CALIFORNIA STATE UNIVERSITY, SACRAMENTO

College of Business Administration

 

MGMT 170 – Fundamentals of Business Strategy

 

CASE STUDY QUESTIONS

 

(Case:  MIPS Computer Systems)

 

1.                Please state in (bullet-point format) what the numbers tell us in this case.

 

VISION

 

 

Numbers

 

Implication

*      Depends on who you ask!

 

 

 

INTERNAL

 

 

Numbers

 

Implication

*      Cash balance of $777,000.

 

 

*      Cash “burn rate” (using estimated May figures) = $700,000/3 weeks.

 

 

*      Sales margin Q1 1987 is 26% vs. 50% average for 1986, and 1986 Q1 high of 68% (highly volatile).

 

 

*      Current inventories are 1.5 times larger than December 1986.

 

 

*      Q1 1987 sales were ˝ of Q4 1986 sales.

 

 

 

EXTERNAL

 

 

Numbers

 

Implication

*      Customers have high switching costs when changing equipment suppliers.

 

 

*      Large potential market (billions).

 

*      MIPS account for less than ˝ of 1% of a $1.5 billion market (work stations).

 

*      Competitors include IBM, HP, and Sun.

 

 

2.                Based on your observations in preparing this case, how are venture-funded companies like MIPS different from most small companies?  What are the advantages and disadvantages of obtaining venture capital?

 

3.                Put yourself in the shoes of Bob Miller in April 1987.  You have two weeks of cash.  Although you believe that you will probably be able to raise additional capital, you estimate that the process will take about 10 weeks.  In other words, you somehow must keep the company afloat for about two months without additional investor capital.  What will you do?  Will you layoff employees?  Will you cancel the ECL project?  What other alternative can you pursue?

 

*      Create a straightforward table to work from that lays out the total amount of cash you estimate you must come up with; the steps you will take to obtain the cash; how much you estimate each step is worth; and how all of  your actions will mitigate the cash deficit.

 

What Steps You Will Take

How Much the Steps Are Worth

Step 1:

$$$

Step 2:

$$$

Step 3:

$$$

Etc.

 

 

= Total $$$ Deficit You Need to Cover 10 Weeks

 

*      Suppose you’ve just received word that you can easily sign the Thomson deal:  $7 million for 10% of the company and all rights to market in Europe.  Will you sign the deal?

 

*      You have survived the ten weeks and have new investor capital.  Now, in late July 1987, precisely how are you going to create a cohesive, confident team in pursuit of a compelling mission?  Are you going to come up with the mission yourself?

 

336 MGMT 170 MIPS COMPUTER SYSTEMS CASE