I. Current Situation:
A. Current Performance:
International Satellite Images (ISI) had been building a satellite to image the world at a resolution of one meter. At the resolution, a trained photo interpreter could identify virtually any military and civilian vehicle as well as numerous other military and non-military objects. The ISI team had been preparing a proposal for a Japanese government contractor. The contract called for a commitment of a minimum imagery purchase of $10 million per year for five years. In a recent executive staff meeting it became clear that the ISI satellite camera subcontractor was having trouble with the development of a thermal stabilizer for the instrument. ...view middle of the document...
III. Internal Environment:
ISI had been negotiating with HTC for the past six months. It was no secret that HTC had also
been meeting with representatives from Lockart and Global Sciences. HTC had sent several
engineers to the ISI to evaluate the satellite and its construction progress. Jim Willis believed that
ISI was currently the front-runner in the quest to sign HTC to a $10 million annual contract. Over
five years, that one contract would represent 1/6th of the contracts necessary to insure sufficient
venture capital to complete the satellite.Jim was concerned that if a new launch date was announced, HTC would delay signing a contract. Jim was equally concerned that if HTC learned that Jim and his team knew of the camera design problems and knowingly withheldannouncement of a new launch date until after completing negotiations, not only his personal reputation but that of ISI would be damaged.Furthermore, as with any franchise arrangement, mutual trust was critical to the success of eachparty. Jim was worried that even if only a 12-month delay in launch occurred, trust would bebroken between ISI and the Japanese. Jim’s boss, Fred Ballard, had specifically told Jim that launch date information was company proprietary and that Jim was to use the existing published date when talking with client. Fred feared that if HTC became aware of the delay, they would begin negotiating with one of ISI’s competitors, who in Fred’s opinion were not likely to meet their launch dates either. This change in negotiation focus by the Japanese would then have ramifications with the venture capitalists whom Fred had assured that a contract with the Japanese would soon be signed. Jim knew that with the presentation date rapidly approaching, it was time to make a decision.
The construction and ongoing operations of each of the programs was financed by venturecapitalists. The venture capitalists relied heavily on advance contract acquisition to insure the Success of their investment. As a result, if any company was unable to acquire sufficient advance contracts, or if one company appeared to be gaining a lead on the others, there was a realpossibility that the financiers would pull the plug on the other projects and the losing companieswould be forced to stop production and possibly declare bankruptcy. The typical advancecontract target was 150% of the cost of building and launching a satellite. Since the cost to buildand launch was $200 million, each company was striving to acquire $300 million in advancecontracts. Advance contracts were typically written like franchise licensing agreements. Each franchisee guaranteed to purchase a minimum amount of imagery per year for five years, the engineered life of the satellite. In addition, each franchisee agreed to acquire the capability to receive, process, and archive the images sent to them from the satellite. Typically, the hardware and software cost was between $10 million and $15...