A Strategy for the Continued Growth and Profitability of the Client Firm - Essay Example

December 2006 Executive Summary This report, prepared by Richmond Consultants (RMM hereafter) for Signifo, recommends a strategy for the continued growth and profitability of the client firm. Signifo is a U. K. based Information Technology firm, specialized in expense management, with an annual revenue of about 1.5 million pounds, and a net return of about 17% on sales. The core strategy recommendation is for Signifo to modify its positioning from expense management to cost effectiveness, with a global rather than a U. K. reach, using the Internet as a primary vehicle for promotion. A major implication of this strategy recommendation would be a significant hike in product development, which currently stands at 8% of sales. Some of this increase can be funded by savings in expenses on seminars and face-to-face promotion, but the future potential of the strategy recommendation justifies even a decline by about 2 percentage points of profitability to about 15%. Situation Analysis PEST Political and Legal Environment 1. The outsourcing movement shows that all organizations in mature economies are under pressures to control costs. Governments in countries which are members of the World Trade Organization cannot protect their domestic work forces against this transfer of jobs to low labor cost markets. This also creates opportunities for new systems in start-up companies in emerging countries, anxious to exploit the outsourcing opportunity. 2. Stock market regulators are under political pressure to ensure corporate governance for minority share holder protection. Small and medium enterprises which want to approach the markets for capital need to conform to stringent requirements, especially in the United States. Economic Factors 1. Value delivery in most sectors is under question. Consumers and customers demand more for less. 2. Markets such as China and India experience unprecedented growth. Most key world economies have enjoyed unbroken upswings. 3. The Information Technology sector is due for consolidation, though specialized players can still survive independently. Social Environment 1. The global demand for software engineers and services exceeds supply. Hence, recruitment and retention of key human resources are critical issues for Information Technology companies. Qualified people have high expectations, not just in remuneration terms, but with respect to professional challenges. 2. Labor intensive enterprises in high cost economies are eager to restructure their operations. Technology Status 1. Processing speeds and storage capacities keep improving. 2. Multi-media transmission makes video conferencing and web seminars important and improved ways of Customer Relations Management. 3. Automation costs keep becoming more affordable for even the smallest of enterprises. Overall, the external environment is favorable for companies such as Signifo to improve on their past growth rates and profitability. However, new products and services will be required, and companies with narrow geographical spread could be swamped. Significant players in the markets of tomorrow must be flexible, responsive, and global, to remain in business as independent entities. The Internal Environment Signifo is a niche company with a well-defined brand, but with an insignificant share of just about 1% of the world market in which it participates. It caters mainly to small and medium companies in its home country. The internal environment is not conducive to leverage the opportunities in the external environment-hence Signifo needs to transform the way it does business. Strengths, Weaknesses, Opportunities, and Threats Strengths 1. Known for excellence in cost management software in the U.K. 2. Agile because of small size, and entrepreneurial by nature for the same reason. 3. Reasonable levels of existing customer satisfaction. Weaknesses 1. Weak in markets outside its home country. 2. Narrow product range. 3. Negligible patronage from Fortune 500 corporations. Opportunities 1. Increasing world-wide demand for cost efficiencies through systems. 2. Rapid economic growth in key world markets. 3. Marketing costs can be brought down, and new customers accessed through Internet multi-media customer relation management systems. Threats 1. Displacement by larger competitors. 2. Inadequate new product development, with resultant inability to respond to changing customer needs... Key Issues Signifo cannot afford to be as reliant on the U.K. as it is today. It is bound to be replaced by global players over time. Domestic companies will eventually want to be serviced for their Information Technology needs by world leaders. Signifo has also to grow abroad simply because it cannot afford to ignore the enormous opportunities. The global move should accompany a product upgrade. This will cement its leadership position in the home base as well. Cost management, in which Signifo has expertise, has limited business improvement potential. Controlling travel expenses, and making lists of who spends how much, will not bring new business! The company should consider modern concepts of life-cycle costs, tracking returns on investments, logistics, and sophisticated management information systems, to help potential and existing clients excel in cost effectiveness decision-making. Enterprise-wide planning, financial ranking of alternatives, and resource optimization, are some untapped areas in which Signifo can develop new expertise to build a global platform of sustainable competitive advantage. Small and medium companies, which Signifo serves so well in the U.K, exist in all countries, including in the rapidly growing ones of Asia. The company uses expensive communication methods for U.K. clients, such as seminar participation and calls in person. This is not feasible on a global scale, for a 1.5 million pounds sales company. Therefore, Signifo has to excel in Customer Relations Management (CRM), and use multi-media Internet connections to the hilt, in order to establish waves of new clients, and hold on to them as well. There are 3 elements of strategy as key issues for Signifo: A. Go global B. Go from cost management of minor expenses to cost effectiveness of inter-related decision-making C. Go from personal and seminar selling to Internet Marketing and to CRM. STP Value Delivery The speed and cost benefits of STP make the concept and Signifo natural partners. The company’s transition from mere cost management to cost effectiveness solutions can rely primarily on STP, with creative application of seamless and reliable transaction processing in areas other than capital markets and trading. Signifo should take a lead in establishing leadership in terms of helping clients improve their efficiencies. Branding proprietary software in this area would be the ideal vehicle to propel Signifo to the world stage. This approach would also leverage the company’s technical strengths, specialized experience, and corporate image to the hilt. Signifo’s experience with small and medium enterprises gives it a lead for developing new products which tailor STP to affordable investment limits. One of the main drawbacks of STP has been that small, medium, and traditional enterprises baulk at the prospects of the kind of resources which are needed for full real-time automation. Signifo can achieve a breakthrough which allows all organizations, regardless of nature and size, to lower their costs of doing business by using an economical STP product developed by the company. This would be an ideal solution for Signifo to establish sizeable presences in North America, and other lucrative markets as well. Many international corporations with patent expiries and other threats looming on their horizons will leap at the chance to use a novel STP approach developed by Signifo. The market is flush with STP, and financial services and exchanges already use such systems. Hence, product development in Signifo should be targeted at filling specific product and service gaps, such as extending STP applications to new functional areas, and bringing smaller companies in to the fold of users. Signifo can also extend its software products from STP to inter-operability across functions and sites. The move towards outsourcing leaves some gaps between front and back office operations, which Signifo can try to bridge on a world-wide basis. There are good chances of the company developing a mega brand in this sector because of its accumulated experience in cost management. Overall, STP is a confusing area for all but a handful of specialists. Therefore, there is bound to be run away demand for an affordable solution ready on the shelf, for organizations of all kinds to use. Flexibility to meet specific needs, and the possibility of making upgrades, will also be key attractants. It is an area which can really transform the fortunes of Signifo! CRM Potential The company’s respectable profitability must be the reason for Signifo being somewhat complacent in CRM matters! Company presence at trade shows, technical seminars, and on personal calls on clients probably costs the company more than it knows, because of the pervasive nature of travel and entertainment costs. Certainly, this form of business promotion and brand marketing is not possible on an international scale for a company with just 1.5 million pounds in annual revenues at this time! CRM is such an obvious opportunity for Signifo that it is a bit mystifying as to why a knowledgeable management as exists in the company, has not implemented Internet based customer contacts and servicing to their full potentials as yet! Planning and monitoring regular contact with prime existing and potential customers, the latest Internet Marketing methodology, and using video-conferencing, are some of the advanced CRM solutions in which Signifo has some catching up to do with its competitors. Signifo should apply CRM with discretion, ensuring that it does not dissipate resources in building relationships with low value customers. The best way to achieve such discretion could be by adopting a sector approach to international manufacturers and service providers, addressing high end applications first. CRM will result in a tremendous acceleration of new customer acquisition by the company. Simultaneously, customer loyalty and maintenance costs will reduce. Thus, CRM will have a powerful dual effect on Signifo’s profits. The company has less than 500 customers today. The number of entities with which it does business, and the costs of generating demand, has to change substantially in dimensions. CRM is an ideal platform for Signifo to enter new territories at low costs, but it will have to be careful to use the system as much to understand new customer categories as to promote its products and services. Thus, the business intelligence applications of CRM could be amongst the most important benefits that Signifo can realize through a new system of communicating with and servicing customers. Since new product development is an integral part of the strategy recommendation for Signifo, the company should integrate CRM across its functions. Refining existing products for new customer needs, and filling market gaps through new services, are some of the most valuable benefits Signifo can realize through CRM. Overall, CRM is an essential vehicle for Signifo to improve productivity and its customer base. The company cannot realize its full potential, or exploit the new international business opportunities in its line of enterprise by persisting with the old systems of meeting customers at trade affairs and by making calls in person. International customers should find it easy and attractive to do business with Signifo, and the company should be able to solicit custom from many times the numbers of organizations it makes contact with today. Automation of the demand generation process is vital to the company’s future. It will remain at its present level of sales turnover, and cannot emerge as a major and independent corporation without CRM. Branding The branding recommendation in this document is drawn from the work of a leading authority in the field of Services Marketing (Payne, 2002). Since the Information Technology industry is fragmented, with few entry barriers to deter even amateur efforts to provide products, Signifo has to resort to Services Marketing in a big way in order to shine in the global market space. Many small and medium enterprises in various countries may not appreciate the nuances of the cost effectiveness service which Signifo seeks to offer. The company will have to enhance the tangible aspects of its systems with liberal doses of customer support. Therefore, Services Marketing is an essential route for the continued success of a company which we may say is strong in technical innovation but relatively weak in marketing excellence. Branding is a controversial matter for a company in transition such as Signifo. It is tempting to recommend wholesale changes, but will the market recognize the company in its new garb? Could it be that Signifo surrenders some of its invaluable share of the existing U. K. market in bids to reach foreign shores? The company must use principles and best practices of brand management to retain the best elements of its hard won and current image, even as it attempts an upgrade. Segmentation is a primary step in the branding process. Conventional demographic and economic criteria of differentiation will not work for the present state of Signifo’s business. It cannot abandon the core customers in the small and medium category as it solicits custom from major corporations. Signifo must use the modern method of segmentation by forming clusters of professionally managed companies, and of significant global economic sectors, in order to succeed with its brand evolution. Targeting is an equally controversial matter. Signifo should attempt to reach small and medium enterprises throughout the world, rather than trying exclusively for break through attempts to get custom from the large corporations. Selling to large and established companies can prove to be expensive at best and unproductive at worst. Their complex decision-making systems can frustrate the entrepreneurial spirit of Signifo. The Internet is accessed and used by rapidly growing numbers of small and medium enterprises in all countries. Convergence in cellular telephones will only add to this trend. Signifo can make approaches in person to some U.K. based corporations and affiliates of international companies, but its CRM approach should focus on the small and medium segments for which it has established strengths. All elements of the Marketing Mix will be affected by the new strategy recommendation in varying degrees. The product element will undergo the greatest changes as it moves from mundane expense management to new avenues of cost effectiveness. This should be an occasion to improve margins, and the company’s pricing policies should reflect the increased values offered by its new products. Promotion will move away from personal selling to CRM, but distribution may not be affected much as it is not a critical differentiator in the B2B world. Signifo must take cognizance of the fact that Services Marketing has four additional dimensions of the Marketing Mix. It will have to revamp the people, process, preferential customers, and physical evidence elements of its strategy. Process is the most important element, and Signifo will have to take customer service levels much higher than at present, as it ventures in to foreign markets. Conclusions Signifo is a company in transition, on the path to a future which is much bigger and better than it’s small though profitable present. The company is fortunate to have expertise in a valuable growth area with global ramifications. Though the prospects for the company are excellent, it has to undergo some substantial changes to adapt to new customer needs. Comprehensive communication of the new strategy elements could be a first important step towards full execution. The product development function will also need a major revamp as the major expense management product of today needs enhancements to meet emerging customer needs. Works Cited Payne, A. 2002 The Essence of Services Marketing, Prentice-Hall Read More