...development of Anacomp’s CIS software system. Anacomp, a limited partnership: RTS Associates - BANKSERV 10000, CEFT, CDA and CIBS, thirteen major banks including the National Bank of North America in New York, the Shawmut National Bank in Boston, Provident National Bank in Philadelphia and the First national Bank in Kansas City as advisory banks. 2. i. Describe the contractual arrangements between the economic entities involved in the CIS development. Anacomp would develop the CIS system on behalf of the partnership. In return, the four banks collectively contributed $6 million and 24 software development people for 2 years to the project. The same considerations were present in each of the four subsequent partnerships. Each partnership assumed development risks; except for BANKSERV 10000. Any product developed becomes the property of the partnership. Upon completion of the development of the CIS system, Anacomp agreed to market CIS for 5 years on a commission basis. Anacomp also had the option to acquire all rights to the CIS system at the greater of its appraised fair market value or RTS’s investment plus a fixed profit but is under no obligation to exercise this option. RTS had the right to extend Anacomp’s 5-year marketing agreement an additional 5 year or to cancel it if Anacomp did not use its best efforts to market CIS. If the CIS development expenses exceed $6 million, the RTS was required to pay further development fees, Anacomp agreed to loan RTS, without recours For...
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...Case ANACOMP INC. By Hanyu LIU 6260268 1. Identify all the economic entities involved in the development of Anacomp’s CIS software system. The economic entities include Anacomp itself, a limited partnership RTS Associates, banks as co-developers- four CIS Primary Development Banks, and other banks contracted with Anacomp to provide loans or advisory services in the CIS project. 2. Describe the contractual arrangements between the economic entities involved in the CIS development. Who bears the majority of the risk of failure of the development effort? Who stands to gain most if the development effort succeeds? Are Anacomp’s shareholders better off or worse off with this arrangement, relative to in-house development of the system? For the contractual arrangements between Anacomp and RTS Associates: the two had entered into an agreement in November 1979. Anacomp agreed to develop the CIS system on behalf of the partnership. In return, RTS agreed to pay a development fee of $6 million, of which $2.2 million was paid in 1980. Upon completion of the development of the CIS system, Anacomp agreed to market CIS for five years on a commission basis. In addition, if the CIS development expenses exceeded $6 million and therefore RTS was required to pay further development fees, Anacomp agreed to loan RTS, without recourse to the limited partners, up to $1.5 million to complete the CIS system. Anacomp also had the option to acquire all rights to the CIS system at the greater of...
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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...
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