Tuesday, March 9, 2010
A CASE STUDY: Scorpion Cybernetics
As the conference call came to a close, Kyle Tanner rose from the table with an overwhelming sense of dread. This was it, he knew with certainty—the singular moment when history would record another nail being driven into the metaphoric coffin of Scorpion Cybernetics, Inc. The first blow, fourteen months ago, was horrific enough; this one was just more insulting than it was painful. And everyone at the mahogany table seemed know it. Kyle studied the stoic faces of his fellow executives, and he knew that, while no one said a word, most of them were feeling the same way.
“Well, that was bullshit,” remarked Dr. Sergio Ferranini. The slender, grey-haired gentleman lifted the glasses from his face and began to intently rub his eyes. “Did they honestly think we were going to go for that? Scorpion NSS1 is too important to this company. They cannot be asking us to give it up.” He turned to others still seated at the table. “I am wrong here?”
“No, you are not wrong.” The director of operations, Lana Reynolds, quickly spoke to assuage any doubts from the founder and CEO of Scorpion Cybernetics. “There’s no blood in the water, Sergio. We don’t need to give into these sharks.”
“That’s right,” Dr. Ferranini replied, while casually sitting back with a smile. “We are not dead yet—not even close to it.”
“So what else can we do, sir?” another person asked the leader of this company.
The question was sincere and simple enough, but it still provoked a moment of intense silence. Everyone was looking to Dr. Ferranini for an answer, but there was not one. Instead, he seemed to be pondering, his face expressionless and his eyes fixed on a blank note pad before him.
“We go back to work. That’s what we do,” Lana Reynolds assertively interjected her own suggestion. And with that, rather unsurprisingly, came an approving nod from Dr. Ferranini.
From his own vantage point, Kyle could not believe what he was hearing or that this was happening. Scorpion Cybernetics was a company destined to lead the way into a new age for neurotechnology, but with one fateful call, it was now, instead, on the cusps of its demise. This company of the future was being undone by the same type of managerial missteps that hobbled any number of notable companies of the past. Surely, though, Kyle reasoned, the other leaders of this enterprise were collectively intelligent enough to understand that. “So, why the hell are we doing this?” he asked himself, as he exited the conference room and returned to the confines of his office. “Why the hell are we going to let pride destroy this company, after everything it took to build it?”
Indeed, much had gone into building Scorpion Cybernetics, Inc. For nearly a decade, Dr. Sergio Ferranini and a small team of software wonks had been working with biologists from universities around the world to develop a fusion between the brain and neurological system of a human body, at one end, and strains of non-organic nano-receptors and sensors, at the other, all linked to a tiny computer array embedded into the spine of its host. The doctor had theorized that the first step to building a cybernetic infrastructure would have necessitated such a symbiosis between the human body and the technology, and unlike other scientists in this nascent field of study, he and his team had focused almost exclusively on the development of complex software tools. The ultimate result of their efforts had been the Scorpion Neurological Symbiotic Systems, Version 1—or the Scorpion NSS1, as it came to be known—an operating system that had allowed for a virtually seamless interface between flesh and fiber optics. It had been an ingenious tool, deciphering neurological messages about voluntary and involuntary movements, and instantly completing the relay of those commands through the nanotechnology on the other end. The scientific community and the general public had celebrated Dr. Ferranini’s work, calling it the dawn of neurotechnology, and soon, the venture capitalists had come knocking, specifically Fountainbleau Capital and Davenport Heller & Co. Together with Dr. Ferranini at the helm, they had modeled America’s first commercial cybernetics enterprise.
Sergio Ferranino had always been a true scientist, to be sure, and though brash and determined, he could have never been mistaken for a businessman. Therefore, in order for Scorpion Cybernetics to work, it had needed seasoned professions in management, finance, law, and marketing. That fact had led the managing partner of Fountainbleau, Carissa Jenkins, to approach Kyle Tanner with the position of finance director three years ago. Though he had been initially skittish about the prospect working for the start-up venture, Kyle had found something intriguing about its business model. Here was a company that promised to mitigate paralysis, for example, by retrofitting the body with a non-organic nervous system, and it was also affording amputees new hope for normal lives with its light-weight extremities made of plastics and metallic alloys. At the time, Kyle had figured that, because Scorpion Cybernetics was years ahead of any competitors in this space, the prospects for market dominance had been huge, and that, if they could have stayed ahead of others, that market share would have guaranteed profitability sooner. The goal for the company, as this financier had articulated to Jenkins and, later, to Ferrarini, had been to keep margins relatively high, while stressing economies of scale in production and making aggressive pushes into new markets. And with that strategy accepted, Kyle had signed own as the director of finance, just one day before the operations director came aboard and three weeks before the Department of Veterans Affairs publicly expressed an interest in the new technology.
Scorpion Cybernetics had been an immediate success. After its venture-capital partners had agreed to a second round of funding, at $56 million, the company had grown its Woodlands, Texas-based operations to 65 employees. While much of its major manufacturing had been performed in Asia, Dr. Ferranini had instructed his domestic team to focus squarely on the interface development and computer systems. Any issues regarding the outsourced production had been left to the director of operations and her lieutenant, neither of whom had ever felt the need to report any matters of concern to the CEO. That had never seemed to be a problem to anyone, for as long as sales had continued to grow at 33% per annum, with eighty percent of sales derived from government program. And even the European markets had begun to open up, though not without some social resistance in places like Paris and Rome and Istanbul. Nevertheless, for Scorpion Cybernetics, everything had been exceedingly good—but then came June 4, 2017. On that morning, two sentences had changed Scorpion Cybernetics, forever.
It has been a bright Sunday morning in Miami, and according to all reports, flights had been moving into and out of the international airport without compunction. The Miami to JFK flight, piloted by Captain James Cooper, should have been no different. With 146 passengers on board, the plane had lifted into the skies over the city, promptly, at 9:30 EST, and the ATC team on duty had reported that the plane’s diagnostic-communications sensors had relayed no trouble. But surprisingly, within 1.8 minutes of flight, the plane had begun a steep jog to the left, while descending at a rapid speed. Before controllers could have even uttered a word, they had heard Capt. Cooper utter some very ominous ones. “Oh my god!” he cried out. “The arm isn’t working!” And with that, the plane had went down in the Pembroke Park community, destroying two city blocks of homes and retail space, before bursting into a huge fireball at Interstate 95. The initial reports had suggested that 180 people were killed in the crash.
Before that, no one at Scorpion Cybernetics had seemed moved by the fact that their products had gained such immediate social acceptance. Perhaps that had been because a large number of badly-wounded soldiers had begun to return from the nuclear assault on Kabul and the fall of Islamabad, and these cybernetic components had seemed to help so many of them return to everyday lives. Few had dared to make such denunciations, because they would have faced the wrath of the mainstream; the company, surprisingly enough, had expended very little of its own PR capital to defend its image. To illustrate that point, after a prominent evangelist had called Dr. Ferranini’s work “the irrefutable mark of the beast”, one U.S. senator from Colorado had replied, “That any man would say such words only attests to his ignorance. Too many men and women have served this country to be deprived of a normal life. The people at Scorpion are given that life back to them.” And so, as the Scorpion Cybernetics team had continued to hold their heads up high, they could not have been aware of the fact that Captain James Cooper had been among those deserving individuals.
Following weeks of investigation, the NTSB had announced that there was no evidence of a systems malfunction on the plane, itself, and that now its work had to shift to the pilot’s cybernetic right arm. Though officials had not openly stated it, they had suspected that, somehow, the host’s computer system had failed to respond to his commands. That could have also meant that the Scorpion NSS1 had crashed—something that had never before happened, Dr. Ferranini had begun to stress. Unfortunately, there had been no way to know for certain; too little of Capt. Cooper’s CPU had remained in order to perform a proper analysis. Nonetheless, a fickle public had come to its own conclusion—and not a good one for Scorpion Cybernetics.
Almost immediately following the NTSB announcement, the once-celebrated neurotechnology had now been casted negatively. Though no other tragic incidents have been ever reported, people had become truly suspicious, and had even taken to calling recipients of cybernetic components “the borg”. Reports of job discrimination had grown widespread, and in Anaheim, school children had attacked a young girl allegedly because of her cybernetic legs. So troubling had the developments become that Congressman David Sullenger of Kentucky, a powerful politician chairing the House Ways & Means Committee, had called for hearings on what he had dubbed “cybernetic dangers”, and he had summoned to the floor the representatives from the FDA, the Dept of Veteran’s Affairs, and even the CEO of the company, demanding to know what risks Americans faced. The entire process took three months, and at every turn, Dr. Ferranini stressed that, to his knowledge, the products were “perfectly infallible”. All the while, public sentiment had grown colder; sales of the company’s cybernetic components had plummeted, as government agencies and private insurers, alike, summarily had suspended any new payouts of the equipment. In short, very quickly, this had seemed to be the end for a pioneering, American company.
The venture capitalists from Fountainbleau and Davenport Heller, the two firms holding a 40% equity stake in Scorpion Cybernetics, had thought to move decisively. They had pressed Dr. Ferranini to hire a team of consultants to assess the prospects for the company, and after two months of study, this team had predicted that the sales lull would have substantially debilitated Scorpion Cybernetics, and that the fallout from the plane crash had had, quote, “no likely, near-term resolution”. Therefore, they had developed a strategy to revamp the company. “With sales as depressed as they are, and understanding that they will remain this way for the foreseeable future,” the lead consultant had begun his presentation, “Scorpion Cybernetics should consider jettisoning its manufacturing operations, and prime its efforts in research and development.” To illustrate their point, the consultant had pitched the prospects of a licensing deal with Bionix Industries, the Seattle-based division of a defense-contracting giant. Bionix had wanted access to the Scorpion NSS1 operating system, in order to build fully-armored, Web-integrated battle suits for American and British soldiers. And while the idea of this arrangement had been troublesome to Dr. Ferranini and a few others, Kyle Tanner and the VCs had loved it.
Looking back on all of these events, Kyle could do nothing more than sigh. He firmly believed that the consultants were correct, but others in leadership did not share his opinion. Dr. Ferranini, for example, simply did not want his dream to die, and he saw the Bionix deal as a perversion of that dream. The directors of operations and sales also had vested interests in maintaining the status quo for as long as they could, and so, they aligned themselves and prodded their leader to stand up to his financiers and the consultants. Indeed, from today’s three-hour conference call with the venture capitalists, a call wherein he had to deliver the worst quarterly numbers and the bleakest projections in the company’s existence, and wherein Dr. Ferrarini flatly rejected “any death sentence disguised as a deal”, Kyle knew that a civil war was about to be fought within Scorpion Cybernetics. Ironically enough, however, he did not expect it to begin so soon.
As Kyle walked passed his secretary, the young woman informed him of a call from Carissa Jenkins holding on Line #1. The weary CFO entered his office, took a seat at his desk, and answered the phone. “How can I help you, Carissa?”
“Well, this is about how we are going to help you, Kyle,” the tough, but feminine, caller from California explained. “Fountainbleau is concerned about this investment, and that’s the same from the guys at Davenport Heller. We are not eager to lose here—not like this. We’ve decided to take action.” With that, she instructed Kyle Tanner to listen. Within a week, the venture capitalists were going to call a meeting of the company’s board of directors, she went on to explain, and during this special meeting, they were going to force Dr. Ferrarini out as CEO. Along with this change, other key managers were going to be asked to resign, and the VCs were going to appoint a new leader to the company. “I want to know that you are going to stand with us, that you will vote your shares with us,” she said. “Can I have some indication of that now?”
Kyle Tanner sank into his ergonomic chair and paused for a moment. Though he felt that this was potentially the right move, he was stunned by the fact that it was about to happen so quickly. Then he looked around his office, and his eyes stop on a photograph of his father, a man who spend years as a career firefighter. It was then that this executive realized, perhaps for the first time, that uncommon action was necessary during times of challenge, times just like these. “Okay,” Kyle began with no further deliberation, “I’m in.”
1. Identify some of the mistakes made by the leaders of Scorpion Cybernetics.
2. Should Dr. Sergio Ferranini be removed as the chief executive of this company? If so, why? If not, where do you feel most of the blame resides for this company’s woes?
3. How should the company address the negative stigma being associated with its products?
4. What types of strategies would you deploy to turn around Scorpion Cybernetics?
Please post all of your answers in the comments section of this blog. Remember, there are no wrong answers; there are just your answers...Stay tuned for Part Two.
Case crafted by Gary C. Harrell. © 2009. All rights reserved; Axiom Strategy Advisors, LLC.
Posted by Gary C. Harrell
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