Isolde’s company (Siiquent) targets equipment and materials for gene-based diagnostics in hospitals and large diagnostic labs, whereas Emanuel’s company (Teomik) provided everything that universities and research labs needed for gene-based studies. Isolde’s business model is the “razor-blade” model; Siiquent sells the diagnostic machines to hospitals and large labs for near cost, but makes high margins on the chemical compounds, test kits and other consumables needed to run diagnostics in the machines. Emanuel’s approach in Teomik is the opposite, whereby they sell the gene-based diagnostic machines for a large profit and are indifferent as to whether their chemicals and test kits are bought instead of a low-price competitors. Because only large hospitals and institutional labs can afford Siiquent’s higher cost machinery at a premium, Isolte opted to take advantage of the fixed-reimbursement policies that hospitals and large laborities had to price their chemical compounds and test kits below the kickback from insurers. This essentially made Siiquent’s products generate revenues for hospitals and large labs, meaning it became the ideal supplier for diagnostic consumables. Teomik was different because it focused on the research market and had accrued valuable patents for machinery used in genomic studies. Because prestigious research institutes were price insensitive to cutting-edge equipment, and Teomik had a sole patent on the equipment, Emanuel was able to sell machines at a large premium as a sole supplier in the market.
On one end imposing a single revenue structure would help with organizational clarity. Firstly, having a consistent revenue structure means the company can analyze their performance more clearly in specific customer segments and minimize costs in areas such as sales or admin teams. Secondly, this would make sure the companies do not accidentally (or intentionally) compete with each other such as by undercutting one another’s prices. Moreover this would stop the companies from competing over the same customers and giving conflicting value propositions. On the other hand, imposing a single revenue structure could have detrimental outcomes. Firstly these companies were built on customer-feedback and loyalty- by having a rigid revenue structure they would adapt less well to customer needs, and thus fewer customers will be satisfied and loyal. Additionally, the dynamic model allows the companies to react to industry shifts and other macroeconomic changes, which will open new opportunities for revenue (such as the “pay-per-test” innovation).
Firstly I would ask the CEOs to prepare a list of their current department strengths and weaknesses. The goal being to see which teams would complement each other and which ones could be detrimental to one another. This could also help to establish honesty and common ground as discussions proceed. The second thing I would do is have them decide the new organizational structure and culture together- knowing how they have both succeeded on their own, as well as how the competitive landscape is evolving, this shared responsibility could unite them. Finally I would have them decide the future company strategy and services approach together. By discussing together they’ll ensure fairness in the merger.
