Incodema3D's Strategic Plan Incodema3D's Strategic Plan Empire ...

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Incodema3D’s Strategic Plan


Empire State College MBA Program

Roxanne von Andrian-Ceciu, Ph.D.

Strategic Executive Leadership Spring 2017

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Letter of Introduction Final Project for Conclusion of the MBA Program

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Roxanne von Andrian-Ceciu, Ph.D. Incodema3D 330 Main Street, Freeville, NY 13068

4/15/2017

Sylwia Starnawska, Ph.D., MBA SUNY- Empire State College

Subject: Final Presentation - Incodema3D’s Strategic Plan

Dear Dr. Sylwia Starnawska,

I am extremely pleased to present the Incodema3D’s Strategic Plan project write-up and the Power Point presentation. I am the Director of Quality and the ITAR Compliance Officer for Incodema3D. In this role, I presented parts of the project to the owners of the Company, as soon as your review of each part was complete and my revisions were incorporated. The presentations were received with interest. We discussed more in detail the environmental scan, the global PASTEL, the implementation plan, the business units, and the strategic audit including milestones, costs, budgets, and the financial ratio forecasted for the next five years.

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Your support and continuous guidance helped me improve the flow of the write-up, so that each section connects to the next and all parts of the project, although complex, are fluid and meaningful at first reading.

In the project write-up that I have attached, please find included the details of Incodema3D’s strategy formulation, implementation and control. I look forward to receiving your feedback.

Best Regards, Roxanne von Andrian-Ceciu, Ph.D.

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Outline 1

Environmental Scan and Recommended Strategy

1.1.

Mission and Vision of Incodema3D

1.2

Macro-Environment Specific to the Additive Manufacturing

p5

Industry and PESTEL-Analysis

p6

1.3

Micro-Environment and the Stakeholders’ Analysis

p15

1.4

VRIO analysis of the resources, for Incodema3D

p20

1.5

VRIO analysis of the resources, for Incodema3D

p22

1.6

Porter’s Five Forces applied to the industry

p30

1.7

Porter's Diamond Model applied to the non-domestic market

p31

1.8

SWOT Analysis of Incodema3D

p33

1.9

Analysis of Incodema3D’s business portfolio or SBU analysis

p36

1.10

Incodema3D corporate strategy, based on the vision and mission statements, the environmental constraints and the TOWS matrix

p38

1.11

Competitive Values Framework of the company

p39

1.12

Business level strategy for each SBU

p40

2

Implementation of Strategy

2.1.

Corporate parenting strategy

p45

2.2

Financial strategy

p46

2.3

Marketing strategy

p50

2.4

Operations strategy

p51

2.5

Information systems strategy

p55

2.6

Research and development

p58

2.7

Human resources strategy

p58

3

Organizing for Strategy Implementation

3.1.

Moving from simple structure to functional structure

p62

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3.2

Staffing

p64

3.3

Impact of Globalization

p65

4

Measurement and Control of Strategy Implementation

4.1

Timetable of strategy implementation

p66

4.2

Budget associated with the timetable

p67

4.3

Audit plan to measure strategy progress

p68

4.4

Activity-based costing

p69

4.5

Balanced scorecard

p69

4.6

Benchmarking

p70

4.7

Identification of operational bottlenecks and red flags

p71

4.8

Consolidated statements, balance sheet result projections and performance ratio

p72

4.9

Capital budgeting

p74

4.10

Contingency plans

p74

4.11

Process control

p75

4.12

The S.M.A.R.T. model

p76

4.13

Ethical considerations

p77

5

Conclusions

p78

References

p78


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Executive Summary The project started by identifying the company and industry. The company is Incodema3D, where I have the executive role of Director of Quality/ ITAR Compliance Officer. In the first part of the write-up, I examined the industry environment and analyzed its current and likely future structure. I was looking for opportunities to transform the firm, building on its core competencies, into a firm capable of creating and capturing more value in the value chain. I presented the Stakeholder Analysis for the firm and how to maintain relationships with each stakeholder, as well as what the impact is on power and influence by globalization. I included the VRIO Analysis of each relevant resource and the corporate social responsibility. I addressed the company current CVF fit. The generic strategies of the organization were identified and the business level strategy for each SBU. Several tools are presented, such as SWOT analysis, Porter's Five Forces, Porter's Diamond Model, and TOWS matrix. The SBU analysis was done for each SBU, including the investment and separate business level strategy. The second part is the implementation of the solution. To implement the solution or the business level strategy we need to consider how to allocate the resources. These include the organizational (including marketing, operations, and innovations), financial, human resources, and other requirements that will go into making sure the organization has the competencies for sustainability. The characteristics of both the leaders and the employees needed to support the solution were taken into consideration. We looked at the Competing Values Framework and the culture of the organization in order to optimize the implementation of our strategy. At the end of this section, we designed the organizational structure that will support the strategy. The third part of the project was to develop an integrated plan. Based on the integrated plan, we created the audit plan. I integrated the full milestone table and a budget with the costs associated with the implementation plan and expected outcomes. The financial statements were created and finally a plan to audit the full plan. We included the ethical implications. For the plan to be viable it must contain contingency plans that we might consider should we not meet the strategic objectives. We identified contingency plans, as well as operational red flags and corrective actions in a summary table. The tools that were used are the Balanced Scorecard model, the SMART model, benchmarking, financial budget and pro forma financial statements, and the control process.


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1. Environmental Scan and Recommended Strategy 1.1. Mission and Vision of Incodema3D Incodema3D, LLC is a startup company in the additive manufacturing technologies. These technologies deploy several technical breakthroughs and technological advancements, in order to gain market. The company's ownership asked me to investigate what would be the impact of several hightech features and innovations on the market and on our company, and how the implementations of these innovations would bring us a competitive advantage. They want a strategic value analysis and an attempt to formulate a strategy, and an implementation plan. Incodema3D competes in the aerospace market, against other additive manufacturing start-ups, and among these the GE-Arcam AB division only recently acquired by GE corporation, but also against traditional technology companies who manufacture the same products as we do, for example sand casting, investment casting, or NC machining from bar stock. Incodema3D was registered in the state of New York under this name in 2014. It is located in Freeville of Central New York. “The vision of Incodema3D is to create a production 3D Printing operation leveraging our proven knowledge and skills developed over decades in the advanced manufacturing industry.” (Incodema3D, 2014). The firm’s mission is: “We manufacture rapid prototyping products and precision production assemblies through additive manufacturing and machining of precision parts and assemblies, for aerospace, defense, and other industries; we strive to be among the best on the market in delivering products above customers’ expectations and requirements.” Incodema is pronounced “in-COH-duh-muh” and is an invented word created from “inventconcept-design-manufacture”. Incodema3D is a business segment of the Incodema Group family of companies. The Incodema Group companies include Incodema Inc. (Ithaca, NY); Newcut Inc. (Newark, NY); Engineering Manufacturing Technologies LLC (Endicott, NY). Incodema3D’s facilities are located in Freeville, NY. Capabilities of the group include: sheet metal stampings, metal forming, laser cutting, micro cutting, photo chemical machining (PCM), wire-EDM, CNC machining, urethanes and additive manufacturing processes.


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The capabilities of Incodema3D include additive manufacturing processes: Direct Metal Laser Sintering (DMLS), Stereolithography (SLA), Polyjet and Fused Deposition Modeling (FDM), as well as wire-EDM and CNC machining. The company’s eighty per cent of revenues are from DMLS. The vertical integration of machining and EDM technologies and capabilities was accomplished in 2016, by acquisitions of equipment, integration and physical relocation of manufacturing lines previously allocated to the Incodema group, and re-certification of the integrated and enlarged company to the aerospace quality standards and re-qualification to the major aerospace customers’ requirements. The company started in 2014. Its revenues increased every year with more than 220%. Revenues of the Incodema Group were at $35 million in 2014. (Hill, 2014). One of its mottoes is "Four companies - one vision." “One of our taglines is 'the single source provider'" said founder and CEO Sean Whittaker. "We can provide complete solutions with our family of companies." (Hill, 2014).

1.2. Macro-Environment Specific to the Additive Manufacturing Industry and PESTELAnalysis PESTEL is a strategic analytical tool and the acronym stands for political, economic, social, technological, environmental and legal factors. Incodema3D PESTEL analysis involves the analysis of potential impact of these factors on the bottom line and long-term growth prospects. The global PESTEL takes into consideration the global macro-environment. Political factors Federal financial support Lobbying from the industry. STARTUP NY program DoD push contracts down to corporations NIST awarded grants to AM Socio-cultural factors AM gains popularity; attitude changes

Economic factors Taxes and inflation rates are low Operate entirely taxfree for 10 years Local talent employment and unemployment levels. AM market forecasted growth at 30% yearly AM offers Supply Chain Efficiencies. Technological factors AM is Creating New Structures.

Local initiatives to reduce metal waste Learning curve of new technologies "AM revolution": Reducing Time to Market. Mass Customization appeal Environmental (ecological) Ecofriendly transactions / apps

Nonlinear and reentrant features on complex parts AM enables features : honeycombs & lattices ThreeDimensional Scanning Inspection Speed, resolution, and repeatability of AM machines Legal Commerce regulations; Antitrust rules & regulations.

Air pollution vs. w/ castings & forgings

Data protection regulations defense and aerospace

Thickening of ozone layer microweldings

Healthinsurance law. Employee health and safety

Figure 1 . PESTEL Analysis


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Political Factors The political factors that affect Incodema3D include but are not limited to: �

“Financial support from Government” (MarketsAndMarkets, 2012).

The AM profile has recently been raised by its identification as high value and advanced manufacturing technology, which encouraged governments around the globe to invest in focused AM initiatives and project based research in this field (AM-Platform-EU, 2014). US launched the National Additive Manufacturing Innovation Institute (NAMII) with the aim to boost additive manufacturing economy in the country. (AM-Platform-EU, 2014). “They are reporting almost $40 million industry match to the $30 million federal investment.” (AM-Platform-EU, 2014) “The White House Office of Science and Technology has formed an interagency working group, and numerous federal organizations, such as the Department of Commerce, the National Science Foundation, and the Department of Energy, have programs to advance the technology” (Ford, 2014). “For example, engineers at the National Institute of Standards and Technology (NIST) are working to enhance additive manufacturing equipment and process metrology; process optimization and control; advanced sensor systems; materials characterization; data formats; and standards development” (Ford, 2014). The U.S. federal government is also working with private industry and academic institutions to further advance additive manufacturing (Ford,2014). NIST awards grants to improve additive manufacturing; it provided $7.4 million of funding in 2013. The National Science Foundation has programs to educate students, workers, and enterprises about additive manufacturing (Ford, 2014). “It also awards grants to improve the technology” (Ford, 2014). The Department of Energy Advanced Manufacturing Office “partners with industry, small businesses, and other stakeholders to identify and invest in additive manufacturing technologies”. (Ford, 2014). �

Financial support and lobbying from the industry.

The industry is taking steps to facilitate the development of additive manufacturing. EWI, a non- profit engineering and technology resource organization, launched the Additive Manufacturing Consortium (AMC) in 2010.(Ford, 2014). The AMC is a group of practitioners and stakeholders working to “accelerate the innovation in additive manufacturing technologies to move them into the mainstream of manufacturing technology from their present emerging position.” (Ford, 2014).


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�

Federal and State Government funding to academia for research, lobbying and promotion of additive manufacturing. (Ford, 2014).

Firms are partnering with academia to promote additive manufacturing. “Jet engine manufacturer Aerojet Rocketdyne, for example, is collaborating with the University of Connecticut to create one of the country’s most state-of-the-art additive manufacturing facilities” (Ford, 2014.) START-UP NY is a NY state program that aims to connect university research and innovation with New York companies in order to create jobs and spur economic growth. “Cornell is Incodema3D’s academic partner, and together they will develop new processes and materials for 3-D printing while infusing jobs and capital into the New York economy” (Ju, 2014). Economic Factors There are many economic factors that may influence Incodema3D, such as: �

Taxes and inflation rates;

Incodema3D was the first local company to be accepted into the START-UP NY (SUNY Taxfree Areas to Revitalize and Transform Upstate NY) program. “As part of this state economic incentive effort each upstate SUNY campus was allotted a set amount of acreage to devote to start-up companies that would then operate entirely tax-free for 10 years” (Chaisson, 2014) �

Interest rates;

Interest rates on business loans, mortgages etc. are historically low and the trend will continue in the near future – see Figure 2.

Figure 2. United States interest rate over the years The maximum legal interest rate by state in New York is at 16%, which is among the highest nationally. �

Overall and industry-specific economic growth;


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The AM technology is predominantly developed in the United States, where several leading manufacturers using additive manufacturing machines, including Stratasys and 3D Systems, are based (Ford, 2014). In 2011, the United States accounted for 38.3 percent – see Figure 3 - of the “cumulative installed industrial additive manufacturing systems” (Ford, 2014).

Figure 3. Global growth forecast for the AM market (Compound Annual Growth Rate of 95%)

Figure 4. Data showing the global use of AM technologies in 2011 Data from the U.S. Department of Commerce show that goods using additive manufacturing methods represent a small percentage of their relevant industry subsectors, implying abundant potential for growth (Ford, 2014). The chart below – Figure 5 - indicates the industry served by AM technologies, in 2013.


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Figure 5. Industries using AM technologies or 3D printing Aerospace firms are increasingly turning to this technology to reduce the costs of developing models and prototypes and of creating components (Ford, 2014). In a constant effort to reduce aircraft weight, the industry is manufacturing more and more parts from titanium, plastic, and other lightweight materials. These materials are costly, and additive manufacturing can make it possible to keep the amount of material to a minimum, because AM technologies produce less waste than any other traditional technology. In addition, additive manufacturing uses these materials to create parts in geometries that may not be possible with conventional manufacturing (Ford, 2014). The reduction in waste is significant in the process of producing the raw materials themselves, as well as in the manufacturing process of building the parts. Boeing, Inc., for example, has additively manufactured more than 200 different parts for 10 aircraft platforms. Boeing has also used roughly 20,000 additively manufactured parts in military and commercial aircraft, including 32 different components for its 787 Dreamliner planes (Ford, 2014). General Electric, “the world’s largest supplier of jet engines” (Ford, 2014), is additively “manufacturing a fuel nozzle for use in thousands of jet engines” (Ford, 2014). “These nozzles are 25 percent lighter and as much as five times more durable than the existing model, which is welded from 20 different parts. General Electric reports that it may additively manufacture up to half of the parts in its energy turbines and aircraft engines in 10 years” (Ford, 2014). �

Local talent employment and unemployment levels.

One of the greatest challenges in doing business is the “limited supply of experienced manufacturing personnel” (Hill, 2015). While taxes and workers with industry-specific backgrounds present challenges (Hill, 2015), a “silver lining is proximity to engineering graduates” (Hill, 2015). "We've been able to utilize some of those other skills sets that have been developed around some of the

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engineering mindset of the community," Whittaker, CEO and President of Incodema3D said. (Hill, 2015) Social Factors �

Changes in major aerospace customers’ attitudes and opinions towards additive manufacturing or 3D printing technologies Major customers like Boeing, GE Power, GE Aviation, Lockheed Martin, Northrop Grumman

received purchase orders and research grants from the Department of Defense to replace and adapt current products or components made by using traditional technologies, for example using injection molding or machining, with additive manufacturing product or components. In order to respond to this requirement, large organizations like those mentioned above had to create new engineering departments using talent and personnel coming from traditional technology engineering departments, as well as the correlated support departments, of purchasing, research &development, laboratory material analysis, receiving, receiving inspection and storing. In addition, these organizations had to embark on a major training and learning endeavor, where quality and assembly personnel learned and became efficient in evaluating, inspecting, assembling, and testing these parts produced using new technologies. Although these parts looked the same, measured the same and had the same functionality as before, personnel was required to understand the technology in order to evaluate the performance of these parts, the possible failures or shortcomings, and the processability during heat treatment, welding, plating, or finishing operations. These disciplines, which are called in the AM market, post-processing operations, are as new as the AM technologies themselves, and pose their own challenges. The above preamble is an introduction to what the social effect was within these organizations. These organizations had to grapple, in certain cases or sporadically, with resistance to implementing the new AM technologies, even hostility, and high turnover. Other organizations have seen the contrary, for example young talent taking this opportunity to get noticed and promoted faster than their peers, because they adopted an enthusiastic approach to assimilate and promote the technology within their internal sphere of influence. �

Local initiatives to reduce waste when manufacturing metal products AM technologies come with many well-known and documented advantages that have social

impact on the company structure and on the supply chain constituency in the society. The State of New York and other states like California, Illinois, encourage and support companies in their efforts to reduce metal waste (NYS, 2016); On the same token, companies using technologies like 3D-printing, which have a significant less metal waste after processing than traditional manufacturing companies,


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are welcome to open and are encouraged to grow through different grants programs or state taxexemption. o Supply Chain Efficiencies. Additive manufacturing has the potential to reduce the costs of storing, moving, and distributing raw materials, mid-process parts, and endusable parts. Parts are produced on demand without the need for tooling and setup; this supply chain management is “collapsed to its simplest parts, adding new efficiencies to the system.” (Ford, 2015). As noted, “General Electric is now additively manufacturing hollow fuel nozzles for aircraft that it previously manufactured in pieces and assembled later. The company has thus reduced the product’s supply chain” (Ford, 2015). o Reducing Time to Market. Time to market shrinks in additive manufacturing applications due to shorter design and prototyping cycles, more predictable factory loads, and the elimination of tooling and factory setup times for new products. o Mass Customization. Additive manufacturing’s ability to employ multiple designs on the same machine “enables the manufacturing industry to move from mass production in factories to mass customization” (Ford, 2015). Technological Factors �

Creating New Structures. Additive manufacturing enables the built of structures with distinct advantages over traditionally manufactured ones: “they are more complex, and have greater geometric freedom” (Ford, 2015) o The technology allows for characteristics such as nonlinear holes and re-entrant features on complex parts with little or no additional cost. o It also enables structures, such as honeycombs and lattices for the interiors of parts, which have significant benefits: maintaining the requisite tensile strength, compression or elongation characteristics, while being considerably lighter than conventionally manufactured counterparts. o Researchers at the Lawrence Livermore National Laboratory of the U.S. Department of Energy are additively manufacturing combinations of materials in new ways and creating materials with properties not found in nature that will further innovation and design capabilities.(Ford, 2015)

�

Three-Dimensional Scanning. New three-dimensional scanners and processing software options are expanding opportunities for designing and additively manufacturing prototypes and


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parts. Recent software is able to transform relatively crude scans into three-dimensional surface mapping. �

Improve key performance characteristics such as: speed, resolution, and repeatability of the AM machines. Environmental Factors Because the metal powders and the AM built product create a small percentage of waste that

must be disposed of or recycled after the completion of the process, the Performance of Incodema3D can be indirectly impacted by a set of ecological factors such as: �

Global warming,

�

Air pollution,

�

Thickening of ozone layer

�

Eco-friendly transactions / purchases

Legal Factors Incodema3D is directly impacted by a set of legal factors such as: �

Commerce regulations

�

Anti-trust rules and regulations,

�

Data protection regulations, specifically because the company operates mostly for the defense and aerospace industries.

Additionally, there is a wide range of rules and regulations relating to employees and individual consumers, such as: �

Employee health and safety,

�

Employment laws,

�

Health-insurance laws

Changes in these rules and regulations are most likely to impact Incodema3D performance in direct and indirect manner. Several of these factors discussed above are included in Figure 6 below. The Global PESTEL is of great importance to Incodema3D and other AM companies, as most of the AM machines are manufactured in Europe. Incodema3D’s majority of its fleet (77%) of machines (15%) is purchased from Germany i.e. EOS machines, which actually dominate the market; a smaller percentage is from UK and the least portion (8%) of its AM equipment is from USA.

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Figure 6. Percentage of AM Machine Manufacturers on the global market Environmental scanning is a key activity that begins a company’s strategy planning process. The scanning must include both external forces like economic, technological, political-legal, and sociocultural as well as internal competencies such as value, rareness, imitability, and organization in order to be effective (Wheelen & Hunger, 2010). Figure 7 shows the summary of the PESTEL analysis and the impact of the external forces on a local, domestic and global scale.


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LOCAL State laws for tax exemption START UP NY program

NATIONAL government policy and regulations; federal funding

GLOBAL World trade agreements e.g. further expansion of the EU

ECONOMIC

Local income; local taxes

interest rates; product shiping coverage and service;

Overseas economic growth; foreign currency exchange;

SOCIAL

Local population growth; local talent

social impact of the new global race to dominate the AM market: EU, supply chain model; Japon, China, US resistance vs. support within large defense & aerospace corporations

TECHNOLOGICAL

Improvements in AM, Department of defense for example lattices, research labs / NASA / nanotechnology. for AM technologies;

ENVIRONMENTAL

Local waste issues

US regulations on waste Global climate change

LEGAL

State laws regarding employee health & safety;

US laws and regulations International agreements on human rights or environmental policy

POLITICAL

International technological breakthroughs; patents will expire within years.

Figure 7. Summary of Global PASTEL 1.3. Micro-Environment and the Stakeholders’ Analysis Stakeholder Analysis Customers Incodema3D’s business strategy gives a high priority to customers as the most important stakeholder group. The company considers customers as the primary determinant of its business success, especially because these stakeholders significantly affect revenues. This focused attention to customers agrees with Incodema3D’s mission statement and vision statement, which serve customers to go beyond and above customers’ requirements. Incodema3D surveyed customers to determine how they rate the company’s performance—see Figure 8.


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Customer Satisfaction 2016 5.0

4.0

3.0

2.0

1.0

0.0 Quality

Value of Service

Technical Support

Competitiveness

Responsiveness

OTD

Figure 8. Incodema3D customer satisfaction survey Suppliers of metal powder and processing suppliers Incodema3D uses a base of suppliers that are in compliance with DoD requirements. All suppliers are ITAR-registered and in compliance with Government regulations, such as CFR or DFARS, and with aerospace standards, such as AS9100C, NADCAP etc. Suppliers’ quality of work is essential to the success of Incodema3D. Incodema3D makes every effort to qualify local vendors with the end-customer regulations and to bring them in compliance and get them qualified as approved suppliers for large aerospace customers like GE or Boeing, when working on one of these companies’ programs. This effort pays off in transportation cost savings and in quick turnaround of processed parts. Sales representative’s contractors or vendors Incodema3D uses a number of sales representatives located domestically in different geographical regions that target aerospace customers. Their low turnover is essential to creating a good representation of the company within large defense and aerospace customers; they are salaried to almost eighty per cent of their monthly earnings, and the rest of their income is based on commission. Employees Employees are important because they support competitive advantage based on Incodema3D entrepreneurial culture. The company encourages innovation and development of new ideas to increase business efficiency, to develop new products, or to research newly developed metal powders for use in our machines.


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The company distinguished itself among competitors with its ability to develop supports for the metal build process that ensure integrity of the parts during build. Incodema3D targets only exceptional talent for hire, who should combine engineering or technical expertise with an enthusiastic and driven personality to overcome obstacles or technical difficulties that were not foreseen at the beginning of the program or prototype. IT employees or contractors are also a big part of the company, because the ownership believe in having a robust and paperless ERP system, which runs smooth and gives real time information to all employees. Leadership Incodema3D looks forward to the development of its employees, grooming them for leadership positions and rewarding them with a compensation policy based on results that bring high growth potential. Communities / Society Incodema3D organizes at least twice per month events that prove its social responsibility. The company participates in several academia internship programs during summer vacation, and uses their databases to post open positions, either temporary or permanent. Icnodema3D organizes tours of its facility for different community programs for high schools or middle schools in the area, as well as for college students. These stakeholders are significant because they influence community perception on the company’s contribution to the economy. Internal resources of Incodema3D are: �

Human capital: o Leaders o Employees

�

Financial capital: o Investment o Revenue o ROI

�

Learning/ Knowledge : o Operations / Process effectiveness o Information Systems o Additive Manufacturing Technologies o High quality of its products

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Figure 9. Stakeholder Priority Matrix


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relationship with other stakeholders

impact of globalization on relationships

very close to Government's DoD; vendor's quality is very important to I3D's success;not easy to identify errors may influence public opinion; company's name reputation key for investors' relations/ Government

customers are mainly domestic local suppliers are preferred to minimize transportation costs

power

influence

Customers

high

high

Suppliers of metal powders and processing

medium

high

Communities

low

medium

Shareholders

high

low

Government

low

high

May be suppliers or customers; trade regulations

Creditors/ investors

high

low

low interations with other stakeholders

Sales reps suppliers

high

high

Vendors (services); machines' maintenance Competitors

medium

high

may play a big part of company's competitive advantage; key customer and supplier interactions influence customer's satisfaction

medium

low

interactions with suppliers; communities

Employees/staff

high

low

interaction with community, suppliers,customers

Ownership

high

low

Leadership/managers

medium

medium

internal

external

stakeholder

net impact on resources of the firm

market share key to success costs of products have direct impact on profits, costs, revenues,EBIDA diversified communities reputation impact, from global market indirect financial impact Shareholders are from decision of industry and academia shareholdes may impact the company performance May increase internal Government costs when ensuring regulations have compliance with different direct impact on most governments; diverse of our procedures trade agreements and and contracts/ exports / imports programs protocols interest rates; taxation; Have a medium currency exchange costs; impact on financial needs require technological Have impact on costs, advances in ERP and revenues, apps, for realtime data profitability; and interaction w/ I3D international contractors are used for AM machine maintenance I3D learns from competitors when we tried to enter new markets; competition may be higher in certain geographical areas I3D employees closely interact with the employees of machine manufacturer.

Impact is on costs incurred May impact major resources, internal or external.

employees are an important resource for I3D success and competitive advantage key to shareholder and different legal interaction Has impact on investor relations with global maintenance employee turnover; teams equipment acquisition; tactics key to maintain increase company's Impact on resource company culture; key to reputation use and employee low turnover. turnover

Figure 10. Stakeholder Analysis

net impact on the strategy of the firm

Mahon& Paila, 213

need to promote the company's nameI3D Have impact on strategy implemention

manage closely manage closely

Corporate social responsibility is important to I3D Don’t have a major impact on the strategy

keep informed keep satisfied

Certain foreign keep government regulations informed may impact planning and requirements compliance

Impact on financial part of the strategy implementation Strategy formulation may depend on the success of their work

keep satisfied manage closely

Low impact on strategies; high impact on company Strategy formulation is gaged against competitors' declared strategies

manage closely

Employees will have a major impact on the functional strategy and tactics

keep satisfied

Influences the strategy formulation, in coordination w/ management / staff Impact on strategy implementation, tactics execution

keep satisfied

monitor

keep informed


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1.4. VRIO analysis of the resources, for Incodema3D VRIO analysis tool helps to identify strategies that will give the firm long-term growth and sustainability – see Figure 11. The four factors that constitute to basis of this analysis are the abbreviation of the analysis tool, i.e. value, rarity, inimitability, and organization or how the organization supports and properly sustains the respective resource. Resources Does the Organization have

Value

Rarity

Inimitability

1. Strong financial foundation & investment

YES

YES

NO

2. Additive manufacturing machines & manufacturer's equipment support

YES

YES

YES

3. Valuable facilities w/ open capacity

YES YES YES YES YES YES YES YES YES YES

NO YES NO NO YES YES NO YES NO NO

4. Unique and innovative products 5. Effective management 6. Experienced and capable employees 7. A strong relationship with its customers 8. A strong relationship with its suppliers 9. A strong reputation 10. Efficient operations 11. Social responsibility 12. Ethical decision making

Organized Properly

Temporary Advantage YES

NO

YES NO NO

Competitive Advantage

NO

Sustained Competitive Advantage Competitive Parity Temporary Advantage Competitive Parity Competitive Parity Unused Competitive Advantage Temporary Advantage Competitive Parity Temporary Advantage Competitive Parity Competitive Parity

Figure 11. VRIO Analysis for Incodema3D, LLC Incodema3D has a strong financial foundation which is based on the Incodema Group growth and stability over the past fifteen years. In addition, the ownership of Incodema3D is shared among several partners who are committed to the success and financial support of the company. This resource has value and rarity, but it is imitable by other new entrants on the market. This distribution over the value-rarity-inimitability-organization qualifies this resource as being a temporary advantage to the company. The second most important resource is the additive manufacturing machines fleet and the machine manufacturer’s support to maintain, upgrade and sharing of the build platform. Incodema3D engaged into a very selective program with EOS GmbH to purchase 3D printing machines from this manufacturer, including exclusive contracts for access to parameters control of the software build. Incodema3D upgraded its quality system to the level where it qualified among the very few customers world-wide of EOS GmbH that are authorized to train to the use of or rent EOS machines to other companies who are interested to expand or enter this market. This qualification, which Incodema3D achieved in 2016, is situating the company on a higher level of control of the market fragmentation. AM companies’ leaders must “consider the strategic implications as whole commercial

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ecosystems begin to form around the new realities of 3-D printing” (D’Aveni, 2015). The most important development within the AM market is “to permit the integration of activities across designers, makers, and movers of goods, digital platforms will have to be established.” (D’Aveni, 2015). This recent strategic positioning of Incodema3D within the exclusive network of the most dominant AM machine manufacturer globally gives the company a sustained competitive advantage for this resource. The VRIO analysis tool indicates that some of the resources are at competitive parity with its rivals on the market, for example the resources of valuable facilities with open capacity, effective management, and experienced and capable employees. These resources are must-have, and the companies that want to grow within the market as fast as the technology advancements are made, are investing money and effort to keep up with the fast changes, for example implementing initiatives like continuous learning, and participation of its engineering staff in US-national work groups to define the additive manufacturing ASTM, SAE or NIST standards and qualification requirements. The resource of unique and innovative products seems to be difficult to rise to a competitive status among the players in the AM market: Most of the products that are prototyped or in production at 3D printing companies are known products that are removed from the traditional manufacturing, such as casting and machining technologies, and replaced with 3D-printed products. I kept the resource on the VRIO though, because there is a niche of additive metal- manufacturing for unique products, i.e. products that were not produced before through any other metal technology and only the advent of AM allowed the production of these parts. For example, Incodema3D is the solely manufacturer of original and very expensive on-demand faucet sets for the highest end customers, which are sold at $20,000 the piece. (Grunewald, 2015). Another resource that offers a competitive advantage is the strong relationship with Incodema3D’s customers. This resource was developed to the current status mainly because of the ownership dedication to remove the prototype cost barriers from the program or contract negotiations, by taking the full cost of waste and losses on the company’s account. Although this philosophy erodes profits for Incodema3D, it successfully dilutes the incertitude and risks associated by customers with switching well-known and verified products from traditional manufacturing to additive manufacturing. I rated this resource as unused competitive advantage because we think that the relationship with our customers has still place for improvement, and the organization of our fleet of machines is a continuous improvement process. An emerging need in the AM market is the agile manufacturing, the flexibility of production. “As technology continues to advance exponentially, barriers to entry, commercialization,


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and learning are eroding”. (Hagel e.a., 2015). New AM -market entrants may operate at much smaller scale, “enabling them to create offerings once the sole province of major incumbents” (Hagel e.a., 2015). While large-scale production may “dominate some segments of the value chain” of the AM market, new and innovative manufacturing models, such as “small-scale local manufacturing, loosely coupled manufacturing ecosystems, and agile manufacturing” are taking advantage of these new opportunities. (Hagel e.a., 2015) The association of the VRIO tool with the SWOT analysis, which is discussed later more in detail, is summarized in the chart below – see Figure 12. The chart is a predictive tool of the company’s competitive position in the market, and it shows that resources that were identified as disadvantages or at competitive parity vs. rivals may result in weaknesses, or low level strengths, in the SWOT analysis. Those resources identified as having temporary advantage, unused competitive advantage or sustained competitive advantage are strengths that should be used by the firm to achieve above average economic performance.

Predicting Relative Competitive Position Resource Valuable?

Resource Rare?

Resource Costly to Imitate?

No Yes Yes

No Yes

No

Yes

Yes

Yes

Should Firm Competitive Category Exploit Resource? No Disadvantage Competitive Parity Temporary Advantage Yes

Sustained Competitive Advantage

Economic Performance

SWOT Category

Below Normal Normal Above Normal or Average vs rivals Above Normal or Average vs rivals

Weakness Weakness or Strength Strength and Distinctive Competency Strength and Long-Term Distinctive Competency

Figure 12. Predicting relative competitive position

1.5. Assessment of the competitive environment (analysis of the strength of the competitors) “Major companies in aerospace and automobile have been using metal 3D printing for years, not only for advanced prototyping purposes but also to produce final parts” (Lansard, 2016). Additive manufacturing will indeed produce stronger metal parts by 3D-printing or additive-manufacturing complex parts in one piece, thus avoiding welding parts together. “There are several metal additive manufacturing technologies available commercially today, which can be regrouped in four main categories: powder bed fusion, binder jetting, material jetting and direct energy deposition” (Lansard, 2016). Incodema3D main competition is in the powder bed fusion technology, and this is where the analysis will be focused on. “Each manufacturer of metal 3D printers

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masters either one or several variations of these 3D print technologies, often through proprietary technologies protected by patents.” (Lansard, 2016). The biggest manufacturers of metal powder bed fusion technology machines and their associated platforms are: Arcam 🇸🇪 Arcam, or Arcam AB, is a metal 3D printer manufacturer founded in 1997 in Sweden. Arcam manufactures Electron Beam Melting (EBM) industrial 3D printing systems. EBM is a 3D printing technique used to build solid metal parts from metal powders. Arcam was purchased in September 2016 by US conglomerate General Electrics. GE offered $685 million to acquire a majority stake in the Swedish additive manufacturing company, along with a $762 million bid to acquire German metal 3D printing company SLM Solutions. The total revenue for Arcam was $42m in 2015. 3D Systems 🇺🇸 The famous American 3D printing giant has a broad portfolio of 3D printing technologies, including Direct Metal Printing (DMP). This metal additive manufacturing technology is used in their ProX line of metal 3D printers. It’s interesting to note that this technology was not developed by 3D Systems but integrated through the acquisition of French metal 3D printer manufacturer Phenix Systems in 2013. SLM Solutions 🇩🇪 SLM Solutions is a German company founded in 2011. They make advanced metal 3D printers for industry, based on the Selective Laser Melting technology (SLM). SLM Solutions had a revenue of $63m in 2015. EOS 🇩🇪 EOS was founded in 1989 in Germany. EOS is a pioneer in the development of Direct Metal Laser Sintering (DMLS) systems. EOS is the global leader in metal additive manufacturing systems with around 500 metal 3D printers shipped in 2015.

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Concept Laser 🇩🇪 Concept Laser is a German company founded in 2000. Concept Laser is one of the world’s leading providers of industrial-grade metal 3D printers. Their metal additive manufacturing systems are based on the LaserCUSING® 3D printing process, where a laser melts metal powders to form a metal object. Concept Laser is for sale with rumors of an imminent acquisition, in the wake of the GE bid for Arcam and SLM Solutions in September 2016. Renishaw 🇬🇧 Renishaw is a engineering company from the United Kingdom, founded in 1973. In addition to metal 3D printers, Renishaw produces a wide range of industrial metrology and prototyping systems. Realizer 🇩🇪 Realizer is a German manufacturer started in 1990. They produce industrial-grade metal 3D printers based on the Selective Laser Melting (SLM) technology. Their additive manufacturing machines are mostly used for Jewelry and Dental applications.

Incodema3D competes mainly within the DMLS (direct metal laser sintering) technology, although it manufactures AM parts using other technologies too. The company’s most prominent revenues are generated from its EOS machines and using the EOS platform. Here below are the main rivals of Incodema3D, for DMLS technology. We didn’t add the major aerospace companies that may have DMLS labs for prototyping or engineering samples, like for example Lockheed Martin, Northrop Grumman, NASA labs etc.


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DMLS metal powder Advanced Manufacturing Services Aspect Automated 3D Modeling Bertrandt CalRam Dinsmore and Associates 4D Solution GPI Prototype & Manufacturing Services i3DMFG Laser Prototypes Europe LayerWise Materials Solutions ProtoCAM Proto Labs rp+m Spring Srl Star Prototype 3BIGGG 3D Systems 3rd Dimension The Technology House

Australia Japan US, Vermont Germany US, California US, California Germany US, Illinois US, Oregon Northern Ireland Belgium UK US, Pennsylvania US, Minnesota US, Ohio Italy China France US, California US, Indiana US, Ohio

Figure 13. Main competitors, metal laser sintering / melting The competitive environment of Incodema3D is detailed in the table below—sees Figure 14. The indicators “+”, “—“ etc. represent how the competition performs when compared to Incodema3D as a baseline, for each of the competitive factors listed in the columns of the table. The indicator “p” stands for parity and “n” for neutral. The performance of GE divisions against Incodema3D were estimated based on recent programs, where GE maxed out its own production capacity for AM nozzles and forwarded contracts to Incodema3D to fulfill the demand on the assembly lines. The table shows that the price / performance and the availability of AM machines at Incodema3D outweighed the brand recognition of GE production, which actually favored Incodema3D to win the contracts. The table is based on extensive research of performance of other AM metal DMLS companies, and their perception in the market.


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Competitor Incodema3D, LLC GE Global Research GE Power Advanced Manufacturing Services Aspect Automated 3D Modeling Bertrandt Dinsmore and Associates 4D Solution GPI Prototype & Manufacturing Services i3DMFG Laser Prototypes Europe LayerWise (purch.2016 by 3D Systems) Materials Solutions CalRam ProtoCAM Proto Labs rp+m Spring Srl Star Prototype 3BIGGG 3D Systems 3rd Dimension The Technology House

Brand / Company Awareness p + + p p p p + p p p p + + p p

Value of the AM machines products (price/ availability and performance) support access + p p n p n n n n p p p p n

+ p p + n n + n n n n n n + n

Quality & Technology Corporate Efficient compliance to and control of social operations requirements build platforms responsibility of products + + + + + + + + + + + + n n n p p n n n p p p p p p p p p n p n n n n n p p p p p p p n n n p p p n n p p n p n p n p p p n n n p p p p p p p p n p p p p p p

Figure 14. Competitive environment evaluation In order to offer a visual understanding of the competitive environment, the indicators in the table above will be replaced with the following rating: strength “+” will be replaced with “5”; weakness “—“ will be replaced with “2”, parity “p” with “4” and neutral with “3”. Then the lines will be reordered from the highest overall average by company to the lowest overall average, as seen in Figure 14.


30 | P a g e Brand / Company Awareness

Competitor 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Incodema3D, LLC GE Global Research GE Power 3BIGGG 3D Systems Bertrandt Dinsmore and Associates LayerWise (purch.2016 by 3D Systems) The Technology House 4D Solutions Laser Prototypes Europe Spring Srl 3rd Dimension Aspect CalRam ProtoCAM Proto Labs rp+m Advanced Manufacturing Services GPI Prototype & Manufacturing Services i3DMFG Materials Solutions Star Prototype Automated 3D Modeling

4 5 5 5 5 4 4 4 4 5 2 2 4 4 4 4 2 2 4 2 2 4 2 2

Value of the AM machines products (price/ availability and performance) support access 5 4 4 4 4 4 2 4 3 3 3 4 2 3 2 2 2 2 2 3 3 2 2 2

5 4 4 3 3 5 4 2 3 4 5 3 5 2 2 3 3 2 2 2 2 2 3 2

Quality & Corporate Technology Efficient compliance to and control of social operations requirements build platforms responsibility of products 5 5 5 5 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 4 2 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 3 2 3 4 4 4 3 4 4 4 3 4 4 2 3 4 4 2 3 4 4 2 4 3 3 2 4 4 3 2 4 2 3 4 3 2 3 2 4 2 3 2 3 3 3 2 3 2 3 2 3 3 3 2 3 3 3 2

4.9 4.7 4.7 4.0 4.0 3.9 3.7 3.7 3.7 3.6 3.6 3.4 3.4 3.1 3.0 3.0 2.9 2.7 2.6 2.6 2.6 2.6 2.6 2.4

Figure 15. Competitive advantage rated and listed by overall average for each company The chart below is a representation of Incodema3D competitive advantage performance in the market, compared with its top nine competitors taken from the table above.

5 4.5 4 Incodema3D, LLC

3.5

GE Global Research 3

GE Power 3BIGGG

2.5

3D Systems 2

Bertrandt Dinsmore and Associates

1.5

LayerWise (purch.2016 by 3D Systems) The Technology House

1

4D Solutions 0.5 0 Brand / Company Value of the Awareness products (price/ performance)

AM machines availability and support access

Technology and Corporate social Quality & responsibility compliance to control of build platforms requirements of products

Efficient operations

Figure 16. Chart showing the competitive analysis of Incodema3D against its main competitors


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Next Figure 17 shows the information regarding the competition transposed within a chart of two main variables: Additive Manufacturing (AM) quality and technology expertise vs. value (price rated to performance).

value (price/performance) 5

4

Incodema3D

3D Systems

GE Global

GE Power

3BIGG

3

Bertrandt

2

Dinsmore

1

1

2

3

4

5 AM quality & technology expertise

Figure 17. Assessment of the competitive environment

Competitor’s Marketing Strategies The leaders of the market are 3D Systems, Arcam AB which was recently acquired by GE Aviation, and 3BIGGG, followed closely by 4D Solutions, The Technology House, Bertrandt and Dismore & Associates. Their marketing strategy is diversification. Their service offerings vary from DMLS to FDM, and they also sell AM machines. Incodema3D will not manufacture 3D machines, and intends to diversify its business by representing EOS on the North American market. The market leaders’ growth strategy is characterized by the following elements: �

Identifying new vertical applications for our proprietary 3D printing technologies. (Stratasys Ltd., 2015). The proliferation of 3D content, advancements in AM technology platforms and the introduction of improved materials will continue to drive growth in 3D printing.

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�


Increasing adoption of AM manufacturing solutions. The adoption of 3D printing for manufacturing applications can be accelerated through working intimately with our customers and the 3D printing ecosystem, to reduce the complexity of using our solutions.

�

Leveraging the global reach to expand the customer base

�

Maintaining and extending the technology lead. (Stratasys Ltd., 2015)

Competitors’ Product Attributes The market leaders offer a comprehensive range of 3D printers, print materials, software, haptic devices, scanners and virtual surgical simulators. (3D Systems, 2015). They also provide on-demand parts (3D Systems, 2015), and this is the market segment where Incodema3D competes against the market leaders: they provide a range of production and finishing capabilities for precision plastic and metal parts and tooling with a wide range of additive and traditional manufacturing processes. (3D Systems, 2015). 3D Systems notes in the 201- 10k report that some of their proprietary print engines patents have recently expired and others will expire in coming years. “Upon expiration of those patents, competitors may introduce products using the technology previously protected by the expired patents, which products may have lower prices than those of our products” (3D Systems, 2015). Additionally, the expiration of the AM patents could reduce barriers to entry into additive manufacturing, which could result in the reduction of market leaders’ sales and earnings potential. (3D Systems, 2015).

Competitors’ Marketing Mix According to the annual reports of the competitors, “the sales and marketing strategy focuses on an integrated approach that is directed at providing 3D printing centric solutions designed to meet a wide range of customer needs.” (3D Systems, 2015). The sales organization is responsible for the sale of all products and services, and with the coordination of a growing network of channel partners. Products and services are primarily sold through partners who are salespersons working throughout the Americas, EMEA and Asia Pacific. In addition, application engineers provide services through presales and post-sales support. A global network of locations provides parts and tooling through both additive and traditional manufacturing solutions. 3D Systems, and other competitors also sell certain products through their website. In certain areas of the world where they do not operate directly, they appointed channel partners and distributors who are authorized to sell products and services on their behalf.


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1.6. Porter’s Five Forces applied to the industry Porter‘s Five Forces analytical framework developed by Michael Porter (1979) represents five individual forces that shape the overall extent of competition in the industry. These forces are represented in Figure 18 below:

Figure 18. Porter's Five Forces

Threat of new entrants into additive manufacturing market is significant. Although there are certain industry entry barriers such as the high startup costs that require significant investment in machines and auxiliary equipment, potential new market entrants may base their competitive advantage on innovative value chain models, increased capabilities of product offering, and expiration of patents of the pioneers in the industry . Innovation and creativity may play an instrumental role in reducing the impact of industry entry barriers. Aerospace and defense corporations would not experience switching costs when compared with new entry competitor companies, which further increases the threat of new entrants. Bargaining power of buyers is great too. The extent of buyer bargaining power varies across customer target market, function of products and services being consumed. Customers who purchase defense article have the highest bargaining power because they are able to switch to a competition business or substitute products and service. Buyers of aerospace commercial or defense ground equipment may have less bargaining power.


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Bargaining power of suppliers is low. Additive manufacturing companies deals with a wide range of suppliers due to the diversity of heat treatment and finishing requirements. The company has a large bargaining power in relation to the majority of its supplier base. Vendors are certified to NADCAP processing requirements and ITAR-registered, which standardizes not only the postprocessing market but it also has a tendency to lower the costs of the services. Threat of substitute products or services is very high. There is a large opportunity for direct and indirect substitution of many products and services offered by Incodema3D, or by additive manufacturing technologies in general. The switching costs for the substitution may be low for certain products or at parity for many of the products. A wide range of complex products offered by traditional technologies are much more expensive vs same products manufactured by additive technologies. Buyers have many opportunities for substitution because of wide offering range. Rivalry among existing firms is intense. Rapid growth rates in this industry and the presence of exit barriers i.e. enormous financial difficulty to sell assets at exit make the competition very intense. The cut-throat rivalry between additive manufacturing startups far outweighs the competition between traditional technologies companies and the new additive technologies companies. The reason is that the transition of products from traditional to additive technologies is controlled from the top of the supply chain, for example Boeing R&D or NASA R&D teams will decide what components may be suitable to transition, such as frames, heat sinks, supports and other static as opposed to dynamic movement parts.

1.7. Porter's Diamond Model applied to the non-domestic market Although Incodema3D doesn’t sell internationally but very few prototypes or batch orders, its global involvement and partnership in AM machine technology and platform, and its dependence on many European vendors of metal powder while US metal powder vendors enter the market, make the Porter Diamond Model an appropriate part of this study (Figure 19).


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Firm strategy structure and rivalry chance

Factor conditions Infrastucture Labor

Demand conditions

Government Related and supported industries Channels

Figure 19. Porter’s Diamond Model

Porter's Diamond shows that Incodema3D’s business will require that several factors become successful. The Porter’s Diamond model is applied to Incodema3D’s non-domestic market. These factor conditions which apply to additive technologies are already shared and common across several national industries, other than United States. The “AM revolution” started globally, as several “Governments around the world have identified AM as a growth industry and are funding research projects to further fund the technology. The value of AM industry was at $4 billion globally in 2015, will be $6 billion in 2017, and will reach $10.8 billion in 2021 (Metal-AM, 2013). Characteristics of these countries that already committed to developing this new technology are nations with stable national income, and population having exposure to technical advancements, CAD and CAM models, and that have the infrastructure allowing new technologies to be implemented. Demand Conditions: The demand is higher than what the market can offer at this time. The clear benefits of the parts, such as lighter weight, higher complexity built right from the first parts instead of using weldments or assembly operations, and simplified and significantly less expensive supply value chain, make these technologies very attractive to markets like aerospace, defense, automotive, industrial, commercial and electronics. Related and supporting industries: The global areas where Incodema3D may expand its business in the first place are those that already have companies supporting additive manufacturing, such as Central Europe, UK, Japan or Australia. In addition to these areas that would be a natural


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extension to the business, Incodema3D and other expanding additive manufacturing businesses will search for those foreign cultures that encourage entrepreneurship and where individuals are willing to take risks and invest in creating a new venture. Firm Strategy, Structure, and Rivalry: Following the tech-bubble of the new millennium, which “saw the NASDAQ technology firms never truly recovered from their reputation as an industry that is volatile, ultra-competitive, and ever changing” (UK Essays, 2015). This competitive environment however is key to understanding the nature of the industry. In order to truly understand Porter's Diamond theory, we may think and many analysts already noted that the expansion and business strategy of additive technologies seems similar to the business strategies and globalization of e-commerce businesses in the nineties. In today's business environment with globalization playing an ever more important role, Porter suggests that the 'competitive advantage' of a nation's industries is determined by the configuration of the four aforementioned elements forming the Diamond: factor conditions; related and supporting industries; and firm strategy, structure, and rivalry. Foreign subsidiaries, having strong internal capabilities and with “the ability to capitalize on host country opportunities, may take strategic initiatives that are as important to a firm or industry as home country determinants” (UK Essays, 2015). National policy and economics considerably influence firm’s ultimate ability to compete in the global marketplace. Porter notes that national policies may also affect firms' international strategies and opportunities. Cultural influences, the geography, religion, climate, and political factors greatly influence firm-based national advantage and they affect each element of the Diamond. (UK Essays, 2015).

1.8. SWOT Analysis of Incodema3D SWOT is an acronym for strengths, weaknesses, opportunities and threats related to organizations. The following Figure 20 illustrates Incodema3D’s SWOT analysis.


37 | P a g e Strengths 1. Strong presence among startup AM companies. 2. Strong financial support and investment ability 3. Additive mfg machines & manufacturer's equipment support 4. Efficient cost structure; no engr, setup, tooling or design req'd

Weaknesses 1. Seasonality of the business 2. Long time to run a build even for simple parts 3. AM machines are limited to small & medium size parts 4. Machine to machine repeatablity issues.

5. Complexity is free; process has low waste. 6. Strong presence globally within the EOS platform 7. Vertical integration efforts w/ machining and EDM operations 8. Strong relationship with its customers Opportunities 1. E-commerce or online orders 2. Increasing focus on own brand products and services 3. Increasing physical presence of the company 4. Engagement in strategic collaborations with companies in ecommerce and affiliated industries 5. New technogologies to increase speed of build 6. Increase number of laser heads, or other technological breakthrus to increase productivity 7. Vertical integration through acquisition of local companies 8. Expand into new countries

5. Low or zero margins to eliminate competition 6. Software and data storage run quickly out of memory 7. Reliability of process; high scrap rate w/ new technology Threats 1. High investment costs for newer larger machines 2. Weak entry barriers 3. Threats to online security; cyber attacks 4.Risk of manufacturing unauthorized weapons; risk of manufacuring counterfeit parts 5. Intellectual property theft, domestically or internationally 6. Alliances between competitors, or between direct customers and competitors 7. Competition from foreign nations

Figure 20. SWOT Analysis Further below some of the most important strengths, weaknesses, opportunities and threats will be discussed. Strengths Incodema3D has a strong presence among US-startup AM companies. It is an approved vendor for most major aerospace and defense companies. The company has a strong financial support from the Incodema Group and from its owners and partners. Incodema3D established itself globally as a strategic EOS platform user, which brought several benefits and an undisputable competitive advantage vs. rivals: total software parameter control on each machine; several of Incodema3D’s employees are EOS-certified operators, maintenance technicians and safety personnel; may rent EOS equipment, train or provide process solutions at third-tier customers when asked to represent EOS within North America; strong presence globally and domestically within the users of the EOS platform. The additive manufacturing technology itself brings numerous advantages, such as and efficient cost structure; no need for engineering, design, tooling, or setup before starting an order. The complexity of the part comes at no additional cost, and the process produces very low waste. Weaknesses One of the business related weaknesses is the seasonality or fluctuations from one quarter of the

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other, function of Government contracts flow-down into the business. Other weaknesses are related to the technology itself because it didn’t reach maturity yet and many of its characteristics need to be improved or standardized: parts simple or complex need a large amount of hours of processing to complete; the AM machines are limited to small and medium size parts capability- only recently new models of slightly larger machines started to be commercialized; identical machines have output variations from one machine to another. Incodema3D being a startup company had low reserves to compete and attempt to eliminate competition, which is numerous and aggressive. Software and data storage are of major concerns, as models and data points from scanning technologies used for inspection take a lot of memory and may become quickly a threat for production stoppage or a capacity issue. Finally, the process is not very reliable, and quality of acceptance of product equivalent to sixsigma, which translates to a few failures per million parts, is not conceivable at this stage of development of these technologies. Opportunities This business presents many opportunities. One of the most recommended by analysists is ecommerce or online ordering, which would further reduce the costs associated with manually processing orders. Another opportunity is to define families of preferred product that may be promoted or marketed as to establish a running production flow in small production batches, and to avoid the impact of fluctuations of the business. In order to increase its presence in the market, Incodema3D may engage in strategic collaborations with e-commerce companies or other affiliated industries. The additive technology has some needs to solve in the near future, such as to increase speed of build, increase number of laser heads, and other improvements to further increase productivity. Incodema3D will further pursue opportunities to vertically integrate post-processing tasks and activities, through the acquisition of local companies. Finally, Incodema3D may look into opening ventures within other countries, to strengthen its relationship with powder vendors or with its equipment suppliers. Threats The additive market and Incodema3D in particular are exposed to a number of serious threats that pose risk to its business and that the company must mitigate. The costs of entry and of


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development are very high. The entry barriers are weak, which increases competition. The exit barriers are very high in cost, for example when the company needs to cancel a program or a product, the losses are high and cannot always be recuperated by sale of assets. There are many threats related to the software vulnerability, for example threats to online security or cyber-attacks. In addition, there are threats where the company may become vulnerable to national security concerns, for example requests to manufacturing unauthorized weapons or counterfeit parts (Dijkstra e.a., 2014). Another threat is the intellectual property theft, domestically or internationally. A potential threat to Incodema3D in the current cut-throat competitive environment is the forming of alliances between the company’s direct customers and its rivals.

1.9. Analysis of Incodema3D’s business portfolio or SBU analysis Incodema 3D operations are organized into two segments: aerospace & defense market, and the commercial / industrial market. Its business operations are divided into two inter-related parts: additive manufacturing and NC machining / EDM. Additive manufacturing is the main source of revenue for Incodema3D. The company moved gradually, in the 3 years since its start, from manufacturing almost exclusively prototypes, to small batch production. The AM machines fleet occupies most of the production floor of 60,000 sq. ft. Additive manufacturing products for the aerospace & defense market represent not only the majority of its sales, but also its growing reputation and expertise in the field comes from the operation within this business segment. Products are built using AM technology, then post-processed for support removal, stress relief, heat treatment processes, NC machining, finishing processes for example plating or etching, inspection and shipping. This SBU is the “star” of Incodema3D and where the future is. Additive manufacturing products for commercial or industrial market business has also grown out of prototyping for customers and now is running small batches or repeat batches of parts for loyal customers. Because of the lesser requirements in documentation, quality codes, no Governmentspecific priority delivery, shipping without authorization or source inspection, these orders became simpler to process with reduced or nonexistent overhead costs and solid profits. These products may also require post-processing for heat treatment or NC machining. This operational unit is the “cash cow”. Additive manufacturing prototype parts are still needed for long-term customers or new customers. This operational unit involves engineering tasks, software adjustment, documentation and


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first article inspection, inspection scanning; the entire process of AM build and post-processes, as well documentation and procedures are in compliance with aerospace & defense regulations for one piece only in most cases. This SBU is the “question mark”. In the same unit we’ll include occasional orders for reverse engineering; this process includes the inspection scanning of the customer-provided product and delivery of the 3D model with complete dimensions and tolerances to customer. Incodema3D still preserves a unit of NC machining only, mainly of prototypes. Orders come directly to the NC Machine shop. Parts are machined out of material stock, inspected, post-processed if heat treatment or finishing tasks are required, inspected and shipped. This unit is a reminiscent of the vendor business that the NC machine shop was active before being vertically integrated within the Incodema3D. The disadvantage of still running NC machining operations only is that its priorities may interfere with the priorities of the other three SBU’s, specifically in shipping and receiving from postprocess vendors, in final inspection, and in shipping. The advantage is that, although revenues are low per order, the monthly revenue represents 20% of the total company revenues. The segments that were identified above may be characterized by market growth rate and

high low

Market Growth Rate

relative market share, using the Boston Consulting Group Matrix.—see Figure 21.

STAR AM products w/ postmachining for Aerospace & Defense market; production

QUESTION MARK AM products for prototyping; reverse engineering

CASH COW AM DOG NC machining products for commercial prototyping & high$ market; production. high low Relative Market Share

Figure 21. BCG Matrix


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1.10.

Incodema3D corporate strategy, based on the vision and mission statements, the environmental constraints and the TOWS matrix

The purpose of the TOWS matrix is to formulate those strategies that will mitigate the negative effect of weaknesses and threats, while maximizing the strengths and the opportunities for growth.

Figure 22. TOWS Matrix

The strategic problem that the company faces is the lack of A.M. new technologies awareness on the manufacturing market, and the resistance to innovation within large aerospace and defense corporations. The recommended corporate strategy is to increase the brand of the company, while increasing the A.M. technology awareness and reputation. Current Performance Metrics of the company indicate: o High Quality Performance; o High Customer Service and Engineering Support; o On-Time –Delivery metric indicates delays due to suppliers lead time


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The strategy is to focus on growth through vertical integration. The growth strategy is appropriate to Incodema3D because it has a prominent position in a rapid growth market, and the company is characterized by a strong competitive position within the aerospace & defense market. (Wheelen, e.a. 2015)

1.11.

Competitive Values Framework of the company

Incodema3D has a strong culture of innovation and creativity. The spirit of entrepreneurship starts with the company’s ownership and is flown-down to the level of each operator, inspector or shipper. Employees are hired for their enthusiasm and can-do attitude. The company is looking for talent and technical expertise in its personnel. On the market, the company is aggressively competing against its rivals. Engineers and management of the company pursue growth by taking new programs that may seem high risk for the company’s rivals, and achieving their goals through determination and innovation, flexibility and individual confidence in their abilities to overcome obstacles. Figure 23 shows where the company is positioned for success, within the CVF framework.

Incodema3D

Figure 23. Competitive Values Framework for Incodema3D


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1.12.

Business level strategy for each SBU, based on the corporate strategy

In order to identify the investment strategy and the business level strategy, I’ll use the following matrix. SBU Aerospace & Defense Commercial / high $ AM prototyping Reverse engineering NC machining prototypes

Investment Strategy increase increase maintain invest selectively decrease

Business Level Differentiation (Porter) Prospector (Miles & Snow) Analyzer (Miles & Snow) Cost based (Porter) Defender (Miles & Snow)

Figure 24. Investment strategy and the business level strategy The GE/ McKinsey matrix is using the business attractiveness and the industry attractiveness to

Business attractiveness

recommend the investment strategy for each SBU – see Figure 25.

Industry attractiveness high average low high increase increase maintain average increase invest selectively decrease low invest selectively divest liquidate

Business attractiveness

Figure 25. GE / McKinsey matrix

high high Aerospace & Defense average Aerospace & Defense low AM prototyping

Industry attractiveness average Commercial / high $ Commercial / high $ Reverse engineering

low Reverse engineering NC machining prototypes NC machining prototypes

Figure 26. GE / McKinsey matrix applied to Incodema3D

The implementation of Mile& Snow Topology is summarized in the Figure 27.


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Figure 27. Miles & Snow Topology

Aerospace & Defense Incodema3D’s strongest business unit is the aerospace & defense business. The business level strategy that is recommended is differentiation. “Differentiation is the ability of a company to provide unique and superior value to the buyer in terms of product quality, and special features.” (Wheelen e.a., 2015). Differentiation strategy may be associated, at Incodema3D, with offering products that are not only 3D-printed, but complete with many of the post-processing operations that many of our rivals would complete by using outside vendors. The disadvantage in the eyes of the customers of using remote vendors or too many third-tier vendors is that, according to aerospace & defense regulations, each third-tier vendor must be qualified and approved for use, which in many cases involves business trips for quality and engineering audits, and the third-tier vendors passing through an extensive and demanding process of qualification tests, inspection and exchange of documentation. Incodema3D developed a local value-chain of post-processing operations, which combined with the vertical integration of NC-machining, offer to buyers a complete package with all product features included; in addition, Incodema3D is careful to use already-qualified local vendors, as to minimize costs associated with vendor approval on the customers’ side. The differentiation strategy at Incodema3D may also be associated with increased customer service and attention to quality requirements, as part of the package offer. The differentiation strategy at Incodema3D is actually a differentiated defender strategy (Mullins & Walker, 2010), where the

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“competitive strategies are tailored to unique resources and competencies”: Incodema3D hired and trained friendly and enthusiastic personnel; offered flexibility to repeated revision of product requirements coming from customers, as the customer specs are not frozen and still continue to improve and evolve function of changes in the use of these new technologies. “Differentiation is a viable strategy for earnings above-average returns because the resulting buyers’ loyalty lowers their sensitivity to price”. (Wheelen e.a., 2015). Buyer’s loyalty also serves as an entry barrier for Incodema3D’s rivals. Increased costs for long-term customers may be passed on to the buyers, after developing a buyer’s loyalty to the company. The differentiation strategy should also consider a cost focus strategy when entering a new program or when dealing with particular niches where the company didn’t operate before. The cost focus is a low-cost competitive strategy, which comes from a determination to reduce costs in areas like R&D, sales force, overhead and reduction of costs in production coming from experience, while still earning profits in a very competitive market. (Wheelen e.a., 2015). Commercial / high $ niches The recommended strategy is the prospector. “The prospector operates within a broad productmarket domain” (Mullins & Walker, 2010), which is adequate as a general definition of the additive manufacturing market at large, and values to be a first mover by attaining growth through aggressive pursuit of a new opportunity. (Mullins & Walker, 2010). The most successful strategy for Incodema3D as an entrepreneurial startup company was the prospector strategy, when it didn’t have an established market position to defend. (Mullins & Walker, 2010). This strategy remains very effective when pursuing niches of high $ opportunity within the commercial market, even after other business units of Incodema3D reached certain name recognition within the market. Another characteristic of “smaller single business firms” is that the “distinction between business-level competitive strategy and the marketing strategy tends to blur and the two strategies blend into one.” (Mullins & Walker, 2010). Additive manufacturing prototyping Incodema3D continues to pursue opportunities for AM prototyping, as a means to expand into “related product-markets with low-cost offerings” (Mullins & Walker, 2010). The strategy employed here is the cost leadership analyzer. (Mullins & Walker, 2010). Incodema3D pursues this avenue and its financial strategy associated with this part of its business is to invest selectively (see Figures 19 and 20). The company offers the AM prototyping services at lower cost than many of its rivals, because it has the ability to reduce costs by relying on experience and cutting on expenses like first trial run or

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R&D. This strategy was proven to be effective since the company’s startup, and the costs associated with this part of the business are running low. The customer service and product-quality interactions of personnel with their counterparts at the customers’ location, in order to promote and sell the prototypes, are also an important part of the success of these operations. Reverse engineering These activities are distinct from the main production activities, and represent a small part of the overall business of Incodema3D. The strategy used is cost focus (Wheelen e.a., 2015). The company answers to only a “niche demand in the market and seeks a cost advantage against its rivals” (Wheelen e.a., 2015) to make buyers come back with new orders. The market is local and it serves companies that need a 3D model / drawings based on an existent complex part that is difficult to engineer by using simple mechanical gages. Reverse engineering is done by using the inspection scanning technology, which was a by-product of the emergence of the additive manufacturing. Incodema3D has a CMM scanner on-site, which uses its installed laser camera to swipe the surface of the product and output a 3D model with complete dimensions and tolerances. The advantage of accepting these orders is an increase of Incodema3D image of the competencies and engineering abilities of the company, and its dedication to offer a well-rounded package of expertise and knowledge to its customers. NC-machining of prototypes This part of Incodema3D business is the core competency of the machine-shop, and its unique positioning within the metal manufacturing local market as a rapid prototyping machining shop. The attractiveness of this unit to the ownership of Incodema3D came from its entrepreneurial mindset and from the flexibility, advanced skills and autonomy of its personnel; these qualities determined the owners to vertically integrate this unit within Incodema3D in 2016, promising to be a good fit with the skills and culture of the company. The purpose of the vertical integration was to be able to offer buyers the 3D-printed product in its final specification requirement, i.e. post-machined to its final dimensions and tolerances, which represents a significant departure and competitive edge against other AM startups nationally: Most other AM startups must outsource their NC-precision machining needs. The recommended strategy is the cost leadership defender (Mullins & Walker, 2010).This business unit should be “concerned with maintaining a low-cost position in its mature market” (Mullins & Walker, 2010). As Incodema3D moves more and more within production orders for its additive manufacturing “star” business, the strategy of NC-machining unit will actually respond primarily to


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orders pushed to it from its customer base, as opposed to define any competitive strategy to pursue more orders. This orientation defines a cost leadership reactor strategy. This part of the business will gradually, within the next 2 to 3 years, will not pursue any new product-market development to assert itself on its own with a competitive strategy, but will become more profitable by running production post-machining for the AM part of the business. The summary of the recommendations discussed above are shown in the table below (Figure 28).

Figure 28. SBU recommended strategy


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2.

Implementation of Strategy 2.1.

Corporate parenting strategy

Incodema3D provides 3D solutions and on-demand manufacturing products from prototype to production by using our expertise not only in Additive Manufacturing but also using our Incodema Group capabilities, software and digital manufacturing tools. Our platforms support advanced applications from product design to 3D production in a wide range of industries. Our engineering and quality teams enable customers to optimize product designs, develop and implement new workflows, and bring high quality products to market. We are pursuing a strategy that focuses on offering a comprehensive array of solutions aimed at aerospace, power generation, and commercial goods to address various applications. We believe we are at an inflection point for 3D-printing and a shift from prototyping to production is underway. We are focused on driving growth into 3D-printing production through improving durability, reliability, repeatability and reducing the total cost of operation. We have expanded and strengthened our partnership with 3D-printer manufacturers like EOS, GmbH. We plan to continue to invest in hardware, software, and powder metals to individually match customers’ applications. To execute this growth strategy, we are focusing on an operating framework based on innovation that drives growth while balancing investments to support continuous process improvement, and infrastructure capacity enlargement. We expect to be able to support growth by prioritizing and focusing our resources and leveraging our technology, domain expertise and strong customer and partner relationships. Our growth strategy is carefully taking into consideration the risks associated with the additive manufacturing market, the volatility in fuel and other energy costs, and fluctuation in quarterly gross profit margins due to the variety of products that we sell. Risk Factors We face aggressive competition, which could cause our revenues and gross profit margins to decline. Competition may force us to reduce sales prices or to increase our marketing and sales reps costs, which could result in decreased revenue, reduced margins. The company’s future success depends on our ability to deliver products that meet fast changing technologies for 3D printing and changing customer needs. We have made a strategic acquisition in 2016, and may make more acquisitions in the future, which could involve uncertainties regarding the anticipated profits and benefits. These acquisitions may disrupt our business, may cause loss of employees or management, loss of customers and potential


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litigation. We may incur significant costs enforcing our patents or acquiring intellectual property rights and defending against third-party claims as a result of litigation or other proceedings. Global economic, political and social changes, financial markets evolution or collision may harm our ability to do business, adversely affect our sales, costs, and cash flow.

2.2.

Financial Strategy

Revenues increased with 123% from the first year of operation 2014 to 2015, and with another 216% from 2015 to 2016. This growth was due to changes in sales volumes, including growth from the 2016 strategic acquisition. Another major driver of changes in revenue from one period to another was the combined effect of changes in product mix and average selling prices. This financial strategy will continue in future years. The current solvency ratio, i.e. current assets vs. current liabilities, is at 3.12. The cash ratio (cash / current liabilities) is 1.29. The profit margin (net income/ sales) was at 20% in 2016, compared to 24% in 2015 and 20% in 2014. The return on assets in 2016 was at 9.6%, which is comparably much better than the competition (net income / total assets). Inventory turnover is at 1.82 (cost of goods sold/ inventory cost). The current investment strategies for each of the SBU’s will be maintained in the near future. SBU Aerospace & Defense Commercial / high $ AM prototyping Reverse engineering NC machining prototypes

Investment Strategy increase increase maintain invest selectively decrease

Business Level Differentiation (Porter) Prospector (Miles & Snow) Analyzer (Miles & Snow) Cost based (Porter) Defender (Miles & Snow)

Investment strategy for each business unit, Incodema3D

The long-term financial investment strategy for the NC machining prototypes is to close its business for NC machining prototypes and transition the entire SBU as a support post-processing functional department within the other two most profitable SBU’s, the Aerospace and Defense SBU and the Commercial High-End Products SBU.


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Consolidated Statements of Operations and Net Income (in thousands) Revenue: Products Services Total revenue Cost of sales: Products Services Total cost of sales Gross profit Operating expenses: Selling, general and adminstrative Intangible assets Total operating expenses Income from operations Interest and other expense, net Income before income taxes Provision for income taxes Net income attributable to Incodema3D

$

$

2016

2015

2014

9,145 576 9,721

3,048 23 3,071

1,372 4 1,376

3,064 236 3,300 6,421

1,221 13 1,234 1,837

534 2 536 840

4,356 (-) 4,356 2,065 74 1,991 61 1,930

985 69 1054 783 24 759 23 736

539 (-) 539 301 9 292 9 283

Consolidated statements of operations and net income

Incodema3D believes that our cash and cash equivalents will be sufficient to satisfy our working capital strategy, capital expenditures, other financial commitments and liquidity requirements associated with our existing operations in the near future. We also believe that the existent cash will help to continue our strategy to acquire other businesses for vertical integration, assets, or technologies. However, in the future, we may need to raise additional funds to finance our activities. These additional funds may be raised by issuing equity or debt securities to the selected investors, by borrowing from financial institutions, selling assets, or restructuring debt. The majority of our inventory consists of finished products, materials and raw materials, for example metal powders from different vendors and traced back to different manufacturing dates.


51 | P a g e $12,000.00 $10,000.00 $8,000.00 $6,000.00

Series1

$4,000.00 $2,000.00 $0.00 2014

2015

2016

Total Revenue Increase 2014-2016

We are subject to medium financial risks due to fluctuations in foreign exchange rates between the dates that those transactions are entered and the settlement dates, when we acquire or service our EOS machines. Our foreign currency contracts are generally short-term in nature, typically maturing in 90 days or less. Our financial estimates may also include a certain degree of risk, for example those estimates related to income taxes, inventories, pensions, and other intangible and long-lived assets. We base our estimates on historical experience within the Incodema Group. Actual results may differ from the original estimates and may change under certain circumstances or within the year. Intangible assets are acquired licenses, our patent costs, acquired technologies, internally developed technology, customer relationships, non-compete agreements, trade names and trademarks. Intangible assets with finite lives are amortized using the straight-line method over their estimated useful life. For intangibles with finite lives, we evaluate the amounts of potential loss when events change and the asset value may not be recoverable; For example, decrease in selling price, changes in the way an asset is being used, or adverse changes of the business climate.


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Balance Sheet - Incodema3D Viability LIABILITIES

ASSETS

Current Assets (liquid within 12 months)

Current Liabilities (due within 12 m onths)

Cash and cash equivalents

$3,723 Accounts payable

Accounts receivable, net of reserves

$3,125 Accrued (unpaid) interest not included above

Inventory , net

$1,678 Incom e taxes and Social Security taxes payable Principal due within 12 mos. on long-term debt

Prepaid expenses

$1,582 $629 $76 $258

$369 Operating loan principal balance

$167

Short-term loan principal balance

$59

Principal due within 12 mos. on intermediate debt Other current assets

$112

$102 Other current liabilities

Total Current Assets

$8,997 Total Current Liabilities

Intermediate Assets (held 1 to 10 years avg.) Equipm ent, machines Vehicles

Intermediate Liabilities (due 1 to 10 yrs. avg.) $9,745 Intermediate loan principal balance

NC machines, other m anufacturing equipment

$2,883

$4,165

$863 Intermediate loan principal balance $42 Intermediate loan principal balance

Book value of capital lease(s) Other interm ediate assets (describe)

Total Intermediate Assets Long-term Assets

$103 Capital lease payments due (discount for interest)

$472

Other intermediate liabilities (describe) $10,753 Total Intermediate Liabilities

$4,637

Long-term Liabilities

Land

$150 Long-term loan principal balance

$74

Buildings

$193 Long-term loan principal balance

$32

Other long-term assets (describe)

Total Long-term Assets TOTAL ASSETS

Other long-term liabilities (describe) $343 Total Long-term Liabilities $20,093 TOTAL LIABILITIES

NET WORTH: TOTAL ASSETS MINUS TOTAL LIABILITIES =

$106 $7,626 $12,467

Noncompany Assets (optional)

$53,776 Noncompany Liabilities (optional)

$22,630

Total Assets Adjusted

$73,869 Total Liabilities Adjusted

$30,256

CONSOLIDATED NET WORTH: ADJUSTED ASSETS MINUS ADJUSTED LIABILITIES =

$43,613

Consolidated net worth for Incodema3D

Capital investment planning and budgeting for the next five years included the following assumptions: The cash and cash equivalents will increase 1.5 times from 2016 to 2017, and 1.2 times 2017 to 2018, and in the last 2 years will increase w/ 1.05 times. In 2016, we have spent 30% from the total yearly cash in capital investment. The assumption is that we'll continue to spend 25 % of the yearly cash on capital investment.


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PLANNING AND BUDGET FOR CAPITAL INVESTMENT (in thousands) cash flow forecast

2016

2017

2018

2019

2020

$3,723

$5,584.50

$6,701.40

$7,036.47

$7,388.29

capital investment budget

$1,256

$1,396.13

$1,675.35

$1,759.12

$1,847.07

Planning and budget for capital investment 2016-2020, Incodema3D

2.3.

Marketing Strategy

Our sales and marketing strategy is an integrated approach to promote our products. Our marketing and sales department includes direct sales force, our partners’ channels, as well as application engineers. Additionally, our application engineers provide pre-sales and post-sales support, inform and push new technologies of 3D-printing to our customers and identify new sales opportunities. Our manufacturing engineers and Company’s management also contribute to our customer relationships and help generate leads. Our most profitable SBU’s and which represent our brand on the market are shown in the table below.

growth strategy by expansion and developing new products, and by increasing penetration; maturity strategy for certain mature products

A.M./ 3D printing penetration pricing: technologies; post competitive price/ processing; complex customized services/ machining.

growth strategy prospector; Commercial High maturity strategy for certain End mature products.

penetration pricing: A.M./ 3D printing price high per market technologies; simple demand/ customized machining; services

Aerospace and Defense

directly to customer; push strategy: vertically integrated strategy; discount, sales middlemen for global promotion, marketing expansion;

directly to customer

push strategy: promote brand, allowances; personal selling,

Promotion strategy, channel strategy and pricing strategy for major business units of Incodema3D

The marketing expenses increased for about 4% since 2015, which amount to $145,000. The budget for marketing in the next 5 years is evaluated to increase with about 20% till 2020. The


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major driver we estimate to be the incentives and rewards to our sales forces for bringing more business and penetrating the market.

BUDGET FOR MARKETING STRATEGY IMPLEMENTATION 2016

(in thousands) increase in expenditures budget

2017

2018

2019

2020

$145 $174.00 $208.80 $250.56 $300.67

Planning and budget for marketing strategy implementation 2016-2020

The methods employed for achieving the marketing strategy are also budgeted below as follows.

method

advertising

importance & budget index

5%

personal selling 80%

public relations 5%

sales promotion 10%

Budget index for the marketing methods employed, 2016-2020

2.4.

Operations Strategy

We produce 3D-printed / additive manufacturing products at our facility in New York State. We also have contracts and agreements with third parties who blend certain raw material powders to our specifications that we use to manufacture our products under our own brand name, and we purchase certain raw materials from third parties to manufacture product for our customers. Our processes to manufacture on-demand products, to deliver services and assisting customers in their research and development activities are in compliance with applicable federal, state and local provisions regulating the storage, use and discharge of materials into the environment. We are in compliance, in all manufacturing aspects, with such regulations as currently in effect and that continued compliance with them will not have an adverse effect on our capital expenditures, or on our consolidated financial position. In regards with the intellectual property of our operations, our technology platforms and materials are mostly proprietary and we seek to protect them through patents, trademarks and non-

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disclosure agreements. The patents regarding certain aspects of additive manufacturing technologies will expire at varying times through the year 2035. We also entered into various arrangements with other companies in the United States and internationally to utilize our technologies in their products or to use their technologies in our products. While our patents and agreements provide us with a competitive advantage, Incodema3D’s success also depends on our marketing and sales efforts, and on business development; such that the expiration of the patents would not have a significant impact to our business or financial position. In order to support our corporate growth strategy, the operations functional strategy will focus primarily on structural decisions to increase capacity, improve the facility efficiency in terms of electrical, thermal and humidity functions, increase and diversify existent technologies or implement new technologies and equipment for faster and higher quantity output, or for larger size 3D-printed products. Our emphasis will continue on financing opportunities to vertically integrate manufacturing lines or adequate equipment, which would accelerate our processes’ output while reducing costs of using outside vendors or services. Structural decisions will be the driver of our operation strategy. Manufacturing systems that we’ll continue to pursue are flexible and answering fast to changes in customer requirements or new niche opportunities. On major programs, defense customers may require dedicated machines and auxiliary equipment, in order to qualify and validate the quality and manufacturing of their product at the beginning of the program and then “freeze” the assets and procedures for the entire program flow. In order to maintain and increase our flexibility to answer rapid market changes and opportunities, and to keep our competitive priority on the market, we’ll counter the need for program-dedicated equipment with finding solutions to lower production costs, while improving on-time-delivery. Manufacturing processes at Incodema3D are batch manufacturing, organized by customer program. The documentation and requirements are maintained and monitored by batch and program. To avoid cost increases related to the batching process, we route the product batch bins down a flow through the facility and supply-chain such as to increase efficiencies, remove bottlenecks, and continuously look into reducing costs. Purchasing strategy is to develop multiple sourcing. While there are several potential suppliers for post-processing of our products, we currently choose to use a limited number of suppliers for a certain service. We dedicate one vendor per service for a specific program. We chose the vendor stapled to the program based on past experience and on vendor’s strengths and weaknesses that match best the intent of the program. Post-processing services and special processes that are needed for our

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products may be potentially purchased from many manufacturers; we require any new vendor to become qualified to our internal procedures, which involves evaluation processes. Purchasing’s strategy is also including just-in-time scope of activities and zero additional inventory. This metric is closely monitored by entire management team, as to avoid competing demands forwarded into the purchasing department. The control of the current and soon-to-be-ordered services or parts is done online, using the Incodema3D apps ERP system. Planning and scheduling is make-to-order. Additive manufacturing penetrated the castings and forgings market as an alternative of manufacturing the same parts, at lower costs, faster turnaround from order to ship, higher material properties in terms of durability, tensile and hardness properties, and better integrity of material microstructure i.e. less internal fissures and cracks. Because of this breakthrough in the market, the orders are coming from all directions and from various major defense and aerospace customers. This variety in demand is naturally compartmentalizing the planning of our internal processing into niches or batches. The most significant impact of the degree of market penetration of these new technologies is on the planning and scheduling strategy. The quoting process is tightly related to the planning and scheduling processes in our business, through our online proprietary system of ERP apps. Currently, static and non-moving assemblies of the aerospace and defense market, such as engines, structural frames, control assemblies of armament or surveillance equipment like radars or satellites, are most in demand of 3D-printed products. We foresee that major defense and aerospace companies, in the near future and in the long-term, will continue to research, validate and then give the green light to their buyers to purchase more diverse families of 3D-printed products. Workforce is flexible and talented. Incodema3D will continue to look for employees with a penchant for technical curiosity, can-do attitude and entrepreneurship, in order to be able to overcome with ease and enthusiasm the minor and major obstacles of a start-up business in its day to day operations. Logistics are centralized and closely glued to our purchasing department. Their function is to support in close step the seamless flow down of requirements and deadlines of supply-chain needs that were pre-determined during the quoting and planning startup of a program. Logistic requirements, for Incodema3D only or for its entire sub-tier supply chain, are often run off the customers’ portals for more efficient and just-in-time delivery. The operations strategy must close the gap between competitive priorities like cost, quality, time and flexibility, and the capability to achieve that competitive priority, in order for the company to meet

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its long range plan (Ritter, 2017). Our competitive priorities, as it was actually discussed at several occasions in the text above, is lowering the operation costs by cumulative experience on certain family of products, which enables faster response and execution within our business. Top quality gives us a significant competitive edge against the competition. The high quality of our products comes from the in-house expertise in manufacturing engineering the optimal software parameters of the 3D-printers for each program and material, and from in-process continuous inspection and self-validation through each manufacturing step of the products. The quality plans and inspection points are determined at the quote level, right from the start of a program. Critical quality steps are signed off by the Director of Quality or her backup, in order to avoid value adding to a product that may need to be reworked or scrapped. On-time delivery is another metric that is critical for the business. Incodema3D received gratification from major customers regarding its competitive advantage against other additive manufacturing companies for fast delivery of products from prototype validation to program end, while achieving the highest standard of quality. This competitive priority is the result of two major efforts, one is the fast development of the process flow, and second is the very competitive process production throughput i.e. with minimal interruptions for quality escapes and with least bottleneck delays. Flexibility of the company’s business system is a major competitive advantage, which may not be as visible to customers as the other three competitive priorities above, but which it certainly affects directly the growth initiative. Incodema3D has proven to control well customization, while it handles a significant variety of product families and it adapts fast to volume flexibility of the program from orders of a few parts to orders of hundreds of parts. Operations strategy has two types of decisions. The structural decisions that were presented above are the driver in achieving growth at Incodema3D. This strategy comes natural to Incodema3D who is a startup company that competes within the additive manufacturing market, which business analysts qualify potentially as volatile as the internet dot.com revolution at the turn of the century. In the same time, we’ll adequately make infrastructural decisions regarding our workforce, quality systems, supply-chain processes and procedures, inventory and managerial controls to support the growth in our operations. Any delays in, or problems associated with, implementing, or transitioning to new or improved quality systems, procedures, or controls to accommodate and support the growth of our operations, or delays to effectively and efficiently integrate acquired operations, may have a negative effect in meeting customer requirements and quality standards.


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The workforce strategy will be discussed further in the document, at section 2.6. Supply-chain and inventory decisions were mostly covered within the content of section 2.5. Managerial controls will be presented at section 4.0. The quality systems at Incodema3D are certified to the most demanding aerospace standards in the market, AS1900 & ISO 9001. These certificates were issued at the end of 2015. After the vertical integration with the manufacturing lines of the NC machine-shop which ownership acquired, the company successfully re-certified to the same business system standards, which validated the successful integration of the workforce and process to a much higher level of requirements and quality than they were used to. The company also made the changes needed to meet the EOS-AMQ certification, which include quality requirements specific to additive manufacturing technologies; it incorporated stringent safety requirements, maintenance and control of machines, statistical process monitoring of materials performance and of the build machines’ function. Incodema3D is registered with the Department of Defense for international control of arms regulations. This set of procedures is included in the company’s business system, and makes Incodema3D compliant with the defense market requirements regarding processing of parts and documentation for armament business market.

2.5.

Information Systems Strategy

Incodema3D has developed and implemented an in-house proprietary management information system for key functions of the business. A possible risk is the failure of our information systems to adequately perform these key functions; another risk is that if we experience an interruption in the MIS function longer than a few hours, our business and operating results could be adversely affected. In order to mitigate these risks, we have in place a recovery plan, which will require us to move our MIS function to another facility of the Incodema Group. The efficient operation of Incodema3D, including the manufacturing and supply chain processes, is dependent on our management information systems. The management of our accounting and financial functions is based on a different server outside the Incodema3D; it is basically run on an independent network by the Incodema Group. The continuous performance of our management information systems is needed at all times; their failure may cause increased overhead costs to fix the problems, product shortages, and operating results may suffer. The risks associated with management information systems are in relation to their


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security including our computer systems, intranet and Internet sites, email and other telecommunications and data networks. These risks are theft, loss, damage and interruption of service; unauthorized access or security breaches; cyber-attacks, computer viruses, and power loss. Incodema3D’s loss or disclosure of confidential and proprietary information may cause us to have to pay fines if stolen customer data occurred, or significantly increase costs to remedy the system or to improve cyber security protection. 2.5.1.

Enterprise resource planning

Incodema3D developed and implemented a proprietary ERP system, which is a modular aggregate of interconnected apps that show in real-time the status of each order and each part in the process flow, internally and in the supply-chain. The apps also allow the performance metrics monitoring, in real-time for certain key parameters, and on a weekly or monthly rate for other parameters that may require periodic closed-loop adjustment. Improvements to the system are ordered online and are forwarded directly to the offsite contractor and vendor, who monitors and completes a daily backup of our data. Improvements that may be needed are for example the addition of a customer requirement that must explicit on the router header for a specific program; we added lately, as an example, the Government priority code to routers, from the customer purchase order, to enable shipping personnel to keep adequate records of priority shipping against other nonrated orders. The ERP will be improved with adding direct links and supplier portal for our sub-tier service and raw material providers. We also developed cloud applications that store information regarding our raw powder material tests and metallographic analysis. 2.5.2.

Radio Frequency ID methods

Some of our customers require RFID scanning labeling in addition to serialization of parts that are manufactured and shipped. We currently comply with this requirement by outsourcing this service. The MIS strategy for the next five years includes the implementation of an in-house ability to label and serialize using RFID technologies. This effort will start with the shipping department, and then gradually will be implemented within our internal traceability system. The table below illustrates the budget allocated for implementing the RFID.


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2016 RFID implementation costs

2017

2018

2019

2020

$5,300.00 $4,500.00 $1,300.00 $2,000.00 RFID implementation budget

Implementation of RFID in the shipping department requires the purchase of a Zebra label printer and two handheld scanners, which will amount to $5,300. Next year, in order to expand the RFID technology in production, we’ll have to purchase another Zebra printer that will be located at a workstation between the raw material lab & receiving inspection area, and the 3D-printer production area. In 2019 we plan to purchase more handheld scanners for the planners and expediters. The budgets of 2019 and 2020 include the maintenance and repair costs of the system.

2.6.

Research and Development

Incodema3D does not have a design group in the sense of the AS9100 & ISO 9001 business system certification. The development efforts are focused on technology improvements and applicability. Our engineers directly contribute to the prototyping efforts while working with our customers’ representatives to adapt their drawings and 3D models to the additive manufacturing technologies. In addition, a number of our engineers and technicians work on experimenting and testing different materials before and after 3D-printing process. The results of their tests are shared with our powder suppliers according to the extent of agreements we have with them, as well as with customers. These efforts go in the direction of promoting the 3D-printing technology within the market and increasing sales. Two of our executive directors are direct contributors to writing the additive manufacturing national and international standards.

2.7.

Human Resources Strategy

Our success depends upon the performance of our senior management and other key personnel. Our personnel are critical to our business and operations, as well as to the development and execution

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of our strategy. “High demand exists for senior management and other key personnel, including scientific, technical and sales personnel, in the 3D printing industry” (3D Systems, 2015). Incodema3D has intense competition for qualified personnel. The company provides competitive compensation packages to attract and retain key personnel. We have to continue to be able to attract talent and retain qualified technical employees for the manufacturing and quality operations. The additive manufacturing market has a shortage of key personnel, for example engineers and technicians; in order to retain our personnel we may have to increase our resource costs. The organizational culture is an adhocracy, which is moving in the direction of the market culture. The emphasis of our efforts is to create new technologies, new raw materials blends, and new opportunities in collaboration with customers, partners and suppliers. The drivers are our ability to generate innovative outputs and the continuous improvement to transform and grow. The company wants to move towards a market-oriented culture. In view of this inference of market values within our adhocracy, the management team is driving profitability and goal metrics for monthly performance. Incodema3D has a very strong customer focus and is aggressively competing against its rivals. The need for stability and control when having a hybrid culture of adhocracy and market-oriented is implemented through the standardization of our manufacturing and quality processes by documenting them in procedures; followed by training and verification of training effectiveness in the daily activities through close supervision and feedback.


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Competitive Values Framework that applies to Incodema3D

The current human capital consists of about sixty-five engineers and technicians in any role within the company, from quoters, to manufacturing engineers, planners, operators, inspectors, expediters and shippers. In our executive and senior management roles we have experienced and/ or formally trained individuals, coming from the fields of engineering and technical disciplines. Our current workforce is diverse of both genders, across different age brackets, different origin, and different backgrounds. We hire talented individuals with particular strong technical background, with personality traits showing entrepreneurship and initiative. Our HR strategy is to hire skilled employees who receive relatively high pay and are crosstrained to participate in self-managing teams (Wheelen e.a., 2015). As work will increase in complexity, the more the strategy of self-managing teams will prove to be suitable to provide fast and effective solutions, especially in the case of innovative development efforts (Wheelen e.a., 2015). Training is a big part of our culture. We train our employees on a continuous basis, not only to the customers’ requirements and execution of programs, but also how to effectively operate in teams, or how to implement and control major initiatives like the 5S business program, i.e. sort - set in order – shine - standardize - sustain, and to the customers’ quality system programs.


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5S company program to maintain cleanliness and standardization

Another program that Incodema3D may be looking into the near future is the six sigma program. The company is already staffed with a Master Black Belt who can potentially train and certify more employees to the use of statistical techniques and transfer this knowledge from the quality function into the mainstream of the company. Six sigma capability analyses of material characteristics and processes capability performance are currently run for several programs, as a tool to better communicate proof of process control with major aerospace customers. Total Quality Management is part of the culture at Incodema3D. The company is committed to customer satisfaction and continuous improvement. Our continuous improvement projects are worked on by internal teams and progress is reported in the top management review on a monthly basis. This program implemented procedures that require employees, in order to correct quality problems, to come up with permanent solutions like error-proof procedures, mounting or assembly, as opposed to temporary solutions or human-dependent fixes. We also implemented the operator-inspector GE initiative, which moves the emphasis of quality verification from inspectors to operators, such that the next workstation in the process flow represents an internal customer who should encounter zero defects on the products received from the previous operational step.


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3. Organizing for Strategy Implementation 3.1.

Moving from simple structure to functional structure

In 2015 - 2016, Incodema3D had a simple structure. The owner and a small team of operators were making all the decisions together, from quoting, to 3D-printing parameters and choice of printer, the post-processing, to packaging and shipping. The company had to solve survival issues and its growth efforts were faced with short-term operating problems. The strategy was to follow any lead or immediate opportunity that seemed fit for the company to the owner or his team. The accounting system was basic and looking similar to an individual balance sheet. The key performance indicators were efficiency and to break even, i.e. the sales amounts to be high enough to cover expenses. The human resource reward system was based on the owner’s observations of his team members’ accountability and dependability. By mid-year of 2016, because of fast growth, owners hired a large number of employees in a short time, a new executive, and acquired a machine-shop to integrate within Incodema3D. This new team arrived with its own senior management. The simple structure was inadequate anymore. The company moved to different stage and to a functional structure. The extended team had to find mechanisms to focus on each product problems at a time, as a team, and move on to another product. They implemented procedures lined up to each process, in order to keep employees accountable and to standardize the work and the expectations of results. The management team formulated performance targets for the entire company, and control systems were implemented. The machine-shop operation and the 3D-printing operation developed into business units, which although were working together, were also independently quoting and processing certain projects and orders. The majority of the orders are processed through both units i.e. A.M. and NC-machining, in a process flow, and for these orders the NC machine-shop unit acts as a post-processing functional department. Because the size of the company is small, these two business units are not separate divisions, but their factual autonomy qualifies them as SBU’s. In addition, the quality function, which was equipped with modern and sophisticated scanning CMM systems, developed its own expertise as an independent unit of reverse engineering. The accounting system is unified for the entire company, but it keeps track of the contribution of its units, their number of sales and how efficient they are from month to month. Here below is the functional structure of the company.


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President & CEO

Director of Sales

Director of Additive Technologies

Director of Quality / ITAR Compliance

Operations Manager, Aerospace & Defense

Machineshop Manager

Internal Sales

Material scientist

Quality Techs

Planner, Quoters

Production Manager

Sales Reps

Business partners

Reverse engineering

Operators, Maintenance

Planner & Quoter

Shipping

3DPrinting Commercial HighEnd

Operators

Operators, Maintenance

Expediter

Purchasing

Incodema3D organizational structure

The four business units are highlighted on the organizational structure. The boxes that remained non-highlighted are the functions that support the business units for the entire company. If the current growth rate continues, we may foresee that the current business units may get to evolve in independent divisions, where the Aerospace & Defense SBU will actually completely incorporate the NC machining personnel, as the current NC machining business unit autonomy is dissolved. The commercial unit may grow too into an independent division, having its own supporting post-operations like a small NC machining line, its own shipping and a quality team on-site. Reverse engineering may grow into an operational department under the Aerospace & Defense SBU. Here is the below a possible future organizational structure as a result of accelerated growth in the next five years.


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President & CEO

Corporate staff

Aerospace & Defense

Operations

Quality

Commercial High End

Purchasing

Operations

Quality

Purchasing

Reverse Engineering

Incodema3D possible future organizational chart

3.2.

Staffing

The company’s forecast is clearly pointing to a fast growth: we have a plan to hire and staff the key functions of the company in the years to come. New employees will need to be hired and trained. Experienced people having the necessary skills will need to be identified in the company and promoted to recently created management positions (Wheelen e.a., 2015).

STAFFING PLANNING

Increase in number of employees forecasted increase in % TOTAL NUMBER OF EMPLOYEES

2016

2017

2018

2019

2020

65

20% 78

20% 94

20% 112

20% 135


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3.3.

Impact of Globalization

Incodema3D is foreseeing to enter international licensing agreements and joint ventures with other companies that operate in the additive manufacturing market. Our company has been in prior contacts with several other international companies, for services, or in common supply-chain agreements. Key drivers in this market for a successful fit in an international alliance are: �

The alliance must be important and profitable to both partners, and increase market penetration for each of them after the agreement is in place;

�

The alliance should increase brand value for the partners in the eyes of their local customers and local partners.

�

Partners’ contribution to each other’s business must increase its strengths and increase its reputation, while sharing common licensing and agreements for the preservation of their intellectual property and core competencies. (Wheelen e.a., 2015).


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4. Measurement and Control of Strategy Implementation 4.1

Timetable of strategy implementation The timetable for the implementation of the corporate and functional strategies is shown below.

INCODEMA3D MILESTONE TABLE 2017-2021 1

YEAR 1

YEAR 2

YEAR 3

YEAR 4

YEAR 5

Corporate strategy Acquire / vertically integrate materials engineering lab Develop business of 3D-printers in venture w/ Machine builder

2

Aerospace SBU to acquire GE Aviation certification Objective 1: sales and revenue growth min. 25% per year ave. Objective 2: ROA, Cash Ratio positive trend Financial strategy Investment Growth for Aerospace SBU & Differentiate Investment Growth for Commecial high $ & Prospector Maintain strategy for AM prototyping / Analyzer; after 2.5 years reduce this SBU to increase resources for production Reverse Engineering - cost based , invest selectively Close NC prototypes SBU

25% increase

25% increase

Objective 1: revenues increase w/ 1.5 first year; 1.2 1.5 times increase 1.2 X increase second; 1.05 third -fifth year; BSC profit margin metric

3

4

Objective 2: capital investment 20% increase per year; BSC ROA metric Marketing strategy Aerospace & Defense: growth strategy -- increase market penetration- thru product mix and channel direct to customer/ middlemen for global Aerospace & Defense: Apply maturity strategy for certain mature products Objective 1: push strategy for promotion - discounts & sales promotions to be evaluated / marketed every 6 months - BUDGET Objective 2: competive pricing evaluated every 6 monthsBUDGET REVIEW Objective 3: increase yearly marketing budget by 1.1 Commercial high $: growth marketing strategy prospector focus on penetration pricing: price high per market demand Commercial high $: - increase customer services ; simplify product mix. Objective 1: offer new Competitive services every quarter Objective 2: brand promotion every quarter Objective 3: increase yearly budget by 1.2 BUDGET Operations strategy Aerospace & Defense: Increase capacity 30-35% per year Increase facility efficiency in terms of electrical, thermal and humidity functions, w/ 10% first year, 5% next years Integrate supply chain within ERP Implement SPC on critical oper, six sigma by 5th year Objective 1: Survey / Increase cust satisfaction 83% to above 90% - BSC-cust satisfaction survey Objective 2: Reduce scrap from 8% to 5% first year, 2% at year 5 - BSC -internal process metric

20% increase

20% increase

25% increase

1.05 X increase

20% increase

emphasis on domestic marketing campain

1.1 x increase

1.1 x increase

1.1 x increase

25% increase

1.05 X increase

25% increase

1.05 X increase

20% increase

20% increase

global expansion

1.1 x increase

1.1 x increase

prices may reach a plateau

1.2 X increase

1.2 X increase

1.2 X increase

1.2 X increase

1.2 X increase

3035% increase

3035% increase

3035% increase

3035% increase

3035% increase

10% increase

5% increase

5% increase

5% increase

5% increase

min. 75%

min. 80%

min. 85%

min. 90%

min. 90%

5% max

4% max

3% max

2% max

2% max

Objective 3: Improve OTD from 75% to 95 % min -BSC

min. 85%

min. 90%

min. 90%

min. 95%

min. 95%

Objective 4: Reduce customer returns rate from 0.5% to 0.1%- BSC -internal process metric

max 0.5%

max 0.3%

max 0.2%

max 0.1%

max 0.1%


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6

7

Information Systems strategy Link ERP with Supply chain portal Implement RFID - purchase in 2 stages, first shipping& receiving; next overall manufacturing floor Control metal powder usage per machine thru dedicated software Objective 1: Reduce the number of ERP errors at entry w/ 10% yearly, by implementing closed loop checking between correlated modules of the ERP- BSC-internal process metric Objective 2: Implement RFID in 4 stages of budget implementation- BUDGET Research and Development strategy Develop brand metal powder classification in joint venture w/ mtl supplier Complete the mtl characteristics for top alloys, A10, 625, T64, 718, and CoCr Modularize use of fixtures w/ dedicated machines Objective 1: increase % of orders resulted from RFQ, from 67% to 80%- BSC internal process metric Objective 2: develop data sheets of main mtl characteristics of top alloys after 3D-printing Human Resources strategy Move from adhocracy to market-oriented culture Move from simple structure to functional structure Implement programs like train-the-trainer; 5S ; operatorinspector Objective 1: Increase staffing w/ 10% yearly minimum BUDGET Objective 2: Increase budget for HR training w/ 5% yearly -BSC six sigma training Objective 3: Implement reward program correlated to BSC; measure implementation w/ percentage of population

shipping & receiving functions

overall

complete M280 machines

entire fleet of machines

10 % reduction

10 % reduction

10 % reduction

10 % reduction

10 % reduction

stage 1

stage 2

stage 3

stage 4

target 45%

target 50%

target 55%

target 60%

target 60%

A10, 625

T64 , 718

CoCr

maintain

maintain

20% increase

20% increase

20% increase

20% increase

20% increase

5% increase

5% increase

5% increase

5% increase

5% increase

100% target

Figure 1. Milestone table The milestone table includes the strategic changes, goals and objectives and includes the objectives from the functional strategies. The milestones are connected with goals in the Balanced Scorecard. The milestone clearly indicates the objectives for each functional strategy and how they are correlated to either the BSC or the Budget action. A few of the objectives are not translated directly to the BSC or the budget, as they are a byproduct or an action for the functional department to follow-up on without necessarily a quantitative metric associated to the action.

4.2

Budget associated with the timetable The budget associated with the milestone table takes into consideration each of the functional

strategies and costs associated with them. The budget table for the operating budget from the financial forecasts, by summarizing in a table only the incremental (extra) changes in the Revenues and Costs (Extra Expenses in the Income Statement plus Extra Asset Increases in the Balance Sheet). Those increments are calculated each year, as the difference between the projection of the financial statement based on the strategy implementation, and what it would have been without pursuing the recommended strategy. This table (Figure 2) will best compare per each year only (due to time value of money), the


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net difference between the revenue increase derived from the strategy implementation and the extra costs associated with the strategic plan recommended to achieve those goals. These changes are attributable to the actions planned in the milestone table.

Operating Budget Summary Extra Revenues (expected) aerospace & defense commerical high $ A.M. prototyping Reverse engineering NC mach. Prototypes Total Extra Revenues

(in thousands) Y1 /2017 Y2/ 2018 Y3/2019

Y4 /2020 Y5 /2021

$4,675 $3,895 $3,100 $130 $100 $11,900

$6,750 $4,050 $3,200 $121 $60 $14,181

$6,800 $5,350 $4,000 $121 $0 $16,271

$6,300 $5,000 $3,500 $110 $0 $14,910

$6,500 $5,000 $4,000 $110 $0 $15,610

Extra Costs (expected) Extra Expenses marketing increase operational costs personnel / training costs IT costs Extra Assets capital investment building vehicles book value capital lease Total Extra Costs

$145 $1,800 $1,100 400

$174 $1,800 $1,050 300

$209 $1,900 $970 $300

$251 $1,700 $1,050 $400

$301 $1,700 $1,050 $200

$4,356 $500 $150 $170 $8,621

$4,300 $400 $150 $200 $8,374

$3,500 $400 $150 $250 $7,679

$3,700 $400 $150 $150 $7,801

$3,700 $400 $150 $200 $7,701

Net (R-C)

$3,279

$5,807

$8,592

$7,109

$7,909

Figure 2. Budget associated with the milestone table

4.3

Audit plan to measure strategy progress The following audit plan is closely related to the strategy implementation milestone table and it

shows how each of the functional metrics associate to the objectives will be communicated, reviewed, debated and acted on within the organization (Figure 3). The audit plan includes the use of the balanced scorecard as a measurement tool, its monitoring and reporting in order to reflect the progress of the strategy implementation.


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INCODEMA3D STRATEGIC AUDIT PLAN 1 2

3

4 5 6

7 8

9

YEAR 2

YEAR 3

YEAR 4

YEAR 5

Clarify the vision and the strategy Communicate the strategy to the employees. Develop Balanced Scorecard (BSC) Develop and implement business units objectives Identify strategic priorities Eliminate non-strategic investment programs Launch programs for growth in line with strategy CEO and Management review business units objectives Update the strategy with other programs as needed Establish individual objectives by role in the organization Hire personnel, implement the reward system Update strategic plan and budget Establish five-year goals for the budget Fund strategic investments Close first annual budget of the 5 year plan Conduct monthly and quarterly reviews Conduct yearly review At the beginning of third year, initial strategy is complete CEO & directors to identify strategic issues Business units to respond to strategic issues Update the strategy and the Balanced Scorecard Business unit objectives reviewed against the company's BSC The organization's compensation function of BSC

Figure 3. Audit plan

4.4

Activity-based costing Incodema3D is using ABC as accounting practice. Our company’s ERP system is allowing the

employees to clock in and out of the app for every activity that is listed on the router. The routers are printed from the app before the job starts, and right after the contract review process is closed and frozen. The same routers are activated in the app. The printed copies of the router will accompany the product batch thru the entire process. In final inspection, the printed routers and reconciled with the app routers, approved to ship and filed. Routers are the list of activities that are needed to complete a product, from metal powder, going thru steps like 3D-printing, support removal, stress relieve, other heat treatments, sand blasting, inprocess inspection, machining to size, surface treatments, final inspection, packaging and shipping, which requires signatures, day of execution, time, and in some cases other additional data for example machine model and serial number, powder lot number, task certification number, and quantity. The accounting of each activity is allowing reviewing and analyzing the costs associated with each step, and it also allows time studies, establishing of standard times, reviewing of bottle-necks or stoppage in real time. The allocation of overheads is done accurately. Cost studies by activity, by product or by customer are immediate outputs of the ABC accounting method.


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4.5

Balanced scorecard The balanced scorecard includes the metrics that will be used to measure the progress of the

functional strategy implementation. Here below are the four scorecards that are correlated to each other, and together they are the derivation of the objectives as presented in the milestone table.

FINANCIAL SCORECARD OBJECTIVES ROA (Net Income / Average Total Assets) SOLVENCY RATIO (assets/ liabilities) CASH RATIO (cash / current liabilities) PROFIT MARGIN (net income/ sales)

MEASURES 9.60% 3.12 1.29 20%

TARGETS 10% 5 1.5 35%

INITIATIVES FOR IMPROVEMENT reduce metal powder inventory raise prises on prototyping solutions monitor & manage debt accounts reduce internal operation costs

CUSTOMER SCORECARD OBJECTIVES CUSTOMER SATISFACTION yearly survey OTD (ON TIME DELIVERY) QUALITY RATING PRICING VS COMPETITION

MEASURES 83% 75% 85% 90%

TARGETS 90% 95% 95% 90%

INITIATIVES FOR IMPROVEMENT

INTERNAL BUSINESS PROCESS OBJECTIVES NUMBER OF ORDERS TO QUOTES RATIO SCRAP RATE RETURN RATE OTD TO PROMISED SHIPPING DAY

MEASURES 67% 8% 0.5% 85%

TARGETS 80% 2% 0.1% 95%

INITIATIVES FOR IMPROVEMENT reduce quote efforts for new customers increase production orders vs. prototype move quality focus from inspection to inprocess reduce bottlenecks at EDM or batch machining

MEASURES 62.4 80% compliance

TARGETS 3.4 DPPM 100%

INITIATIVES FOR IMPROVEMENT move quality focus from inspection to inprocess implement processes for environmental impact

LEARNING AND GROWTH OBJECTIVES SIX SIGMA CONTROL CERTIFICATION TO ISO 14001

reduce bottlenecks at EDM or batch machining move quality focus from inspection to inprocess

Figure 4. Functional objectives and metrics / measures

The balanced scorecard made of four scorecards is the translation of the vision and strategy into measurable objectives and initiatives, as shown in Figure 4. Figure 5 shows a summary of the measures only, and how they correlate to each other, from example from the Customer Scorecard to the Internal Business Scorecard, or from the Financial to each of the other scorecards, as well as how the vision and strategy matches the metrics.


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FINANCIAL SCORECARD OBJECTIVES MEASURES TARGETS ROA 9.60% 10% SOLVENCY 3.12 5 CASH R 1.29 1.5 PROFIT M 20% 35%

CUSTOMER SCORECARD OBJECTIVES MEASURES TARGETS CUSTOMER SATISFACTION yearly survey OTD 82% 95% QUALITY 90% 95% PRICING 90% 90%

Vision: create a 3D Printing operation that leverages our proven knowledge and skills Strategy : Growth into 3Dprinting production by improving durability, reliability, repeatability and reducing the total cost of operation

INTERNAL BUSINESS PROCESS OBJECTIVES MEASURES TARGETS ORD/QT 67% 80% SCRAP R 1.30% 1% RETURN R 0.50% 1% OTD 85% 95%

LEARNING AND GROWTH OBJECTIVES MEASURES TARGETS SIX SIGMA CONTROL 62.4 3.4 DPPM ISO 14001 80% 100%

Figure 5. Balanced Scorecard shown in correlation to the Company’s vision and strategy

4.6

Benchmarking As discussed at length under the Competitors’ Marketing Strategies section of the part 1,

Incodema3D is benchmarking 3D-Systems for some of its functional strategies and initiatives. The most significant gap to 3D-Systems is the marketing strategy, when benchmarked against its 3D-printed production business. Competitors’ product attributes and the competitor’s marketing mix are those gaps that Incodema3D intends to close in the next five years, through its marketing strategy. 3D-Systems Company is publicly listed; it competes in the field of additive manufacturing, and is one of the leaders of the market. It is manufacturing to order using its internal fleet of 3D-printers; it is also manufacturing 3D-printers for sale, so it has an additional business unit compared to Incodema3D which is profitable and which allows the company to control the equipment market. Here are below the benchmarked ratios that were published in 2016 for 3D-Systems.


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Profitability Gross Profit Margin (Quarterly) Profit Margin (Quarterly)

49.95% 3.15%

Liquidity and Solvency Current Ratio (Quarterly) Free Cash Flow (Quarterly)

3.32 13.77M

Management Effectiveness Asset Utilization (TTM) Return on Assets (TTM) Return on Equity (TTM)

0.7218 4.38% 5.93%

Current Valuation Market Cap Enterprise Value Earnings Yield (TTM) PS Ratio (TTM) Price to Book Value

1.676B 1.437B 2.38% 2.592 2.66

Figure 6. Benchmark 3D-Systems financial indicators 2016 (Form 10-K, 2016)

4.7

Identification of operational bottlenecks and red flags Potential bottlenecks in operations could be several stations where work or batches of product may

agglomerate as the lead time of that station is longer than the standard time of other steps in the flow. The detection of bottlenecks is rather straight forward at Incodema3D, as the real-time ERP app allows any employee of the company who is logged in to recognize the problem. Management has the responsibility to act at the emergence of a bottleneck, which may be due to project-specific issues or to temporary obstacles, for example lack of a required document and delay of a data input, and which can be addressed such that the same problem won’t reoccur for the duration of the project. Bottlenecks that are repetitive or are due to system problems may be addressed during the production and quality team meetings. This type of problems may need an internal corrective action process to be applied, which involves investigation of possible causes and determination of the root cause, containment solution to avoid production stoppage, and ultimately implementation of a permanent corrective action, which could be revision of a process and series of procedures, equipment


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purchase, personnel training, or a combination of these actions. For example, for a program that was run for a major defense company, the bottleneck was the EDM station. To solve the bottleneck, the team started and an investigation and attempted to increase productivity and to make tasks parallel that were originally sequential in order to gain time. After several weeks, during which the bottleneck was partially removed but still didn’t allow a good flow, the team recommended the purchase of another two EDM machines. This purchase solved the problem. Here below is a table showing possible red flags in the operation of Incodema3D and the most adequate corrective actions to get the organization back on track.

red flag Accounts receivable vs. sales

Cash flow vs. net income

Debt-to-equity ratio is over 1.0

Decreasing gross profit margin

corrective action Investigate if forecasted sales were moved into receivable account wihtout having received firm purchase orders or contract. Corrective action: investigate if enough sales are coming in; if not, restructure company, by drastically reducing costs and increase sales. Cash flow from operations should not fall under net income. If it does, look into the breakdown of earnings, if properly adds operations income and not other revenues from cash boroughed or selling assets.Corrective action: reassign accounts correctly to avoid fraud, try to find the underlying cause Investigate if the company is absorbing more debt than it can handle. Corrective action: reduce debt by selling assets; diversify credit accounts; Company’s ratio of profits earned to costs over a set period of time - a declining profit margin is cause for alarm. The profit margin must account not only for the costs to produce the product or service, but the additional money needed to cover operating expenses, such as costs of debt. Corrective action: decrease costs, diversify, increase pricing, penetrate new markets; enter ventures and agreements.

Figure 7. Red flags and corrective actions for Incodema3D

4.8

Consolidated statements, balance sheet result projections and performance ratio The Consolidated statement and balance sheet for the past 3 years of Incodema3D were presented

in the part 2 of the project. Here below is the projected balance sheet net worth and the consolidated statement.


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Balance Sheet - Incodema3D CONSOLIDATED NET WORTH: ADJUSTED ASSETS MINUS ADJUSTED LIABILITIES

2016 2017 2018 2019 2020 2021 $43,613 $56,000 $73,000 $102,200 $143,000 $178,000

Figure 8. Consolidated net worth – balance sheet Consolidated Statements of Operations and Net Income (in thousands) Revenue: Products $ Services Total revenue Cost of sales: Products Services Total cost of sales Gross profit Operating expenses: Selling, general and adminstrative Intangible assets Total operating expenses Income from operations Interest and other expense, net Income before income taxes Provision for income taxes Net income attributable to Incodema3D $

2016

2017

2018

2019

2020

2021

9,145 576 9,721

14,300 1,100 15,400

17,160 1,200 18,360

22,308 1,300 23,608

26,770 1,500 28,270

32,124 1,500 33,624

3,064 236 3,300 6,421

5,107 550 5,657 9,743

6,356 670 7,026 11,334

7,196 720 7,916 15,692

8,366 830 9,196 19,074

9,734 750 10,484 23,139

4,356 (-) 4,356 2,065 74 1,991 61 1,930

6,350 450 6,800 2,943 103 2,840 90 2,750

7,620 250 7,870 3,464 121 3,343 110 3,233

9,525 250 9,775 5,917 207 5,710 190 5,520

11,049 460 11,509 7,565 265 7,300 240 7,060

12,264 900 13,164 9,975 349 9,626 320 9,306

Figure 9. Consolidated statement projected for the next five years. The table below shows the projected ratio for the next five years.


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2016 3.12

2017 3.74

2018 5.62

2019 9.41

2020 11.29

2021 13.81

3.11

3.20

3.25

3.22

4.60

4.50

1.08

1.10

1.40

1.55

1.55

1.40

net income/sales

0.20

0.34

0.45

0.45

0.60

0.60

ROA

net income/total assets

0.21

0.37

0.63

0.70

0.93

0.84

ROE

net income/ total equity

0.43

0.75

1.27

1.41

1.86

1.67

current ratio receivable turnover total assets turnover profit margin

current assets/ current liabilities sales/accounts receivable sales/total assets

Figure 10 Projected ratio for the next five years- Incodema3D

4.9

Capital Budgeting Incodema3D is a startup company that qualifies for Government categorization of small business.

It was operational for almost three years and its projects had high strategic significance as they related to entering new markets and defending market share, so it has rather low hurdle rates. (Wheelen e.a, 2915). We use the Payback Method for evaluating the capital budget, where the payback time of an initial investment is the time to recoup, and is calculated as the amount of an initial investment divided by the sum of increases of cash flow over several months.

4.10

Contingency plans Contingency plans have to be put in place in order to be ready to solve situations where the

company doesn’t meet its objectives. The company has put together several procedures and protocols for risk mitigation. These procedures are documented under the Incodema3D Business Containment Plan. Several possible risks, which were largely addressed in Part1 of this project, are addressed. Cyber security assessment analyses were completed in order to prioritize steps on how to enhance our cyber security. We are in the process of improving our threat detection and mitigation

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processes and procedures. If we don’t generate enough cash from operations or other potential sources to fund future working capital needs and meet capital expenditure requirements, and if we are unable to generate cash flow, we may be required to adopt one or more of the following alternatives: selling assets, restructuring or incurring additional debt or obtaining additional equity capital. Our company is subject to global economic, political and social conditions that may cause customers to delay or reduce technology purchases due to economic downturns. We buy equipment form Europe; we may be at risk of fuel costs variations and other energy costs volatility, difficulties in the financial services sector and credit markets, geopolitical uncertainties and other macroeconomic factors. In order to mitigate these risks, our Business Containment Plan provides for moving operations to another facility of the Incodema Group in order to resume contracts in-progress without incurring delays of more than 8 working days.

4.11

Process control Behavior controls are necessary to ensure appropriate behavior from employees (Wheelen, 2015).

These controls will encourage behavior that will ensure that goals are met. This type of control will allow managers to shape employee behavior. Some examples of behavior control are standard operating procedures, project plans, quality plans, standup meetings, post-implementation reviews and audit for effectiveness verification, direct supervision, and project status reporting. The company’s initiatives to get certified to AS9100 and ISO 9001 are lined-up with controlling behaviors such as learning and executing SOP, following quality plans, manufacturing plans. We demand management to check effectiveness of corrective action implementation and of training. Output controls establish targets and allow managers to use processes to achieve these targets. These controls should be flexible and encourage creativity within the Incodema3D organization. Some examples of output controls are project objectives, project goals, schedules, and budgets, functional or engineering requirements, testing specifications, contractual or documentation agreements. Input controls deal with resources and include motives, skill levels, abilities, socialization, and personal values, organizational culture, and company norms. Incodema3D culture is innovation and creativity. Examples of input controls that we use are direction setting, selecting criteria for recruitment and for promotion, appraising criteria setting that value individual spirit of entrepreneurship and risk taking.

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4.12


The S.M.A.R.T. model The S.M.A.R.T. model for setting individual objectives for members of a team that has a function

related or departmental objective is “as simple as asking the question, How can I best help to meet these objectives?” (Bogue, 2005). In the example of Incodema3D’s objective to improve the customer satisfaction rating, the team members will have to and reduce the time needed to respond to a customer question, technical or service, from 2-3 days to 24 hours; when the technical information is not available in 24 hours, we asked our customer service to respond with a quick email that our manufacturing engineering and planning are working on an answers that will be available shortly. S stands for Specific: for example, instead of asking our people that we want better customer service rating, the objective is to improve the customer service survey response from 4.0 rating to 5.0 rating. M stands for Measurable: This requires that each objective has a numeric target that can be measured thru the year, in order to evaluate the team as well as the team members. A stands for Achievable: A very important part of setting objectives is that they are achievable. For the same example that we implemented at Incodema3D, the objective to archive maximum rating from each customer every year may not be practical. The individual targets, for example answering 100% all inquiries within 24 hours with a quick email may not be feasible. The target for individual performance is at 95%. R stands for Realistic: A realistic objective is when the means and tools that the individual or the team have at their disposal to achieve their target match the expectations; for example, if the scrap resulted during the process includes the scrapping of supports used during the 3D-printing operation, the level of scrap would be inherently and systematically at the same percentage of weight vs. the total weight of the printed part; this objective would preclude any opportunity for improvement or individual creativity. On the contrary, if the scrap objective is defined as number of scrapped parts resulted from pre-build, build and post-build operations, then the objective becomes realistic and measurable; it allows to track what parts were scrapped because of setup errors, because of process interruptions or because of dimensional non-conformance, and will allow the organization to investigate and improve its processes. T stands for Time-based: An objective that does not have a deadline or a target day for completion cannot adequately measure performance. For example, the objective to reduce the time needed to answer a customer request to 24 hours should be accomplished with the next six months. Each objective or metric must have a time limit for its measurement and for its implementation, in order to

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drive performance improvements.

4.13

Ethical considerations “Recent advances in additive manufacturing pose significant new challenges, in scope if not in

kind, for military ethicists” (Mattox, 2013). “While the problem of dual-use technologies (i.e. technologies that can be used for both good and malevolent purposes) is not new, the possibility of the rapid, uncontrolled replication of highly sophisticated tools of violent action – tools that heretofore have been largely inaccessible to laymen – could vastly expand the number of persons able to commit violent acts” (Mattox, 2013). “In light of the industrial revolution occasioned by the advent of additive manufacturing and the revolution in military affairs that it portends”, researchers in business ethics started research programs in the challenges that this new technology “poses for militaries and governments with the de facto responsibility to keep war-making tools out of the wrong hands.” (Mattox, 2013). 3D printing has the potential of altering the nature of business practices and it “has already begun to shift the traditional models of production for businesses and individuals” (Wilson, 2016). There changes from the traditional manufacturing business to the additive manufacturing are related to the product design process and to the economies of scale. (Wilson, 2016). “3D printing allows the development of a business model that combines aspects of mass production and artisan individual production”, and ethical issues may arise for these businesses. (Wilson, 2016). “In the next 20 years we will be able to print drugs, metals and substances at an atomic level – possibly all at home”.(Matthews, 2017). Regulation armament is currently based on the traditional concept that producing them typically required expertise and specialized equipment. “But that may not be the case for long.” (Matthews, 2017). There is a concern in the public that we need a new unified approach to “legislation that specifically speaks to the capabilities of 3D printers, and the distribution of the files they use.” (Matthews, 2017). Incodema3D is working under many defense programs that strictly regulate its activities and its documentation distribution, is registered with the DDTC and is licensed to produce armament. Taking these steps to stay ahead of the public concerns may be not be enough in the foreseeable future, when many other ethical considerations and regulations will limit even more its security and access protocols.

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5. Conclusions Incodema3D is well situated for growth in the next five years and beyond. The diversification and the risk taking strategy during the first four years after its incorporation have established the bases for fast growth. Vertical integration of suppliers, distributors or customers, joint ventures and partnerships will continue to bring growth to the company. Incodema3D has developed a successful team of talented individuals who will contribute to its growth in the future. Incodema3D is foreseeing to enter international licensing agreements and joint ventures with other companies that operate in the additive manufacturing market. Our company has contacts with several international companies, for services, common supply-chain agreements, and equipment purchases.

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Hagel, J., Brown, J.S., Kulasooriya, D., Giffi, C.A., Chen, M. (2015). The future of manufacturing. Making things in a changing world. Retrieved from https://dupress.deloitte.com Hill, D. (2014). Incodema group seeks to be the single-source provider. Retrieved from Ithacajournal.com. Incodema3D. (2014). Retrieved from http://www.incodema3d.com/news-and-events/start-up-ny Ju, B.A. (2014). Cornell partners with Incodema3D for START-UP NY. Retrieved from http://news.cornell.edu Kaplan, R.S., Norton, D.P. (1996). (2007). Using the Balanced Scorecard as a Strategic Management System. The Best of HBR. Lansard, M. (2016). The complete list of metal additive manufacturing companies and metal 3D printer brands. Retrieved from http://www.aniwaa.com/ MarketsAndMarkets (2012). Additive Manufacturing Market – Forecasts 2012-17. Retrieved from marketsandmarkets.com Matthews, R. (2017). The legal minefield of 3D printed guns. The Conversation. Retrieved from https://theconversation.com Mattox, J.M. (2013). Additive Manufacturing and its Implications for Military Ethics. Journal of Military Ethics. Retrieved from http://www.tandfonline.com Metal-AM. (2013). Growth areas and Market Potential in Additive Manufacturing. Retrieved from www.metal-am.com Mullins, J.W., Walker, O.C. (2010). Marketing Management. A Strategic Decision-Making Approach. McGraw –Hill Companies Inc. New York NYS (2016). Reduce or Waste Reduction. Retrieved from http://www.dec.ny.gov/chemical/8502.html Pearson Prentice Hall. (2009). Chapter 11. Capital Budgeting and Investment Analysis. PowerPoint Presentation Peel, M.J., Bridge, J. (1998). How Planning and Capital Budgeting Improve SME Performance. Long Range Planning, Vol. 31. Elsevier Science Ltd. Rigby, D. (2001). Management Tools and Techniques: A Survey. California Management Review. Stratasys Ltd. (2015). Form 20-F annual report

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