Case_IBA

IBA: from a start-up to a global leader 1“We are a world-wide provider of innovative solutions in the field of health and well-being. -In each of our chosen markets, we want to be the leader, setting new standards. -We do this by focusing on selected ap plications and by leveraging our expertise in accelerator technology, advanced physics and chemistry”.In May 2004 , Yves Jongen, (Chief R&D Officer) and Pierre Mottet (CEO) reviewed IBA’ strategy and organisation to prepare for a meeting with your Consulting Group. This meeting will be challenging. Different questions puzzled IBA top management2.After years of internal and external growth and the reorganisation led in the late 90thies-How can IBA keep and strengthen its leading positions as an innovative company at the forefront of technologies and benefit from its larger size?- What should be the strategic priorities for the five coming years at the business and corporate levels?- How to “(re)design” the organisation (in particular its R&D activities) to reach these objectives?The second round will consist in integrating your recommendations and making choices at the corporate level. These choices should both support long term development and satisfy shareholders expectations.IBAWith a revenue of 273 millions Euros in 2003 (EBITBA 61 millions), Ion Beam Applications (IBA) is a global innovator in the design and development of particles accelerators, sterilisation and ionisation services, therapeutic and diagnostic dosimetry equipment and the production and distribution of radioisotopes. More than 10% of its revenue is (yearly) reinvested in R&D. With operations at more than 50 sites, spanning 12 countries and three continents, IBA provides extensive expertise and state-of-the-art services and equipment to numerous world markets in healthcare and industry. Clients include top-ranking medical device manufacturers, specialized service centres for the diagnosis and treatment of cancer, and organisations like the United States Postal Service. IBA is a world leader in specialised niches or segments of the industry3.Growth: Strategy and organisationFounded in 1986 by Yves Jongen, IBA is a spin-off from the Catholic University of Louvain-la-Neuve (Belgium). The objective was to exploit a unique expertise in particle accelerator technology (cyclotron) to meet growing needs in medicine and industry. The “Cyclone 30” was a high performance, low cost-low price mini-cyclotron (Medium size-energy) based on a breakthrough innovation.By 1989 sales had already exceeded 11.2 million Euros demonstrating IBA’s capacity to convert fundamental scientific research into key applications. In 1990, IBA was organised along a “simple” functional structure. While initially active in medical imaging, IBA quickly recognised the need to diversify and turned its attention to radiotherapy including cancer therapy. Entry in these sectors was performed through internal development and three major technology partnerships; with CPS (Siemens-CTI) in medical imaging (Positron emission tomography PET), Sumitomo (SHI) in proton-therapy. In 1992, IBA expanded its activities into the industrial sector of sterilisation and ionisation by introducing the Rhodotron, a new type of particle accelerator based on a patented concept of the French CEA ( National Research centre for Atomic Energy). Related diversifications (technologies-products and/or markets) and growth led IBA to adapt the organisational structure (design) by introducing coordination mechanisms. The concern was to keep the entrepreneurial and innovative 1Marc Ingham prepared this mini caseas a support for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Sources: IBA web sites; documents, interviews and articles by M. Ingham. This case may not be used without permission. I’d like to thank IBA’ members and top management for their support and assistance .2 This section is purely fictional.3The industry , that is global in nature, is characterised by the co existence of divisions of Large MNC like General Electric, Siemens, Sumitomo, and highly specialised small and medium sized companies (Like IBA, Scanditronix, CTI) that developed around breakthrough innovations. Innovations (lower costs and price) enabled to expand the use of cyclotrons to new medical and industrial applications. In most cases different technologies are in competition. In the 90thies, the challenge was for smaller companies to be able to keep at the forefront of technological development. Several companies disappeared or were taken-over by competitors.characteristics of the company and to profit by synergies while responding to the needs and characteristics of each business.Diversification in both the industrial and medical sectors has been fruitful, with company sales growing at average of 100% a year between 1996 and 1999. Funds raised on the Brussels stock market from the initial public offering in June 19984 enabled IBA to accelerate its progress by internal growth and the acquisition of 8 companies, (appendix). All acquired companies are leaders in their respective fields and offer technologies and services reinforcing or complementing IBA’s core business.In the early 2000, IBA is a world leader in most of its activities (appendix) based on its unique technological expertise in the use of particles accelerator technology, advanced physics and chemistry for industrial and medical markets. In 2002 industrial applications and services accounted for two third of its turnover. This expertise has been expanded and consolidated through internal development and the acquisitions of complementary technologies.Today, IBA is both an equipment manufacturer and a service provider. Core activities of its value chain cover the design , assembly and sale of advanced high-tech equipments and to provide customers with after sales services. Manufacturing of central parts is sub-contracted. Its products include sterilisation and ionisation equipments for industry and a wide range of high-tech equipments for advanced radiotherapy and radioisotopes production. IBA also owns 37 sterilisation and ionisation service centres and his currently developing service centres in the fields of medical sterilisation, materials ionisation, radioisotopes distribution as well as cancer therapy treatment centres for advanced radiotherapy.The new organisationThe rapid growth (specialisation and diversification) and the necessity to integrate acquisitions, led IBA to profoundly modify its organisation. The “natural” solution was to adopt a “divisional” structu re around a number of strategic businesses under the umbrella of Headquarters5.The reorganisation was initiated in 2000-2001. In 2001 the company had 5 business units ; Ionisation and Sterilisation (I&S) North America and (I&S) Rest of the World, radiotherapy, Radio-isotopes, and Technology Group. Seven “Corporate (support) functions were created: finance, business development, control, communication, human resources, quality and R&D “Group”. Two committees (executive and strategic) were created. In 2002, Business units were re-organised into three major business segments: (1) Sterilisation and Ionisation Services; (2) Radio isotopes Production and Distribution, (3) Technology Services and Equipment. The idea was to build a more effective and efficient structure. The main concerns were to be more efficient, to avoid duplications, to share knowledge and to benefit from synergies and to remain entrepreneurial and innovative. The new organisational structure proved to be (roughly) adequate but some arrangements have to be made and specific problems have to be solved, particularly in R&D. The “classical” difficulty to balance requisite “centralisation” and “decentralisation” arose rapidly.Each main activity has different business and financial profiles.-Ionisat ion and Sterilisation (I&S). Representing the company’s largest business, this segment has applications in medical product sterilisation, food pasteurisation, materials improvement and mail sanitisation. IBA offers four key sterilisation technologies; two of them are generated by the company’s particle accelerators. Operating 39 service centres worldwide, IBA is a world leader in the field. The company entered this business in the 90ties with its Rhodotron developed in co-operation with CEA.IBA increased its presence in the business through the acquisitions of three US companies in 1999: RDI (Radiation Dynamics) Grifith Micro Science and Sterigenics. One of the main objectives was for IBA to become a global service company and to take advantage from recurrent revenues enabling both to expand the activity and to finance long term R&D in its other businesses. Clients are big companies in medical products like Allegiance Healthcare Corp, Baxter, and Alcon Laboratories, agro industry (sterilisation of meat), adv anced materials (semi conductors, polymers, etc…) and more recently the US 4IBA has been listed on the Brussels Stock Exchange since June 1998 (it is part of the BEL 20, the Belgian stock market index composed of the 20 listed companies with the highest capitalisations). Indexed on NEXT 150, it is also listed on the EURONEXT pan-European stock exchange (since September 2000).5 IBA maintains international headquarters in Europe and the United States. The company's registred office is located in Louvain-la-Neuve, Belgium, with certain corporate functions located in the United States, positioning the company to take advantage of U.S. capital markets, and better manage its operations in North America.Postal (anthrax). In 2001 the segment represented 49.1% of the capital expenditures (excl. acquisitions) and 60% of the employment.Table 2 Sterilisation and Ionisation-Radioisotopes Production and Distribution.Known as a worldwide, leading supplier and manufacturer of cyclotrons (specialized particle accelerators) for the production of radioisotopes used in the diagnosis and treatment of cancerous tumours, IBA is also becoming a reference in the field of nuclear medicine services and radiation therapy through its FDG. Focused primarily on the growing PET (positron emission tomography) market, including the system developed with CPS, this business comprises several acquisitions including Eastern Isotopes Inc.®, “Radiomed” (a new generation of radio-therapeutic implants for brachy-therapy. Capital expenditures accounted for 28.5% of the total and the segment represents 13.7% of the total employment.Table 3 Radioisotopes production and distribution-Technology Services and Equipment, the company’s second largest business segment, is IBA’s core business since its foundation. IBA is one of the world’s largest producers of cyclotrons and electron beam accelerators and is among the top suppliers of therapeutic and diagnostic dosimetry. IBA accelerators, considered as the company’s te chnology foundation are used in a wide range of medical and industrial applications such as cancer treatment (proton-therapy and brachy-therapy), radioisotopes production, ionisation and sterilisation. This segment comprises three main business units and/or brands developed internally and/or through acquisitions: - Scanditronix-Welhofer; a leading supplier of dosimetry solutions and radiotherapy resulting from the integration of two acquisitions- IBA proton-therapy producing systems for the treatment of cancerous tumours. IBA Technology group that is the core traditional activity of IBA producing cyclotrons dedicated to medical imaging (PET (positron emission tomography) and SPECT (single photon emission computed tomography) as well as accelerators for ionisation and sterilisation. The company's electron beam accelerator business, which includes the design, development and installation of turnkey systems, encompasses the collective engineering expertise of Radiation Dynamics Inc.®, acquired by IBA in 1999, and IBA's founding technology, developed in cooperation with The Belgian National Institute for Radio-Elements (IRE).This activity accounted for 22.4% of total capital expenditures and 26.5 % of the employees in 2001.The wave of acquisitions led IBA to reorganise its R&D activities. The motives and principles of this reorganisation are numerous:1. To balance the need to differentiate R&D activities leading to breakthrough innovations (fundamental R&D) and R&D activities in the fields of applications but also to avoid duplications. (including a better definition of the role of the “technology group” in the new structure.2. to “merge” resea rch teams that where formerly separated (internationalisation of researchers) and to create “multi-disciplinary” teams” to profit by synergies and to share knowledge.3. To take into account different strategic and organisational priorities and realities faced by “business units”.A new wave of partnerships (2000-2002).IBA made the decision to avoid duplicating competencies that can be found in other specialised companies (distributors or services providers). As a consequence IBA established new partnerships. The main objective for IBA is to develop a new strategic concept of “one stop shopping” for its clients.In 2000 IBA launched an agreement with Ecolab to sell patented systems (particle accelerators) in the US. Ecolab is the leader in the marketing of systems dedicated to the sterilisation and sanitisation in the US food and pharmaceutical industry. This agreement enables IBA to penetrate these markets where Ecolab enjoys a position of global service provider.In April 2000 IBA and MDS Nordion opened a new plant for irradiation in Mexico. The new company, named NGS Enterprise, combines MDS expertise in gamma technology and the high quality service offered by IBA.In October 2000, IBA and the USDA (Agricultural Research Service) signed an agreement for 5 years to compare (in IBA’ sterilisation ad ionisation plant), the effectiveness of Gamma Ray, X ray and electrons dedicated to the control of pathogen organisms.In early 2001, Americold Logistics and IBA launched an agreement to store and distribute food products (that are sterilised by ionisation) for IBA clients. This agreements relies on complementary technologies. Ecolab mastering the distribution of temperature controlled products and IBA provides high tech ionisation and Ecolab its expertise in services.In may 2001, IBA and Coloplast signed a long term agreement to build sterilisation centres based on the technology of electrons beams. The agreement, through the first centre located in Denmark, provides a strategic advance in the sterilisation of wasted medical products. This agreement enables IBA to improve its sterilisation capabilities on attractive and demanding markets. Through the agreement, Coloplast will benefit from IBA’ know-how while IBA will profit from Coloplast capabilities as a service provider.At the same time, IBA and Wanje High Tec Corporation Lltd signed an agreement to install a cyclotron for the treatment of certain cancers in China (PRC). This agreement enables IBA to early penetrate a high potential market.In June 2001 , SCK-CEN (The Belgian Nuclear Research Centre) and IBA signed an agreement to develop a new system based on a radically new accelerator dedicated to future medical and industrial applications including the destruction of nuclear waste. In this partnership, IBA will develop the high power accelerator and SKC-CEN is in charge of developing the reactor and the neutron source.The evolution and the variety of strategic moves and options enabled IBA to become an international group enjoying leading positions worldwide. IBA’s rapid growth is characterised by phases of evolutions and revolutions. At each main stage, IBA had to adapt or transform its organisation to fit its strategies. The main concerns for IBA’ top m anagement are the followingTo set priorities in terms of strategy and organisation at the business and the corporate levelsTo better integrate its acquisitionsTo maintain its innovation capabilities and entrepreneurial culture and spiritAppendix. KEY MARKET SHARE DATAMarketGlobal size ($ millions) IBA share IBA's position Medical sterilization350 34% World and US leader (twice the size of the market challenger) Laboratory> 500 1% Fragmented market, IBA is number 4 Food30 50% World and US leader in actual market of spices and herbs Advanced materials70 15% World and US leader in equipment and servicesPET cyclotron market-- 33% - SPECT cyclotron market-- 95% - FDG distribution USA50 30% Acquisition of Eastern Isotopes Inc. Brachytherapy cyclotron -- 100% Sole world supplier Radiotherapy -- -- World and US leader in proton therapy and high-end radiotherapy Dosimetry 40 30% World leader (twice the size of challenger)Source: IBA web site, October 2002)Appendix : Reinforcing and complementing core business through acquisitionsDecember 1998 Scanditronix , Uppsala (Sweden): Specialist in high end advanced radio equipment.April 1999 Wellhöfer , Schwarzenbruck (Germany): World leader in the complementary field of dosimetry May 1999 Radiation Dynamics Inc. (RDI) , Long Island, New York (USA): Specialist in complementarylow- and medium-energy accelerators for industrial sterilisation and ionisationMay 1999 Griffith Micro Science , Chicago, Illinois (USA) Leader in services for industrial sterilization ofdisposable medical products by with operations in the USA, Europe and Asia.July 1999 SteriGenics , Fremont, California (USA) World leader in sterilization of medical products usinggamma ray, ionisation with operations in the USA making IBA the only company in the world tooffer all complementary technologies in the field of sterilization and ionisation, that is ethyleneoxide, gamma rays, electron beams and X-RayJune 2000 PTCA (Proton Therapy Corporation of America) , Dallas, Texas (USA) This acquisitionconsolidates IBA's strategy to promote IBA proton-therapy systems in the USA and the rest of theworld.February 2001 Eastern Isotopes Inc. , Sterling, Virginia (USA) Acquisition of an 80% share in this companyallows IBA to become a major provider of positron emission tomography (PET) advanceddiagnostic imaging services (medical imaging), in particular production and distribution of FDG(2-[18F] fluoro-2-deoxy-D-glucose) nuclear imaging tracer elements in the USA.April 2001 RadioMed Corporation , Tyngsboro, Massachussetts (USA) Acquisition of a 46% equity stake inthis company which has invented and patented a new generation of linear Palladium-103 (Pd-103)implants for the treatment of prostate cancer and other types of localized cancer in the future(brachytherapy). RadioMed's revolutionary new product has already received FDA approval.IBA (B) : Refocusing on the core business?The rapid internal and external growth based on both specialisation and diversification led IBA to suffer from poor financial performances in several activities. The performance on the stock market was very poor for a long period.In 2003, IBA analysed the possibility to embark in a major divestment programme in Sterilisation and Ionisation -related services and to re-focus on its core businesses: the R&D, assembly and marketing of particles accelerators and the development of radical innovations.This strategic option6has been highly debated. Some observers insisted on the huge financial investments needed to develop these breakthrough innovations and on the possibility to (partly) finance them trough the sale of selected I&S services. According to them, the company has suffered from “overstretching” in the last five years leading to a too complex organisation and an over diversified business portfolio. Others stressed that I&S services enable the company to benefit from a “cash cow” and to ensure recurrent revenues and a more balanced portfolio of businesses. Some argued that huge investments in new plants are necessary in to ke ep IBA’s leading position in I&S services.A decision was made to ask you, as a consultant, to assist IBA top management to answer the following questions.What are the main advantages and disadvantages of each option?What are your recommendations?(str ategic, financial,etc…)How to implement your recommendations?(stages, organisation, etc…)6 This section is purely fictional.IBA in 2004 (epilogue)In 2004 the company started a huge but selective divestment programme from its I&S services. This strategic move started with the sale of different and selected activities and plants s in the most important market: the US. The company continues to produce particles accelerators for I&S and to ensure after sales services of its installed equipmentsEven if it is too early to assess the outcomes of this strategic move and option, it may be argued that it.- has been positively perceived and valued by the stock market,-enables IBA to (partly) reduce its financial burden,-reduce the complexity of its organisation and management。