Axeon N. V case

1. Axeon N. V case Seminar Group B3 Charlotte Cottet Stijn Op de Beeck Sook Ching Voo Sandra Valdivia

2. 1. What do you feel about the initial analysis? Was there in your opinion anything wrong with it? • IRR is good • 8% should not be rate of return on the NPV!! That is the Interest rate, but even with 14 % as their internal cost of capital the project is still profitable. • Axeon will benefit from a deeper analysis where the most knowledgeable people in the company take part (in this case people from operations, already producing the material since all the miscalculations are in this area)

3. 1. What do you feel about the initial analysis? Was there in your opinion anything wrong with it? • The analyses for this option is complete (if the assumptions are right) but still they should be going into different options together as a company. • They are not working as a company. With the actual situation UK people have to compare in house production vs. buying at market price. • They should be considering other options like buying a full cost price or full cost price plus a mark up.

4. 2. Is construction of the new factory in the UK in the best interest of Axeon? • Best interest of Axeon to enter the UK market for AK-42 for sure, the volume is huge! • The construction of the new factory is questionable, because they are using fixed assumptions from before (like transfer prices) that can be negotiated. • Dutch company would benefit from a reduction of fixed costs and economy of scale and UK Company can benefit from better transfer prices and avoid problems of a new production of a complex material

5. 2. Is construction of the new factory in the UK in the best interest of Axeon? • It is very risky to invest so much money in a new factory when the sales are based on forecast. They could test the market with production from The Netherlands and adapt afterwards. • By doing so they can start training UK employees on this new process, and when the time is right (according to cost of in house vs. cost of shipping at certain level of volume) open a factory in the UK with already skilled employees.

6. 3. Why did Mr van Leuven behave as he did? • Lack of knowledge in the actual production process • Do not have time to analyse in detail • Dependent on advisors’ and specialists’ advices • Initial analysis is appealing in financial terms • Later, realised the difficulties of the production process • Possibilities of other possible solutions • Conflicts between advices and opinions

7. 4. Discuss what transfer price should be established if AR-42 is supplied from the Netherlands to the UK. - Problem: market price Less profit as a distributor Hollandsworth feel they are not treated fairly - Lack of synergy - Marginal cost + fixed-lump sum fee - Fixed cost is covered with the current production - Stimulates cross functional coordination - Performance of either entity to be over- or understated

8. 5. What is Axeon's corporate strategy? • Based on decentralization: take advantage of the acquired companies’ knowledge. • Don´t impose any alignment of procedures, culture or strategy. Saving all the problems related to change management. • This allows flexibility and autonomy, as incentive to develop by themselves, and be rewarded consequently (result control only).

9. 6. What do you believe to be the critical success factors in Axeon? • Focus on relationship with customers (due to few but important clients) • Standardization of processes for constant quality. • Security/safety of chemical products during production and delivery • Continuous improvement of processes based on cost reduction.

10. 7. What do you believe are the key recurring activities in Axeon? • Processing orders from clients • Production orders • Scheduling production • Producing • Shipments orders • Invoicing Highly standardized industry based on economy of scales with a continuous production.

11. 8. Discuss Axeon in terms of its centralisation / decentralisation. - Decentralised to retain specialised knowledge of the local market and existing skills - Independency against other companies promote lack of understanding of different skill sets of other companies that could be leveraged - Performance based rewards further promote distance between companies - Should take advantage of the synergy between companies

12. 9. What should Mr van Leuven do? For the future of the company... • He should think of Axeon not as linked organizations but as one company with descentralized subdivisions. • Try to create some company culture (with personnel and cultural controls). • Create a centralized board for critical decisions including people from the four divisions and external experts. This is not the only time they will face a decision like the one of AR-42 in the UK.

13. 9. What should Mr van Leuven do? In this particular case... • Create a win win situation for this huge oportunitiy of AR-42 in the UK, dicussing transfer prices and special conditions. • Analyze potential options (production sites, transfer prices and allocation of different costs) with everybody involved. This way all points of view are included in the final and best decision.

14. Conclusions on the case... • All the issues in this case, facing by Axeon are related to their control systems. They just rely on results control but lack of any personnel and cultural control aligned within the 4 companies. • This fact reflects in the policies of Axeon. In this specific case the problem comes from the transfer price policy. • They need to work on creating a organizational culture. They could start implementing some cultural controls like intraorganizational transfers and giving an example of unity from the top managements (tone at the top).