You are on page 1of 18

Major Research Project

Integrative Strategy Case Study

Integrative Strategic Case Study

Page 1 of 18

Not only does the process produce a low carbon fuel. To achieve the desired commercial success. strengthening global legislation and public pressure around carbon emissions and global warming. Once commercial success is deemed to have been obtained (positive cash flow) then the firm should review growth strategies through IPO or debt funding. Additionally the utilisation of the industrial waste gases reduces the carbon emissions from industry in line with public preference and increasingly tightening worldwide legislation. Integrative Strategic Case Study Page 2 of 18 .Executive Summary LanzaTech has in its grasp. Gaining market confidence and penetration through client partnerships in the short term is seen as a lower risk option to ensure sustainable viability of the technology and the company. The significant challenge facing LanzaTech is the transition from laboratory and pilot plant trials through commercialized full scale success that provides revenue streams back into the company. LanzaTech has a significant competitive advantage over its competitors and has changed the shape of the gasification process thus creating a new niche market. there is no revenue stream other than from LanzaTech investors. patented technology that is a potential game changer in the biofuel industry. Sean Simpson should step down from the Board of Directors to concentrate on maximising the technology potential within the allotted timeframe. LanzaTech is in an enviable strategic position to take advantage of increasing oil prices. While the technology is in its infancy. This approach will support the LanzaTech vision to be the “Dominant technology provider in the industrial bio-commodities market”. Appointment of a VP Business Development North America is a strategic recommendation to tap into a large developed market and fits well with the subsidiary company in the USA. the current patented gasification process development completion timeframe of two years is recommended along the addition of two independent directors with proven success in market penetration and growth of new technology. but it does so by utilising a low cost supply stock (industrial waste gas) that enables ethanol production at very competitive rates.

USA and has established a partnership with Baosteel in China. The company has established a different technological process from competing organisations within the bio-fuel industry through production of ethanol without the ethically challenging need for land based crops or the high hydrogen gas content as required by closer industry competitors.Business Description LanzaTech is an entrepreneurial company at the leading edge of new technology developing a process by which waste industrial gases from industry can be transformed into usable ethanol fuel. To date the company has obtained investment grants from government agencies and latterly from investment venture capitalists along with some smaller investments from various individuals. The company originally started in Auckland. 2010). New Zealand and now has expanded operations into California. The company is yet to return a profit and cash flow is primarily outward thus presenting the biggest challenge for the company to commercialise the technology to produce positive cash flow. two of whom are part of the management team namely the Chief Scientist / Co-founder of LanzaTech and the Chief Executive. Each of the investors will have differing reasons for investment and thus will be seeking differing returns and exit strategies. A pilot test of the technology and process has been established at the Glenbrook Steel Mill since November 2008 (LanzaTech. A board of directors has been established with four directors. The challenge for the company is to transition from the government grants and venture capitalist funding to become a commercially sustainable business generating cash flow and returns for its investors and provide growth for the organisation. Integrative Strategic Case Study Page 3 of 18 . This will produce a complex path forward as the company strives to satisfy the requirements of its investors. The process developed is patented and the company is seeking to commercialise the product and generate revenue. This gives the company a competitive edge that must be capitalised upon in order for the business to succeed.

has in recent years. While this provides a differentiation to LanzaTech competitors. The process they have developed which reduces carbon monoxide emissions from industry (Steel mills. it is not the primary driver within market forces. The biofuel positioning map (Appendix One) demonstrates the relationship between LanzaTech gasification ethanol production and that of other energy or fuel sources. The LanzaTech gasification process does not require high levels of hydrogen gas and therefore differs to existing gasification technology.The Market The market is which LanzaTech is competing. This preference however must be supported by government incentives such taxes and carbon credits to induce change. It could be argued that there is a general consumer preference in the developed world for a reduction of carbon emissions due to global warming as demonstrated by a Mellman Group poll of 1000 voters in the USA (Pew. The gasification process developed by LanzaTech is new technology and currently the company will be enjoying the benefits of a Blue Ocean Strategy through creation of a niche market within the biofuel industry. coal gasification etc). A PESTTG analysis (Appendix Two) of the biofuel industry demonstrates that the two leading forces shaping the environment are political and technological. 2010) where 82% of voters favoured action to reduce carbon emissions. Competitors also developing similar technology and it may be first to market advantage at this early point of the technology adoption curve (Appendix Six) for LanzaTech. so one could argue that LanzaTech also resides in the carbon reduction business potentially competing within the carbon credit industry. This technology also challenges the argument that LanzaTech resides in solely the biofuel market. These economic incentives are why the political element of the PESTTG analysis is elevated alongside technology advancement as the primary drivers Integrative Strategic Case Study Page 4 of 18 . The biofuel market is diverse with numerous sources for alternate fuel development of which bacterial ethanol production from gasification is just one. received significant investment worldwide as the effects of global warming and limited fossil fuels have driven a need to find alternate fuel sources and reduce the carbon footprint across humanity.

LanzaTech patented technology gives them a head start on their competitors and is effectively the result sought when adopting a blue ocean strategy. There are reduced ethical issues to resolve unlike those producing ethanol from crops which tends to drive up the cost of the raw materials and consume arable land for biofuel production rather than support food generation. Appendix Four demonstrates where LanzaTech sits in the biofuel industry and then the Porters Five Forces argues the attractiveness of the industry as being medium. As the technology develops in the biofuel and carbon reduction industries. The financial backing and Board of Directors membership by venture capitalist Vinrod Khosla is strategically a wise move by the founders of LanzaTech.identified in the market. Khosla has secured a controlling interest in the company and his Integrative Strategic Case Study Page 5 of 18 . While the biofuel industry is competitive due to significant investment and growth in recent years. Potentially the strategic position for LanzaTech is far more attractive that that for the industry in general. As the major shareholder. LanzaTech are somewhat shielded from this rivalry while they retain a technological advantage over their competitors. Use of his expertise on the Board of Directors is key to driving LanzaTech through to commercialisation of the technology developed. The patented process does not solely produce an ethanol biofuel but it also reduces the carbon emissions where the process is applied. Khosla brings with him an impressive success record and a dedication to the biofuel industry as can be seen through the investments made via his venture capitalist company Khosla Ventures. the game constantly evolves as we can see today with LanzaTech at the forefront of this change. Competitive Analysis LanzaTech is in a unique position with the development of new technology providing a significant competitive advantage over their competitors in the niche market of ethanol production from waste industrial gases. The Porters Five Forces industry rivalry is indicated as ‘high’ simply due to the rapid industry growth rate and the anticipated growth for future years.

The ethanol revenue stream can be derived through direct sale of the ethanol or if utilised within the client’s plant thus reducing addition spent on further energy requirements. The company is seeking to commercialize the LanzaTech patented gasification process for ethanol production and the number of board members should increase to seven – the maximum number in accordance with LanzaTech’s constitution dated 19 March 2010. reduce carbon emissions and provide multiple benefits from environmental responsibility through to reduced carbon taxes that may apply. While the two managers will have the capability to bring accurate and timely information to the Board of Directors. Additional directors sought must bring experience and success in providing governance for the transformation of patented technology into commercial success. two are entrenched in the company management structure which introduces some significant agency conflict. sustainable and profitable solution that reduces industrial greenhouse gas emissions and provides an additional revenue stream from the ethanol produced. the decision making process that evolves is Integrative Strategic Case Study Page 6 of 18 . Organisational Structure The current Board of Directors has four members of whom.director leadership lifts LanzaTech to be a genuine market threat to any potential competitors. The strategy I recommend to make LanzaTech a successful company is to continue the product development and accelerate partnership programs with clients. The four member board in place today while being experts in their own right may not have the required contacts or experience to tap into the market at such a critical growth phase of the company. Two of the directors are part of the management team – CEO Jennifer Holmgren and Co-founder / Chief Scientific Officer Sean Simpson – both are likely to have Board of Director’s decisions influenced by the management positions held. The partnership strategy has already begun but the company must actively pursue further partnerships to obtain market penetration and provide further proof to the market that LanzaTech has a viable.

at least two of the three additional directors allowed by the LanzaTech constitution should be appointed for a minimum period of six months prior to Sean’s removal as a director. It may be that as part of LanzaTech growth into other countries. A seven member Board of Directors will provide greater continuity and stability as directors are appointed and removed per LanzaTech constitution. holds controlling interest in the company. recognised directors with experience in those countries may be appointed to the LanzaTech Board of Directors for a defined period of time to provide suitable governance. Leverage of this experience should be established as soon as possible with Khosla Ventures likely to have an exit strategy plan in place. The history behind Vinrod Khosla and the current portfolio suggests a vast amount of experience is available from within Khosla Ventures and should be utilised where possible to support LanzaTech through to commercial success. Five years into the venture and the largest revenue to date is $3. show a number of issues that require attention. Additional to the seven directors. the board should consider appointing up to two additional independent directors allowed for in the constitution to provide specific governance leadership if and when required. A recommendation from me is that Sean Simpson step down from the Board of Directors leaving LanzaTech CEO Jennifer Holmgren as the management representative.1m due to Integrative Strategic Case Study Page 7 of 18 .unlikely to be conducted at arms length due to the agency conflict in play. A key question current and future directors need to keep in mind “Does the LanzaTech patented gasification process have commercial viability” Almost 67% of LanzaTech is owned by Khosla Ventures II and as the majority shareholder. Financials Analysis of the financial statements shown in Appendix Three. Ability to generate revenue at this early stage of the company is always going to be of concern and the negative cash flows demonstrate this. This will allow Sean to concentrate on producing the required results as Chief Scientific Officer within the company. To ensure board continuity however.

The venture capitalists will be seeking a return on investment and will take risks in business that many others may not contemplate. the company will be in a good position to contemplate IPO. If the partnerships have been successful then an IPO may be attractive to increase funding availability for accelerated market Integrative Strategic Case Study Page 8 of 18 . Options exist for the company to fund future development through further equity or through debt. Additional to this is the actual value of the R&D that has been capitalised and I doubt capitalised R&D would be accepted security for any debt funding. It does highlight a risk for the company that Fx could have dramatic impact on cash flow and if the business does proceed to take up large scale projects or ventures. then hedging foreign currency should be considered particularly where Fx volatility is significant or projects run over lengthy periods of time. The longer the business goes on without turning any profit from successful commercialisation of the LanzaTech gasification process. the higher the business overheads will push the break even point. Given the elevated risk involved efforts to commercialise ground breaking technology. It is this avenue that LanzaTech should continue to pursue while establishing an understanding from Khosla Ventures on the intended exit strategy from LanzaTech. The LanzaTech constitution details rights and privileges of the investors in a well structured legal document. Cash generated in the business to date is primarily though issues of shares and some government grants. Once a number of partnership ventures have been established.favourable Fx but this gain could just as easily have gone the other way. risk is shared and capital investment required by the partnering company. This will place additional pressure to the financial performance of the company to provide a return. my recommendation is to remain funding through equity. Through use partnerships to get the technology into the market. The limited funding available requires LanzaTech to form partnerships with clients to assist with both funding of new ventures and to establish commitment to each project. To fund through debt will add pressure for the business to generate cash flow in the short term to meet interest payments despite the tax shield available for interest repayments. The breakeven point of the company is some way off with expenses over running revenue by a considerable margin.

then an exit strategy must be identified by the business owners along with the directors fiduciary responsibility to ensure the company remains solvent when trading. The financial reporting must also include the write down of any R&D that cannot be commercialised through failing to meet the objectives detailed in the LanzaTech constitution. Robust reporting and measurement processes through to the Board of Directors will provide the directors the necessary transparency for good financial management. The government grants previously received by LanzaTech will likely preclude any such move. When the time is right for an IPO it should be based upon the LanzaTech constitution with an underwriter of the IPO identified to sell and/or promote the offering. I argue that to move the operations to another country for tax rate benefits or closer to primary markets is a low priority at this point in time and should not be considered. Integrative Strategic Case Study Page 9 of 18 . The company is currently domiciled in New Zealand with a subsidiary based in the USA. potential takeover bidders should be identified. The LanzaTech constitution details the rights and obligations of owners and should such an occasion arise. Strategically these countries may not offer the lowest tax rates and in particular for a venture that is a start up operation.penetration. Should the partnership ventures fail to provide the desired returns to the business as either financial or market penetration. To target an IPO at this early stage risks investor heavily discounting the stock value due to risk assessment and thus underachieving required funding. The company must review its receivables and payables processes to reduce risk of financial mismanagement. The financial records show two receivables write off’s in recent years which could indicate a lack of financial process management. likely to be a competitor or a business looking to vertically integrate in the supply chain.

take over or sale of IP will need to be considered. This should be scheduled six months after the appointment of at least two additional independent directors detailed in the organisational development. Potential clients will look at the ethical behaviour of LanzaTech so the Board of Directors must ensure company ethical policy is documented and promoted throughout all levels of the business.Development / Action Plan There are three critical areas for the LanzaTech development plan to address until the business begins to experience a continuous income from commercialisation of the patented gasification process. Key to successful commercialization will be a Integrative Strategic Case Study Page 10 of 18 . R&D should look for adjacencies where the same technology can be utilised for increased application and revenue generation. Without the product – the company does not exist. Market Development is an opportunity for the company to control though the patented technology developed and a congruent ethical approach adopted through the company.Market Development . A target deadline of two years should be enforced to prevent increasing funds being consumed. the company will be able to reach its goal of commercial success with the technology and secure the required returns for its investors and growth for the company. Sean Simpson should step down from the Board of Directors to enable the product development to be completed with the required timeframe. Once commercial success has been established. If the technology developed cannot be commercialized within this time frame. Chief Scientific Officer and Director. The additional independent directors must be appointed to with a background of providing success in business market penetration and market share for new technology. Product Development . Product development has been the key area of investment to date and must continue to drive through to commercialization of the technology. Approval to proceed with this plan will be required from the Board of Directors.Organisational Development Through addressing each of these areas. Co-founder.

The appointment of a VP Business Development North America will create a presence in a market with significant client potential. Organisation Development starts with the search and appointment of two independent directors to increase the board governance experience at such a critical development phase of LanzaTech. The directors must be appointed with proven success in market growth of new technology.differentiation strategy and the creation of the perception that the LanzaTech process is unique. This will need to be coordinated with the product development and the partnership programs established. In the short term. Appointment to the management team of a VP Business Development North America is required to manage the strategy development and putting the plan into action in a region that has a potential client base. partnership formation with clients is the low risk strategy through until commercial success is obtained. IPO or funding through debt should then be assessed to take the company to the next level and provide the necessary returns for investors. Robust financial reporting through to the board must be examined within the business – any write downs or potential write downs should be bought to the Board of Directors attention. People do business with people and placement of this role within the North American subsidiary company is recommended. Word Count: 3211 Integrative Strategic Case Study Page 11 of 18 . Sean Simpson should stand down from the board six months after the appointment of the independent directors to allow him to concentrate on maximising the potential of the patented technology.

pewglobalwarming.html Companies Office. (2009). Retrieved from http://www.com/w/page/33355813/FrontPage Pew Environment Group.pbworks. (2010).com/ref/report/biofuels/biofuels.nz/companies/app/ui/pages/1595696/documents LanzaTech.altprofits. (2010). Lanzatech New Zealand Limited.co. Take Part in the Biofuel Revolution. Retrieved from http://exld54410casestudy.html Integrative Strategic Case Study Page 12 of 18 .References AltProfits. Retrieved from http://www. Retrieved from http://www. Retrieved from http://www. (2010).business.org/poll/index. (2010). Business Analysis Models.nz PBWiki.lanzatech. Company website. Public Opinion Polling.govt.

Appendices Appendix One Source: Author Integrative Strategic Case Study Page 13 of 18 .

Author and PBWiki Integrative Strategic Case Study Page 14 of 18 .Appendix Two Source.

Companies Office and PBWiki Integrative Strategic Case Study Page 15 of 18 . Author.Appendix Three Source.

Author Integrative Strategic Case Study Page 16 of 18 .Appendix Four Source.

Appendix Five Source. Author and PBWiki Integrative Strategic Case Study Page 17 of 18 .

Appendix Six Source: Author Integrative Strategic Case Study Page 18 of 18 .