The Strategic Direction of Customers Limited Company - Case Study Example

Contents Introduction: 2 (I) Internal Analysis: 2 (II) Present strategic direction: 4 (III) Three Major Strategic Issues: 4 Conclusion: 6 References: 7 Appendix: 7 Introduction: Customers Limited is an Australian based company in the ATM and electronic payment systems industry. The organization has taken the route of inorganic growth through successful acquisition of ATM networks. Financially the company has been doing well. In 2007 the company had revenue of $ 41,548000 which was $ 15,695400 in 2006. (Shareholder’s letter, April 2007) (Half Year Report Period ending 31 December 2008, February 2009). (I) Internal Analysis: A VRIN analysis would be a plausible toll to determine Customers Limited’s strategic position in the market. Valuable: Customer limited has a fleet of 5400 ATMs which makes it bigger than any single bank. This huge fleet of ATMs helps the company to leverage the market in context of scale. The company followed a focused approach in terms of its operations. From this point of view it has identified 3 primary areas: 1. Customers ATM – Its focal point are Australia and New Zealand 2. Strategic Payment Services – It focuses on payments processing 3. Customers Asia – It has its focus on International expansion, mainly China and India. The company has been using the path of acquisition to mitigate risks and threats and also to expand its operations. ATM Solutions Australia Pty Ltd was acquired by it in April 2007 and the Customers Limited went into a joint venture with Master card and Bendigo bank to form Strategic Payments Services Pty Limited. Earlier in 2006 the company in a joint venture with FCP Brencorp Ltd formed Customers Asia Limited. The company provides ATM services at places of gathering like pubs, hotels, malls or petrol stations. (Shareholder’s letter, April 2007) (Customers Limited Investor Presentation, February 2009). Rare: Customer’s Limited major competitors are the major banks of Australia like Commonwealth bank, National Australia bank and Australia and New Zealand banking group limited or ANZ bank. Also one of the biggest competitors of Customers Limited is First Data International a firm specializing in e commerce and payment services. These banks also control a significant number of ATMs. For example Commonwealth bank controls around 4000 ATMs which as a number is not much far behind Customers Limited. Again First data International is much bigger in terms of geographical scale and it has managed more than ‘30 billion domestic merchant and international transactions as well as 11.7 billion domestic debit issuer transactions’ (Key Statistics, 2009). Inimitable/Non-substitutable: These competencies of Customers Limited are unique. Some of the bigger banks of Australia control a considerable number of ATMs in the country. Though in terms of scale Customers limited is bigger than any singular bank, yet these banks also have their own points of strength in terms of allied financial service offerings. Moreover ATM technology is not inimitable or so overtly expensive that banks or other institutions would find it impossible to enter this market if they wish to. In terms of strategic equivalence, ATMs have clear competition from plastic money i.e. debit or credit cards. The VRIN analysis shows that Customer Limited though has considerable market strength in terms of scale and expansion; it has also got strong competitors in banks and some other payment service firms. (II) Present strategic direction: Since its inception the company has grown through successful acquisitions of competing firms or ATM fleets. Through acquisition of ATM Solutions Australia Pty Ltd or joint ventures culminating into Strategic payment services, the company has managed to grow into a fleet of 5400 ATMs. Though in the preceding years the company has been focusing on China and India , presently the management has declared and shifted its focus on its core area geography i.e. Australia itself. The company wants to leverage the new Direct charges regime through its huge chain of 5400 ATMS. Full fee would be passed onto the ATM owners and Customers Limited is waiting to avail this new stronger revenue stream and is much confident about its success. Under the new direct charges regime users who do not have accounts with a bank would be charged a certain fee which would be show on the ATM screen itself during the time of transaction. Customers limited have won joint contracts with three new banks namely, Arab Bank Australia, Bank of Queensland and St. George Bank. The company has also taken a significant decision of exiting Asia. One of its unique capabilities is to go for bank branding, as it is the only ATM service provider who has this option of going into branding with banks in Australia. The company also proposes to sell shares of its Strategic Payment Services. It is also looking at increasing ‘fee for service’ schemes on trains. The company has tied up with Telstra to facilitate prepaid mobile recharging options at its ATMs. Strategically the company wants to focus on the core Australian market, direct charges regime and it also wants to monetize its broad network of ATMs through branding and tie ups for allied services. (Customers Limited Investor Presentation, February 2009). Threats to its business could emanate from the prevailing global economic slowdown and crisis. Moreover if banks want to increase their market share in ATMs, then they surely do have the financial, managerial and technical wherewithal to do so. There are other payment services firms like First Data Corp. who also have the resources and skills to take a player like Customers Limited. On the other hand with it 5400 strong fleet of ATMs and unique capabilities like co branding option with banks, Customers Limited is also in a position to present a strong fight to any present or impending competition. (III) Three Major Strategic Issues: One of the most significant events in the ATM industry has been the initiation of the new Direct Charges regime under the stewardship of RBA or the Reserve Bank. Customers limited with its vast network of 5400 ATMs is more than ready to leverage this new fee regime as under this for the first time the whole fee would be passed onto the ATM owners. Customers Limited is focusing on extra revenue from fully leveraging the power of its ATMs. And in this context the company has come up with a differentiated offering like a tie-up with Telstra to provide prepaid mobile charging. Also it earns revenue from co-branding with banks. Moreover it is know from recent investor presentations that the company wants to exit from Asia and firmly refocus on its core market i.e. Australia in view of strong competition from entities like Fast Data International or even some banks like the Commonwealth bank which controlled over 4000 ATMS on last count. The company also wants to offload or sale some share form it Strategic Payments Services to garner funds for its core operations. From a financial perspective the company wants to re focus on its operational areas and wants to increase profitability of its ATM networks, simultaneously streamlining company operations and cutting expenditure, which result in stronger revenue and profit in the future. Fig.1 Source: (Customers Limited Investor Presentation, February 2009) The above table shows that the strategic decisions of cost cutting and increasing productivity has paid dividends for the company as revenue and EBITDA ha s been going up continuously from 2005 to 2008. Fig.2 Expenditure (in $) Source: (Customers Limited Investor Presentation, February 2009) In fig.2 it is again evident that the company has been able to successfully decrease its expenditure levels throughout the year 2008. Conclusion: Customer Limited is a strong company in its field of operation and has been able to show strong financial performance through strategic decisions and to continue its success it would have to be agile and alert to understand the changing technological scenario of electronic payments and ATMs and also to spot lurking competition and its sources. ---o--- References: Shareholder letter April 2007, [Online], available: http://www.customers.com.au/downloads/asx_releases/2007/shareholderletter_april07.pdf [April 22, 2009] Half Year Report Period ending 31 December 2008, February 2009, [Online], available: http://www.customers.com.au/downloads/asx_releases/2008/half_yearly_report_2008.pdf [April 22, 2009] Key Statistics, 2009, First Data Around the World, [Online], available: http://www.firstdata.com/about/business_units/index.htm [April 22, 2009] Customers Limited Investor Presentation, February 2009, [Online], available: http://www.customers.com.au/downloads/asx_releases/2009/brokers_media_presentation_market_release_20090217.pdf [April 22, 2009] Appendix: i. Fig.1 Financial performance. ii. Fig.2 Expenditure (in $). Read More