Harvard Case - GT Advanced Technologies
"GT Advanced Technologies" Harvard business case study is written by Kathryn Harrigan. It deals with the challenges in the field of Strategy. The case study is 17 page(s) long and it was first published on : May 9, 2016
At Fern Fort University, we recommend that GT Advanced Technologies (GTAT) should have focused on a strategic shift away from its reliance on a single, large customer (Apple) and towards diversification into a broader range of applications and markets. This would have entailed a business model innovation that leverages GTAT's core competencies in sapphire production while mitigating risks associated with dependence on a single customer.
2. Background
GTAT was a leading manufacturer of sapphire materials, primarily used in the production of high-end smartphones and other electronic devices. The company's primary customer was Apple, which relied on GTAT's sapphire glass for its iPhone screens. However, GTAT's dependence on Apple proved to be a significant risk factor. In 2014, GTAT filed for bankruptcy after facing financial difficulties related to its Apple contract.
The main protagonists in this case study are:
- GTAT Management: Led by CEO Tom Gutierrez, they were responsible for navigating the company's growth strategy and navigating the relationship with Apple.
- Apple: A major customer of GTAT, Apple's demand for sapphire glass significantly influenced GTAT's financial performance.
- Investors: GTAT's investors, including private equity firms and venture capitalists, were impacted by the company's bankruptcy.
3. Analysis of the Case Study
SWOT Analysis:
- Strengths: GTAT possessed strong technological expertise in sapphire production, a proven track record with Apple, and a strong brand reputation in the industry.
- Weaknesses: The company's dependence on a single customer, lack of diversification, and high capital expenditure requirements posed significant risks.
- Opportunities: The growing demand for sapphire in various applications, including wearables, medical devices, and solar energy, presented opportunities for expansion.
- Threats: Competition from other sapphire producers, technological advancements in alternative materials, and potential changes in customer demand posed threats to GTAT's business.
Porter's Five Forces:
- Threat of New Entrants: The sapphire industry had a relatively high barrier to entry due to the capital-intensive nature of production, but new entrants could still pose a threat.
- Bargaining Power of Suppliers: GTAT's reliance on a few key suppliers for raw materials gave them some bargaining power.
- Bargaining Power of Buyers: Apple's significant market share and demand for sapphire gave it considerable bargaining power, leading to unfavorable contract terms for GTAT.
- Threat of Substitutes: Alternative materials like Gorilla Glass were emerging as viable substitutes for sapphire, posing a threat to GTAT's market position.
- Rivalry Among Existing Competitors: Competition in the sapphire market was intense, with several established players vying for market share.
Value Chain Analysis:
GTAT's value chain was heavily reliant on its ability to produce high-quality sapphire materials at scale. The company's value chain consisted of:
- Research & Development: Developing new sapphire production technologies and processes.
- Manufacturing: Producing sapphire materials in a highly controlled environment.
- Marketing & Sales: Securing contracts with customers like Apple.
- Customer Service: Providing support and technical expertise to customers.
Business Model Innovation:
GTAT's business model was highly dependent on its partnership with Apple. To mitigate risks, GTAT should have pursued a business model innovation that involved:
- Diversification: Expanding into new markets and applications for sapphire, such as wearables, medical devices, and solar energy.
- Strategic Alliances: Collaborating with other companies in the technology and manufacturing sectors to develop new products and markets.
- Vertical Integration: Expanding into downstream activities like sapphire component manufacturing and assembly, reducing reliance on external suppliers.
4. Recommendations
- Diversify Product Portfolio: GTAT should have diversified its product portfolio beyond smartphone screens. This could have involved developing sapphire components for wearables, medical devices, and solar energy applications. This would have reduced dependence on Apple and opened up new growth avenues.
- Expand into New Markets: GTAT should have expanded into new markets, particularly emerging markets with high growth potential in the electronics and technology sectors. This would have provided access to new customers and reduced reliance on the mature US market.
- Develop Strategic Alliances: GTAT should have formed strategic alliances with other companies in the technology and manufacturing sectors. This could have involved joint ventures, licensing agreements, or partnerships to develop new products and markets.
- Adopt a Balanced Scorecard Approach: GTAT should have adopted a balanced scorecard approach to measure its performance across financial, customer, internal processes, and learning and growth perspectives. This would have provided a more comprehensive view of the company's performance and helped identify areas for improvement.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Diversification and strategic alliances would have leveraged GTAT's core competencies in sapphire production while aligning with its mission of providing innovative materials solutions.
- External Customers and Internal Clients: Expanding into new markets and developing strategic alliances would have addressed the needs of both external customers and internal clients (employees).
- Competitors: Diversification and strategic alliances would have helped GTAT compete more effectively with other sapphire producers and differentiate its offerings.
- Attractiveness: Diversification into new markets and applications for sapphire would have created new revenue streams and increased profitability.
6. Conclusion
GTAT's failure to diversify its business model and reduce its reliance on Apple ultimately led to its bankruptcy. By focusing on a single customer and a narrow product portfolio, GTAT became vulnerable to changes in market demand and competitive pressures. A more diversified and innovative business model would have provided GTAT with greater resilience and long-term sustainability.
7. Discussion
Alternatives:
- Mergers and Acquisitions: GTAT could have pursued mergers and acquisitions to acquire companies with complementary technologies or market access.
- Outsourcing: GTAT could have outsourced some of its manufacturing operations to reduce costs and increase flexibility.
- Cost Leadership: GTAT could have pursued a cost leadership strategy by focusing on efficiency and scale to lower production costs.
Risks and Key Assumptions:
- Market Volatility: The technology market is highly volatile, and demand for sapphire could fluctuate.
- Technological Advancements: New materials and technologies could emerge, rendering sapphire obsolete.
- Competition: Competition from other sapphire producers could intensify, putting pressure on pricing and margins.
8. Next Steps
- Conduct a thorough market analysis to identify potential new markets and applications for sapphire.
- Develop a detailed business plan for diversification and expansion.
- Seek out strategic partners and potential acquisition targets.
- Implement a balanced scorecard approach to track performance and measure progress.
By taking these steps, GTAT could have positioned itself for long-term success and avoided the fate of bankruptcy.
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Case Description
In October 2013 GT Advanced Technology closed a deal to supply industrial-sapphire material to Apple; the material was to be used to improve the quality of iPhone screens. Prior to this deal, GTAT had been a leading supplier of equipment used to create industrial-sapphire, not a producer of the material itself. Apple helped to finance the scaling up of GTAT's industrial-sapphire manufacturing facilities by providing GTAT with a prepayment that was secured by an equipment lien; however, their agreement did not stipulate that Apple had an obligation to purchase any of GTAT's industrial-sapphire output. In September 2014 Apple announced that its production plans had changed and its new iPhone would not have a sapphire crystal screen. Soon thereafter, GTAT filed for bankruptcy. This case asks students to consider why GTAT took on the terms of such a risky deal, how their risk might have been mitigated, and what options were open to both GTAT and Apple in the aftermath of the deal.
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