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Anacomp Case Business

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1. Evaluate Anacomp’s new product development strategy. What are the risks and benefits of this strategy for Anacomp’s shareholders?
Anacomp new product development strategy was to implement a new software product which would help the company to become a leading supplier of software and services to the banking industry. The computer service industry was rapidly growing, but software production line, one of the segments of the industry, had a more prospect of rapid growth with an annual growth rate of 33 percent between 1981 and 1986. Anacomp mostly focused on this segment, believing that investment made in software segment would bring more than other segments. But, Anacomp followed its development strategy in an unusual and unique way. In this new strategy Anacomp tried developing a software system called CIS to financial intuitions. Because they believed CIS is a major upgrade to their existing software, they had an agreement with RTS associates because developing CIS had a weight cost for the firm. Under the agreement, Anacomp were to develop the CIS on behalf of the partnership. RTS would be paying a development fee of $6 million. Anacomp would be marketing the CIS for five years on a commission basis. Also, Anacomp had the option to buy all the rights of the CIS system at predetermined conditions. RTS also had the right to extend the 5-year marketing agreement but also to cancel the compliance. RTA financed the CIS development with their own money, a bank loan, and a personally guaranteed bank loan from Anacorn. What is seen in this strategy is that Anacorp does not want to cover all the development expenses of CIS because it is going to cost them a lot of money, and it bears many risks investing so much money into a software. This strategy is decreasing the total risk Anacorp is to face, but it is also decreasing the possible future gains Anacorp would gain if

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