RAYMARK

TECHNOLOGIES INC.
Analysis of business problem examination
MEMBA 3

Yetunde Oladeji

Contents
2

Problem & recommendation

Executive summary

Background

Industry analysis

Company Analysis

Key Challenge & Decision Criteria

Alternatives

Recommendation

Implementation

Problem & Solution

3

Problem
How should Steve Thomas shape the Raymarks future relationship with Sentor to be in the long term
interest of the firm ?
Recommendation
Steve Thomas should offer to sell controlling stake in Raymark to Sentor. This would be a strategic
alliance between both entities for the following reasons:

Raymark is a market leader in the electronic and computed based operator interfaces.
The products are major components for Sentors products. Sentor has not been successful in
developing in-house competence for this technology.
Raymark does not have the market visibility and infrastructure to sell its products or obtain
market intelligence on customer needs.
Raymark can leverage on Sentors size, infrastructure and resources to continue to develop its
Research and development (R&D) and core competence.
Sentor can leverage on Raymarks technology and also opportunity to diversify into new
technological businesses as a niche market through Raymark.
The resources spent by Sentor in the bid to compete with Raymark can be channeled to other
needs since any success by Raymark will be viewed as a collective success.

Executive Summary
4

Raymark is a company that produces software and hardware interfaces for the industrial controls
industry. For the past ten years, Raymark and Sentor have been in a commercial partnership where
Raymark produces the main components used for Sentors products. Sentors initial objective was to
use this arrangement as a stop-gap measure pending the development of their in-house technology.
However the relationship has been extended for 10 years largely due to the changing technological
environment which Sentor appears to be unable to keep up with but remains an area of strength for
Raymark. Raymark however relies heavily on Sentor for its sales and market infrastructure. Sales to
Sentor accounted for 75% of the companys revenue in 1993.
A Sentor VP recently described Raymark as a minnow swimming around a whale. One day the whale
will flip its tail and quash the minnow. This comment indicates that Sentor perceives its relationship
with Raymark as temporary and would not hesitate to cut them off , if and when they successfully
replicate their own technology. It appears they feel threatened by Raymarks current diversification
drive and may not spare resources to put Raymark in their place.
Raymark will struggle if Sentor withdraws their support, although it is not likely in the short term due
to their technological advantage but with Sentors vast resources they could eventually succeed in
replicating their own technology.
Raymarks president should be proactive by offering Sentor a controlling stake in the business . With
their current position of strength they would be able negotiate better terms and have a strategic
alliance . Sentor will feel they have more stake in the success of the business.

BACKGROUND

Business Key Points

6

Raymark Technologies is a company that produces hardware and software interfaces for industrial
control equipment.

The company was founded in 1976 by Steve Thomas.

Raymark is based in Ottawa Ontario.

In November1983, the company entered into a partnership with Sentor Equipment, a US based firm
to provide computerised operator-interface technology to Sentor. The contract was for 5 years with a
renewal option of another 5 years.
As at 1994, sales to Sentor accounts for 75% of the firms revenue
Raymark has grown from a less than $1m revenue, 15-man organisation in 1983 into a $50m revenue,
425-man firm mainly due to the commercial partnership with Sentor.
Recently acquired two subsidiaries with complimentary competencies to Raymarks current product
lines. The subsidiaries contributed 15% to Sentors revenue.
The year in view is April 1994, with the contract with Sentor is due to expire by November 1994.
Sentor owns 50% of Raymark. Although Thomas has the casting vote on matters affecting the
Raymarks strategic decisions and operational matters.

INDUSTRY ANALYSIS

Industry Analysis
8

Raymarks products are used as components in the industrial controls industry

The industrial controls industry is a mature market

Industrial controls were used in many industries (manufacturing and services).

Technological advancement and up to date innovation remain a key success factor in the
business.
Traditional products were being replaced by electronics and computer based controls using
operator interfaces such as produced by Raymark.
Companies in the industrial controls market such as Sentor are investing significantly in in-house
computer expertise.

COMPANY ANALYSIS

SWOT ANALYSIS OF RAYMARK

10

Internal

Favourable

Unfavourable

Strengths

Weaknesses

The company is leader in innovation, has a

strong R&D function and therefore able to
adapt in the changing technology market.
People-centred corporate structure has
helped in retaining the best staff
They have expertise in the future of the
industrial controls industry i.e technology.
Good leadership style of the president
Strength in management i.e consistent in
leadership hence they are able to achieve
their long term goals
Faster decision making and competent
lawyers helped them conclude
acquisitions faster.
Recently witnessing growth through
acquisitions and product diversification

Due to its small size, the company

requires financial support to fund
expensive research and
development programs.
The company has limited market
experience as it they do not
interface with customers
They are not known in the market.
Location in Canada might be a
disadvantage as 90% of the firms
customers are in the US
Overly dependent on one customer
They signed an exclusivity
agreement with Sentor which
restricted their penetration into the
US and Canadian markets.

SWOT
11

External

Favourable

Unfavourable

Opportunities

Threats

Potential to double revenue in the

market as products represent the
future of the industry. End user
value of their product was $100m
(twice their revenue).
Opportunity to expand to other
markets outside USA.
New acquisitions has reduced the
dependence on Sentor.
Financial support through lower
interest loan from the Ontario
Government.
Leveraging on Sentors market
infrastructure, purchasing power,
brand name and cash flows.

The company is at risk by being too

dependent on Sentor for 75% of sales
Sentor views the commercial relationship as
a stop gap measure
Reliance on Sentor for market
information/intelligence
Sentor is beginning to compete with the
company.

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KEY CHALLENGE & DECISION

CRITERIA

Key Challenge
13

The key challenge for Raymark is that their continued existence in business is threatened as Sentors
initial objective of the commercial arrangement is for stop gap measure until they develop their inhouse technology.
Raymark is exposed to a single largest customer risk as Sentor accounts for 75% of the firms sales.
They are a weaker party in the partnership arrangement with Sentor, certain clauses in the
arrangement put them at a disadvantage, for example, they signed an exclusivity agreement and
cannot sell to Sentors competitors in North America, their products are brand-labeled for Sentor,
hence they are not known in the industry.
Sentor is beginning to view the companys diversification strategy as a threat and seeking for
opportunities to compete with them in those areas.
Raymark does not have the necessary marketing structures in place to be independent of Sentor.
Too dependent on Sentor for market intelligence, purchasing leverage (to maintain their cost
structures), market recognition and cash flows support.

Decision Criteria
14

The decision criteria for Raymark are:

S/N

CRITERIA

COMMENT

WEIGHT

Business continuity in the

long term

The company needs a sustainable strategy to

help them continue to remain in business in
the long term.

This is a key
limiting factor

Business opportunities/
diversification

Alternative business opportunities to be able

to increase revenue from other sources and
to minimise their dependence on Sentor.

Brand name

The company has a core competence to

provide what the industrial control industry
needs. However they are not visible in the
market as their products are under the
Sentor label. The company needs need to
develop their brand to give them visibility in
the industry and put them in a better
negotiating position.

Decision Criteria
15

The decision criteria for Raymark are:

S/N

CRITERIA

COMMENT

Revenue /Cash flows

To optimise revenue by directly

interfacing with customers. The company
requires cash flows to sustain their R&D
activities in order to continue to maintain
the leading edge in technology to remain
relevant in the industry.

Market structures

To keep up to speed with customer needs

and be able to anticipate the direction of
the market. The company needs better
marketing structures to enable them have
better market intelligence. They also need
to increase their distribution network.

WEIGHT

16

ALTERNATIVES (OPTIONS)

Options
17

Raymark has the following options:

Maintain the current relationship with

Renegotiate the commercial contract

Sever the relationship with Sentor

Sell controlling stake to Sentor

18

Option #1: Maintain current

relationship
Maintain the current relationship with Sentor and ensure that the firm continues to be ahead of
Sentor in terms of technology to remain relevant.
Pros
This option will ensure the company continues to maintain revenue and cash flows in the short
term.

The company can continue to diversify gradually and increase independence from Sentor.

Cons

It does not ensure their long term sustenance. Sentor may terminate their relationship when their
in-house technology unit becomes successful.
They may never successfully develop their brand name or gain access to the market.

19

Option #2: Renegotiate

commercial contract
Raymark may renegotiate some terms in the commercial contract to be more favourable for the
company- such as removal of the exclusivity clause, introduction of non compete clause for Sentor on
Raymarks areas , allowing joint access to customers, using of Raymarks brand name etc.
Pros
The proposed revisions if accepted by Sentor will put the company in a stronger position,
improve their brand recognition and will be able to develop its understanding of the market
and develop its customer base.

Raymark would be free to diversify and expand its business and grow alternative business
opportunities.

Cons

It is not likely that Sentor would agree to the revised terms. Apart from the technological
strength, Raymark does not have any other bargaining power. No one is indispensable, Sentor
may call their bluff if they believe their demands are unreasonable and seek alternative solutions.
This will negatively impact revenue and cash flows immediately. Raymark may not survive.
The companys core competence in technology cannot sell products it needs in the market if
Sentor does not agree to the revision. It will take a long time to replicate the kind of extensive
market structures and brand recognition.
This option does not guarantee the long term sustainablity of the company. Even if Sentor
accepts they would still continue to seek to develop their in-house capability and would not
hesitate to drop Raymark when they are able to.

Option #3: Sever relationship

20

Raymark should sever the relationship with Sentor and develop on its own in the market.
Pros
Help the company discover and diversify products and services.

Limited involvement of Sentor will ensure the company is independent and can build their
brand and be known in the market

Pursue core business where they currently have core competence and compete with Sentor.

Cons

This is an aggressive option. In the short run the company will loose 75% of its revenue and cash
flows and may never be able to recover. It does not resolve the problem of long term sustenance
How does Raymark fund the strategy to develop their own market if their main source of revenue
is lost? As Sentor does not have any obligation to support the company.
The industrial controls industry is a mature market. It would be difficult for new entrants to
break in unless clearly differentiated from competition.
Cannot provide immediate access to market structures. It would take time to develop its market
infrastructure. This would also be costly.

Option #3: Sell controlling stake

21

Thomas should offer to sell controlling stake to Sentor with some conditions such as Raymark
becoming the sole engineering and designs team for Sentor and freedom to chase other businesses
not currently in completion with Sentor.
Pros
With Sentors continued support, Raymark will remain in business in the long run as Sentor
will no longer view them as a stop-gap measure but as part of Sentor.

As a subsidiary, Sentor is obligated to provide financing support in the short and long run.

Continued access to the market structures.

Cons

Sentor might vote against diversification and impede their ability to develop other business
opportunities.
Thomas may no longer have a say in the operations of the business. As the core strength of the
company (creativity and innovation) largely depends on Thomas leadership style. The company
may loose this strength if Sentor decides to leave him out of the new business
Alignment of culture etc. Raymarks corporate culture largely contributes to their core strength
while Sentor has not been able to successfully replicate same possibly because of their culture.
Other issues such as staff retention, integration of businesses, strategy etc.

Decision Criteria VS Options

22

The table below shows at-a-glace which option best solves the key issues / decision
criteria.
Long term
Continuity

Diversification

Brand
/Market
structures

Revenue
/Cash
flow

Innovation

Option #1:Maintain
the current relationship

Option #2: Renegotiate

the commercial contract

Option #3: Sever the

relationship with Sentor

Option #4: Sell

controlling stake to
Sentor

Meets criteria

Does not meet criteria

Cannot determine

Recommendation
23

Option #4, (i.e to sell controlling interests to Sentor) addresses

most of the key issues especially the problem of long term
continuity in business.
It guarantees the needed market infrastructure to sell
Raymarks products, provide market intelligence to ensure
continued innovation.
Raymarks products continue to leverage on Sentors brand
recognition and market goodwill.
Although this means the Steve Thomas the founder will loose his
controlling stake. Nevertheless it is better to have a little stake
in a prosperous and big business than a high stake in a
struggling business.

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IMPLEMENTATION

Risks & Mitigation

25

Although selling to Sentor will help address most of the challenges there are
some risks to this option as follows:
SN

Risks

Mitigation

Loss of controlling stake of

Thomas may affect the firms
corporate culture and
eventually their core strength in
creativity and innovation.

Raymark as part of negotiating the acquisition should

request for clauses that give him power to continue to
oversee the operational aspect of the business. As Sentor
is obviously struggling in this area Thomas will be
clearly able to show them the need to give the company
freedom to maintain their innovation.
He could also ensure he still maintains at least 20% so as
to retain significant influence in the affairs of Raymark.
Or even negotiate a stake in the overall business (i.e
combined Sentor).

Raymarks identity is subsumed

under Sentor. They might be
constrained from continuing
their diversification drive if
Sentor does not support

Thomas and his team would need to clearly demonstrate

the benefit diversification will add to Sentor. In addition
if Sentor no longer sees them as a threat, it would be
easier to see the value for all

Risks & Mitigation

26

Although selling to Sentor will help address most of the challenges there are
some risks to this option as follows:
SN

Risks

Other issues typical of mergersintegration, staff retention etc.

Mitigation
The team of Raymarks competent lawyers should work
out the details to ensure Raymark employees are not
worse off. Regular consultations with staff and
management of both companies is key to the successful
integration of both entities.

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Recap
Selling a controlling stake to Sentor will be a winwin situation for both entities, Sentor would not
need to spend time and resources trying to
replicate the technology where Raymark is already
the market leader. Raymark would be able leverage
on Sentors established structures, resources and
goodwill. Both parties rather than compete will
complement each other.