background
FlexLife designs and builds innovative tools for use on Subsea umbilical cables in offshore oil and gas production. The new CEO appointed by Investors found that the company had a new tool in development. Existing customer deployment mechanisms included an exclusive marketing and operations agreement with a subsea contractor. This arrangement had a revenue sharing clause. The CEO wanted to decide if they should invest to commercialise the new tool and if so what was the impact of the contractual framework in place?
interventions
Working alongside the CEO I gathered the information available internally to review contracts and financial performance. Using desk research and activating my network I gathered information on competitors, market potential and relative positioning. This led us to the insight that the sales costs, risks of voids and inventory carrying expense was not reflected in the revenue split arrangements with the subsea contractor. It was also found that there was little added value arising from the exclusivity of the arrangement. We concluded that (in a strategically neutral world) if the client wanted the tool then the operations contractor would deploy it. But then so would any other. Analysis on the internal/external sales effort vs revenue split revealed that there were some pieces of work that would not have been won by Flexlife working alone.
Together with the CEO we framed the strategic question around the option of developing or not developing the tool in an environment of breaking the exclusivity clause (which was possible with notice) or continuing to be bound by it. Our financial and decision model enabled assigned probabilities to be examined along with assumptions for market growth, price realization and retaliatory actions from the contractor.
This framing work enabled us to jointly examine the options available and under which boundary conditions a choice would change. This work informed the management and investors in their discussion and final investment decision.