assets
Other assets
Total assets
December 27, 2008
$71,856
4,959
35,171
$40,852
-35,930
1,831
32,406
8,669
4,119
159,011
20,230
6,089
14,254
$199,584
2,014
34,560
7,299
3,340
123,995
22,929
4,508
12,246
$163,678
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
$30,559
$19,544
Accrued expenses
14,384
10,989
Accrued compensation
13,525
6,393
Deferred revenue and customer advances
3,908
2,632
Total current liabilities
62,376
39,558
Long-term liabilities
4,014
4,444
Commitments and contingencies:
Redeemable convertible preferred stock, 5,000,000 shares authorized
–zero outstanding
Common stock, $0.01 par value, 100,000,000 and 100,000,000
251
248
shares authorized and 25,091,619 and 24,810,736 shares issued
and outstanding at January 2, 2010, and December 27, 2008,
respectively
Additional paid-in capital
140,613
130,637
Deferred compensation
(64)
(314)
Accumulated deficit
(7,565)
(10,895)
Accumulated other comprehensive loss
(41)
-Total stockholders’ equity
133,194
119,676
$199,584
$163,678
Total liabilities, redeemable convertible preferred stock,
and stockholders’ equity
robotics, computer science, and engineering; program behaviors, sounds, and movements; and
attach accessories like sensors, cameras, and grippers. It also ran a unique and multifaceted
Educational Outreach Program that included classroom visits and tours of its company headquarters. It was designed to inspire students to choose careers in the robotics industry and
become future roboticists.
Despite multiple methods of reaching out to current and potential consumers, some industry analysts claimed iRobot lacked aggressiveness toward customer acquisition. According to
Mark Raskino, analyst for Gartner Research, “iRobot needs more competition, not less, to help
build up the total scale and visibility of the fledgling industry it has been pioneering.”7
8-8
SECTION D
Industry One—Information Technology
Operations
iRobot was not a manufacturing company, nor did it claim to be. Its core competency was
to design, develop, and market robots, not manufacture them. All non-core activities were
outsourced to third parties skilled in manufacturing. While third-party manufacturers provided raw materials and labor, iRobot concentrated on developing and optimizing prototypes.
Until April 2010, iRobot used only two third-party manufacturers for its consumer products: Jetta Co. Ltd. and Kin Yat Industrial Co. Ltd., both located in China. iRobot did not have
a long-term contract with either company, and the manufacturing was done on a purchase
order basis. This changed in April 2010, when iRobot entered a multi-year manufacturing
agreement with electronic parts maker Jabil Circuit Inc., which would make, test, and supply
iRobot’s consumer products, including the Roomba.8
The Robotic Industry
Robots serve a wide variety of industries such as consumer, automotive, military, construction, agricultural, space, renewable energy, medical, law enforcement, utilities, manufacturing, entertainment, mining, transportation, space, and warehouse industries.
In 2008, before the economic downturn, the global market for industry robot systems was
estimated to be about US$19 billion.9 Industrial robots sold worldwide in 2009 slumped by
about 50% compared to 2008. The sales started to improve from the third quarter of 2009
onward with the slow recovery coming from emerging markets in Asia and especially from
China. In North America and Europe, sales were also seen slowly improving from late 2009.10
The sales of professional services robots, including military and defense robots, were
about US$11 billon at the end of 2008 and were expected to grow by US$10 billion for the
period of 2009 to 2012.11
Twelve million units of household and entertainment robots were expected to be sold from
2009 to 2012 in the mass market, with an estimated value of US$3 billion.12
New Markets
The 2009 economic recession had negative impacts on consumer spending. iRobot domestic
sales of robot vacuum cleaners, predominantly the Roomba, were down comparable to other
US$400 discretionary purchases, and its international sales also experienced a slowdown.13 In
addition to lower consumer demand, the national and international credit crunches led to a
scarcity of credit, tighter lending standards, and higher interest rates on consumer and business
loans. Continued disruptions in credit markets may limit consumer credit availability and impact
home robot sales.
If the robot market does not experience significant growth, the entire industry may not
survive. “Fallout has forced the robotics industry to look outside of its comfort zone and move
into emerging energy technologies like batteries, wind, and solar power,” said Roger Christian,
Vice President of Marketing and International Groups at Motoman Inc. He also predicted
growing demand for robotics in healthcare and the food and beverage industry.14 Under the
Obama administration, there were economic incentives devoted to R&D in alternative energy
industries. For example, “the Stimulus Act passed by Congress in early 2009, a US$787 billion
package of tax cuts, state aid, and government contracts, has made some impact on the alternative energy market in favor of robotics.”15
In addition to its home care and military markets, iRobot hoped to expand into the civil
law enforcement market and the maritime market. It also explored possibilities in the
CASE 8
iRobot: Finding the Right Market Mix?
8-9
healthcare market.16 It partnered with the toy company Hasbro to enter the toy market with
My Real Baby—an evolutionary doll that has animatronics and emotional response software.
iRobot continued to grow its international presence by entering new markets. The percentage of its international sales rose from 38% in 2008 to 53.8% in 2009.17 Its growing focus on
international sales resulted in an increase of US$23.2 million in international home robots
revenue for 2009 compared to 2008. iRobot also sold its military products overseas in compliance with the International Traffic in Arms Regulations.
Challenges Ahead
Consumer Marketplace
iRobot was competing in a new and emerging market. Although the industry had relatively
low competition, analysts believed iRobot needed “more competition, not less, to help build
up the total scale and visibility of the fledgling industry it had been pioneering.”18 If the
demand for the home robots became stagnant or declined, this would greatly impact the
vitality of iRobot and put it under pressure to remain innovative and adaptive to consumer
needs in the event that it did gain widespread popularity.
iRobot’s consumer products were primarily a luxury supplemental good gauged toward
the middle and upper class. iRobot’s home cleaning robots were reasonably priced from
US$129 to US$1,000, depending on the model and accessories. Such a price range was comparable with luxury brands of vacuum machines. However, times of economic recession could
prove to be a problem for iRobot’s consumer goods sales given that discretionary budgets have
contracted. To save money, iRobot’s base customers may revert to manual labor.
Supply Chain
For many years, iRobot had only two China-based manufacturers to produce its home cleaning robots and had no long-term contract with either of those companies. Its best-selling
Roomba 400 series and Scooba series, for example, were both produced by Jetta at a single
plant in China. This put iRobot in a high-risk situation if Jetta was unable to deliver products
for any unforeseen reason, or if quality started to dip below standards.
Fortunately, iRobot was aware of the problem and signed a new manufacturing agreement with U.S.-based Jabil Circuit. This relationship would provide iRobot with numerous
benefits, including diversifying key elements of its supply chain, providing geographic
flexibility to address new markets, and expanding overall capacity to meet growing demands,
explained Jeffrey Beck, president of iRobot’s Home Robots Division. Whether this attempt
to diversify its supply chain with a new partnership will work out is of crucial importance for
iRobot.
Intellectual Property
Although iRobot had over 70 patents and over 150 patents pending, finding ways to continue
to protect this intellectual property in the long run will be a challenge. The patents iRobot
holds will begin to expire in 2019. In a rapidly advancing industry, technology can also
become obsolete quickly and render patents useless.
Continued development of products that were difficult to duplicate through reverse engineering will be the key to success in this area. By maintaining strong relationships and giving
superior service to customers such as government agencies, iRobot can create an advantage
even if they are unable to ultimately protect their technology from being duplicated. At the
same time, iRobot also needs to ensure that its employees will continue to be innovative and
create new technologies to keep iRobot competitive for years to come.
8-10
SECTION D
Industry One—Information Technology
Government Contracts
Nearly 40% of iRobot’s revenues were from government-contracted military robots. As a
contractor or a subcontractor to the U.S. government, iRobot was subject to federal regulations. Fiscal policy and expenditure can be volatile, not only through a single presidency, but
certainly during the transition from one presidency to the next. The volatility and unknown
demand of the U.S. government presented a problem. The economic fallout from the recession also impacted U.S. federal budgetary considerations. Emphasis and focus had been
placed on larger, more troubled industries, with large bailout packages made available to
financial and automotive companies. It remains to be seen how these large outlays will affect
the federal government’s ability to continue to fund contracts for robotics.
Strategic Alliances
iRobot relied on strategic alliances to provide technology, complementary product offerings, and
better and quicker access to markets. It entered an agreement with The Boeing Company to develop and market a commercial version of the SUGV that was being developed under the Army’s
BCTM (formerly FCS) program. It also formed an alliance with Advanced Scientific Concepts
Inc. for exclusive rights to use the latter’s LADAR technology of unmanned ground vehicles. In
exchange, iRobot commited itself to purchase units from Advanced Scientific Concepts.
iRobot’s Challenge
iRobot’s focus on home cleaning products differentiates iRobot from all the other manufacturers in the robotics industry, which are mainly focused on manufacturing robots for the
automotive sector. iRobot’s focus on two entirely different markets—consumer and military—
allowed it (1) the ability to leverage its core capabilities and diversification, and (2) provided
it with a hedge against slower demand in one sector. By introducing robotics to the consumer
market, iRobot created a “blue ocean of new opportunities.” However, iRobot had numerous
competitors with more experience in the consumer marketplace.
An analyst wondered if the long-term success in the consumer market would require iRobot
to develop more “blue oceans.” Also, did it make sense for iRobot to continue to develop new consumer products or would it be better off focusing on the military and aerospace marketplace?
NOTES
1. http://www.irobot.com/uk/about_irobot_story.cfm.
2. iRobot 2009 Annual Report, Form 10K, filed February 19, 2010.
3. Ibid.
4. M. Raskino, (a), 2010, “Insights on a Future Growth Industry.”
An interview with Colin Angle, CEO, iRobot. http://my.gartner
.com/portal/server.pt?open=512&objID=260&mode=2&PageID
=3460702&resId=1275816&ref=QuickSearch&sthkw=irobot.
5. iRobot 2009 Annual Report, 2010.
6. Ibid.
7. M. Raskino, (b), 2010, “Cool Vendors in Emerging Technologies,”
2010. http://my.gartner.com/portal/server.pt?open=512&objID
=260&mode=2&PageID=3460702&resId=133843&ref=Quick
Search&sthkw=irobot.
8. “iRobot Enters Manufacturing Deal with Jabil,” The Lowell
Sun, (April 28, 2010). http://www.lowellsun.com/latestnews/
ci_ 14830219.
9. Press information, World Robotics 2009—Industrial Robots.
http://worldrobotics.org/downloads/PR_Industrial_Robots_
30.09.2009_EN(1).pdf.
10. Gudrun Litzenberger, IFR Statistical Department, “The Robotics Industry Is Looking Ahead with Confidence to 2010,”
http:// www.worldrobotics.org/downloads/IFR_Press_release_
18_ Feb_2010.pdf .
11. Ibid.
12. Ibid.
13. M. Raskino, (a), 2010.
14. B. Brumson, 2010, “Robotics Market Cautiously Optimistic for
2010.” Robotic Industries Association. http://www.robotics.org/
content-detail.cfm/Industrial-Robotics-Feature-Article/RoboticsMarket-Cautiously-Optimistic-for-2010/content_id/1936.
15. Ibid.
16. Robotreviews, 2010, “iRobot Celebrates Two Decades of Innovation in Robotics,” http://www.robotreviews.com/news/
its-national-robotics-week.
17. iRobot 2009 Annual Report, 2010.
18. M. Raskino, (b), 2010.

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