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OKIN ADEIFE

CASE STUDY: NANOPHASE TECHNOLOGY

SUBMISSION DATE: 18 TH FEBUARY 2010

WORD COUNT: 1467

MODULE LEADER; OLGA MOUROUTI

1.

Review the business model of Nanophase. What are the key elements of the model?

Nanophase Technologies Corporation is a leader in utilizing nanomaterials technologies to provide nanoengineered solutions for the application of multiple industrial products (Nanophase, 2010). A business model can be described as a way of doing business. It describes the structure of a product, services and the way information flows and the task of participatory parties (Daniels et al, 2009). The aim of Nanophase is to understand and identify customers unmet needs and render outstanding value to help them achieve this (Nanophase, 2010). In a bid to achieve this aim, the company has formulated its business model with an intensive emphasis on achieving excellence in developing and maintaining strategic partnerships. The key elements of the company’s business model entail its various modes of revenues and distribution strategy. Its mode of revenue involves achieving customer solution and organizing a business development team to identify and solve problems with nanotechnology and also market these solutions directly to customers while developing a long term relationship with customers (Lamont, 2002). In creating solution, the company has used the business development team to identify markets that could use its technology in improving their functional performance. Hence, its markets segments includes; animal hygiene, automotives, electronics, exterior coating, hard surfaces, personal care, plastics, textiles and architectural windows (Nanophase, 2010). Furthermore, they evaluate these markets by using decisive factors such as potential for revenue, the length of time it takes to develop products, deliver them to the market and whether the product developed for a specific application could be modified successfully for sale in another market. To enlarge sources of revenue, the company also engages in research, manufacturing, technology licensing and forming strategic alliances. To achieve more customer solutions, Nanophase realized that its customers are from different markets, hence the need to apply different processes to

customize the nanocrystalline particles for customer’s application or undergo additional surface engineering to meet the different requirements of customers (Lamont, 2002) Another element of the company’s business model is its sales and distribution strategy. Their mode of international and domestic sales is through skilled and qualified agents and distributors that serve selective markets. This is because of their expertise in selective markets, thereby making prospective consumers aware of nanoparticles and its diversified application. This enables Nanophase a prompt and cost effective approach to improve its sales strategy (ibid).

In reviewing the business model of Nanophase, there are some advantages and disadvantages the model has. By engaging in intensive research and development to reduce manufacturing cost, Nanophase has reduced variable manufacturing cost from 40% to 65% and a reduction in manufacturing staff by 25%. This has also afforded the company a chance to produce a new trademark called Nano Arc synthesis, which has a low manufacturing cost. However, the disadvantage is that the business model is quite expensive and time consuming (ibid).

  • 1. Summarize the marketing strategy used by Nanophase. What is the role of collaboration and relationship marketing in the strategy? What problems (if any) do you see in the strategy? The marketing strategy of Nanophase can be summarized using Ansoff’s matrix. Ighor Ansoff presented a matrix that portrays a corporate growth strategy (Richardson & Evans, 2007). It is illustrated below.

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Fig1. Ansoff’s matrix

The marketing of strategy of Nanophase is designed in a vertical direction. The company uses existing product to develop strategies to penetrate a given market, this is done by evaluating the market and identifying the needs of customers so as to expand the customer base. They also use existing products to identify and develop new market segments and create ways to distribute the products to the new market (Lamont, 2002). On the bases of achieving this strategy, the company engages in certain promotional and product activities. The promotional activities entail ways to inform existing and potential customers about the company’s existing and latest innovation and services via the company’s web page, trade journals, telephone inquiries, technical conferences, allowing prospective customers conduct experiment with little research samples and so on (ibid). The product activity involves using technical and management team to identify the unmet needs of customers and tailor their products towards

fulfilling those needs. They use nanotechnology to improve the quality of nanocrystalline particles and their products such as aluminum, zinc, cerium, bismuth and antimony (Nanophase, 2010).

The establishment of collaboration and relationship marketing (CRM) in the strategy of Nanophase is to form a chemistry with customers by interacting with them in order to identify their needs, determine if they can be achieved via nanotechnology and formulate solutions to satisfy this needs. The CRM also enabled Nanophase increase engineering, manufacturing, sales representation and commercialize its business by forming strategic alliances with agents that are experienced and knowledgeable in specific markets and geographical areas. Hence the overall roles of the CRM are to identify and retain new customers and multiply the company’s sales (Lamont, 2002).

The problem with this strategy lies in the process of using management and staff to achieve collaborative relationship with consumers; it is expensive and consumes time. In a bid to build business development and commercialize business, high expenses was incurred from 1993-2001. Nanophase depends largely on some particular customers. For example in 2001, company’s largest customer delayed receipt of shipment of xincoxide powder. Celox Ltd also failed to execute a purchase contract, which made the company loose a substantial amount of its revenue (ibid). According to Porter’s five forces, a customer has power over a supplier when it purchases a large proportion of the seller’s business (Aaker & McLoughlin, 2007). Hence, Nanophase has to broaden its customer base.

2. What strategy do you think a competitor might use to compete against Nanophase?

In analyzing the strategies that competitors might use to compete against a particular company, it is pertinent to understand the resources and competencies of the subject company and why it is difficult to compete with

them(ibid). Initially, Nanophase started out as a research and development unit and got most of its revenues from research contracts from the Government. Afterwards, it transited operations into a commercial enterprise, which made it the first mover into the industry and thus a market leader. The company has remained at the forefront in its industry because of its ability to protect its intellectual property. They have licenses covering their technology and manufacturing processes and has 38 U.S and foreign patents. The company serves a wide range of markets because of its reputable products and its business model of marketing directly to customers, licensing and forming strategic alliances creates value for their business (Lamont, 2002)

The strategies that competitors might use in competing will be based on the areas in which Nanophase is weak and the overall analysis of the market. In analysing the market (Aaker & McLoughlin, 2007). Although Nanophase has been the market leader for a long time, there is threat of new entrants because larger chemical companies like Nanomat, Oxonica Ltd that are recognized globally are getting involved in manufacturing and marketing nanoparticles (Lamont, 2002). Existing competitors such as Carbon Corporation Bayer AG and so on are larger and more diversified than Nanophase, they have greater technical resources and larger R&D staff, greater manufacturing and marketing capabilities. Hence, they could discover alternative production process that will be more efficient than that of Nanophase (ibid). Nanophase depends largely on some customers, this empowers customers as they could integrate backwards and make other competitors their sources of supply. Nanophase sells to a variety of customers in diverse markets, thus it has the relative power to influence price. However, various companies have began to enter the industry, this may in turn cause supplier constraint for Nanophase as these new suppliers could find and use raw materials that are less

expensive thereby creating a cost and price advantage while selling at a lower price.

  • 3. Is Management a strength in this company? Explain.

Management is strength in Nanophase. From the profile of the President and CEO of the company- Joseph Cross, it is apparent that in the past, he has been a director and manager of several technological and manufacturing

companies (Lamont, 2002). Other members of the management team are from similar industries and also have previous functional experiences such as in sales, distribustion, and manufacturing (ibid). The management team is also made up of outside board of directors. In addition, they are well experienced in diverse areas and offer technological and management recommendations to the company. According to a study by Richard and Shelor (2002), heterogenity and size of top management team increase sales growth and overall perfomance of the company. Hence, from the case study it can be seen that the heterogenity of the company’s management team has enabled the company hasten its transition into a commercial venture and has increased its overall profit.

REFERENCE

Aaker, D., & McLoughlin, D. (2007). Strategic Market Management (European Edition ed.). England: John Wliey&Sons, Ltd.

Daniels, J., Radebaugh, L., & Sullivan, D. (2009). International Business Environments and Operations (12th ed.). New Jersey: Pearson Education.

Lamont, L. (2002). Nanophase Technologies Corporation.

Nanophase.(2010).

Retrieved

http://www.nanophase.com/default.aspx?

Febuary

12th,

2010, from

Richard, O., & Shelor, R. (2002). Linking Top Management Team Age Heterogeneity to Performance: Juxtaposing Two Mid-Range Theories. International Journal of of Human Resource Management , 13:6, pp 958-974.

Richardson, M., & Evans, C. (2007). Strategy in Action Applying Ansoff's Matrix. British Journal of Administrative Management , Issue 59, pp i-iii.

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