SMS has been negotiating with a potential strategic alliance partner (XYZ), for the last 5 months, to enable SMS to expand its sales reach given that XYZ has 150 healthcare provider sales force with sales of over $450 million per year. SMS has offered XYZ a 17.5% commission on all gross sales revenues arising from signed contracts obtained exclusively by XYZ salespeople. In addition, SMS will provide XYZ’s with 2 comprehensive PowerPoint presentations: the first is be used by XYZ’s sales force for making sales presentations to prospects, and the second is for training of XYZ salespeople on the Zapper. Just hours before XYZ was supposed to sign the final agreement, XYZ’s CEO called David Jones, at SMS to tell him that she had changed her mind and would not sign the agreement. The CEO gave five (5) reasons for not signing the deal:
1) XYZ now has other priorities and could not justify the time they would have to devote to the alliance given the amount of projected incremental income and only 17.5% commission rate;
2) XYZ is not comfortable that SMS’ sales projections were truly realistic (and therefore they couldn’t rely on them) given the amount of time and effort XYZ would have to devote to selling the Zapper;
3) XYZ is convinced that the PowerPoint sales training presentation was not going to be sufficient for their sales force to be adequately trained to sell the Zapper;
4) XYZ is concerned that since XYZ and SMS sales forces are overlapping. – as they both call on the same hospitals and physician offices throughout the U.S. and Canada – XYZ salespeople could have worked on a potential customer but lose the sale, and the commission, if SMS came in at the last minute and closed the sale; and
5) XYZ is not satisfied with the present compensation structure and believes it deserves more than just commission for being such a critical part of the strategic alliance.
XYZ confirmed this by sending SMS a certified letter saying that effective immediately all negotiations were over, and they returned all SMS’ materials. The CEO of XYZ did, however, end the letter by saying that XYZ would be willing to entertain discussions with SMS again soon, if SMS was willing to provide XYZ with an offer that will satisfy the above five sticking points.
Prior to choosing XYZ, SMS had undertaken an extensive analysis of the industry and determined that XYZ was by far, the best company for them to align with given that: a) they have a very large and well managed sales force; b) they have both an excellent reputation in the industry and exceptional connections; c) XYZ’s sales revenue growth has slowed significantly this year (for the first time in over five years); and d) they sell to the exact same customers in the market as SMS does.
SMS had previously met with other potential strategic alliance partners, but dismissed each one due to lack of synergies, difficulty to deal with and/or excessive deal requirements. SMS’ management believes that it will take at least an additional 6 months to identify another potential partner and to negotiate an agreement. They also realize that there is a good chance that they will not be able to find another partner that would be as effective as XYZ.
Per SMS’ realistic scenario projections, the strategic partner is responsible for generating almost 60 percent of SMS’s projected sales future sales revenues, and 68% of the company’s total profit by year five. Consequently, SMS’ returns to investors will be substantially lower given SMS’ present business strategy – absent a strategic partner.
Assignment: Using these facts, please complete this assignment based on the requirements below.
Assignment Response Format
Overview:
Addressing each of the elements below, explain how this Curveball affects your business plan and strategy for Superior Medical Solutions, Inc. (SMS).
Response Elements:
- Please answer the following questions:
a) What is ‘your’ plan for addressing the new set of facts? Be specific. How will your new strategy impact SMS’s future revenues and profitability in relative terms (best guess). This is a qualitative exercise and therefore it is not necessary to use SMS’s financial projection spreadsheets.
b) How, if at all, will your new strategy impact the following areas of your business:
o Management
o Sales and Marketing
o Operations - Provide a list of risk factors associated with your strategy and what you could do to minimize each one.
- You may submit your individual response using PowerPoint slides or word. Be prepared to present your findings to the class.
