Introduction
Rattunde & Co. is an East German Based engineering company founded by Ulrich Rattunde and friends in 1990, after the fall of the wall of Berlin. They all are engineers who worked together in state-owned engineering companies and have the skills to develop their own machines and are expert at making all kinds of machines and related software. However, they face several problems until 1998 with regards to financing and sales. The local banks were not ready to loan the company and were ready to loan on personal guaranty to the individual directors. As a result, the first issued new shares and the total shareholders become 6 from initial three founding members. This brings friction and delay in decision making and so they hired an outside general director to speed up the decision making.
By 1996, they also dropped software (electronics) part of their business and focused solely on machines. Then, they secured funding on personal guarantees and decided to develop their own machine for tube cutting with the added features that were not available in any machine at that time. However, the new machine would take six months in development and new business keep coming in as well as form some old clients. They have to make a decision about the future of the company sooner than later. There is a feeling that the general business environment in East Germany is improving and so the sales of Rattunde & Co. will also improve as a result. However, it is also apparent that the company now needs a strategy and focus on brand building as well.
Problem
The company is running out of funding and thus it is difficult to add more resources to the company. Almost all the resources are committed to the new machine development which can turn the fortune for the company. However, due to the general increase in the circumstances, the old, as well as new clients, are coming with new machines and modifications to the old sold machines. The problem for the company is that which course of action they should choose now. Whether they should focus on new machine development or should go for the new business. They also need to decide whether they should go to the Tube fair that would cost them €100,000 or not.
Alternatives
- Only concentrate on the new Machine development and leave any business regarding other machines and go to the Tube Fair.
- Accept any new business and keep the customers, particularly the old customers satisfied as the company has invested hugely in those customers and not go to the Tube Fare to save the cash from burning.
- Add new resources to the company in order to meet the new demand and concentrate the majority of the old resources on the development of the new And not go to the Tube Fair as it would be useless.
Evaluation of the Alternatives
- The first alternative is that the company should focus solely on the new Machine development and leave any business regarding other machines. Apparently, the company has done everything it can in order to ensure success through focusing on the machines the way it is doing until now, before developing its own machine for metal tubing cutting that can also brush, wash, dry and stack the metal tubes. However, the project is still in the inception phase and if everything goes as per plan, it would take at least six months for a machine to be developed. However, it is very likely that it may take much longer. The company is already short of cash and it may not be possible for it tosurvives so long without cash inflow. So, a new product development and leaving the old business model behind seems to be a too risky strategy. Moreover, the company is already in a cash crunch and the machine they are developing is still an idea. So they should not risk cash until the machine comes into the trial stage. At which time, they can start a marketing
- The second alternative is to accept any new business and keep the customers, particularly the old customers satisfied as the company has invested hugely in those customers. While the new machine idea is really a breakthrough idea as there is no such machine in the market before, it seems too much risk because the project is still at the planning stage. Moreover, they should not go to the tube fair as the machine may take a lot longer to develop and the money spent on fair may result in burning cash too early.
- Add new resources to the company in order to meet the new demand and concentrate the majority of the old resources on the development of the new This option seems reasonable. This is because, due to the general improvement in the economic condition in East Germany, the business seems to have started flourishing and this explains the increased orders for the company. This means that even without developing a new machine, another 1996 can happen to the company which may result in fulfilling all its cash shortcomings. However, new product development is also important as it has the potential to change the fate of the company due to being a breakthrough product. Therefore, it is suggested that the company hire new resources to work on the new orders and they can even slow the new machine development by 3 months more to ensure they fulfill all the orders. It can solve the cash flow problem for the company and bring it out of the risk of bankruptcy. This is particularly important as the owners and their family are personally liable for the company’s debts.
Conclusion and Recommendations
General business situation in East Germany is improving and that is why the company has received a lot of new orders. This can potentially solve the cash problem for the company. Therefore, it seems that the second alternative of accepting any new business and keep the customers, particularly the old customers satisfied as the company has invested hugely in those customers and not go to the Tube Fare to save the cash from burning as the company is always facing a cash shortage. But, the new product development is also vital for the company being a potential game-changer in the metal tube cutting industry, therefore it should also concentrate on new machine development. However, the company should hire some new resources and if it cannot effort appropriate number of new resources to maintain the old business and new product development, it should slow the new product development a little in order to retain old customers, get new customers from new order and earn enough profit to ensure long-term viability of the company. Focusing solely on new machine development is too risky if the new machine does not become perfect or developed in six months and the company would also lose important customers in that case.
Reference
Heukamp, F.H andGuinand, C. (2006). Rattunde& Co, Gmbh. IESE Publishing, Barcelona, Spain.
Please place the order on the website to get your own firstly done finance homework help result.
Related Samples