Strategy Proposal Plan for InteCom - Research Paper Example

Strategy Proposal Plan for InteCom EXECUTIVE SUMMARY The paper has provided the strategy plan for InteCom one of the players in the US for PBX – Private Branch Exchange devices. PBX are used to provide automated telephone exchanges for small to large organisations. The strategic development plan for InteCom has analysed the current market scenario and proposed the strategy for development. The main recommendations are: Business Objective: To be one of the market leaders in PBX products and Peripherals Business Strategy: Building on the core product IBX SL/ 40 and enter foreign markets with collaborations. Competitive Position: Focus on open architecture systems and firms with larger requirements Sustainable Competitive Advantage: provide easy integration products for foreign languages with no issues of blocking problems Table of Contents Strategy Proposal Plan for InteCom 1 1 EXECUTIVE SUMMARY 2 1. Introduction 4 2. Discussion 7 3. Recommendations for the Strategy 10 References 12 Appendix 13 1. Introduction This paper develops a strategy plan for InteCom Company. The paper is based on the case study report prepared by Ghemawat (1986). InteCom was founded in 1978 in Texas. It is a manufacturer of PBX - Private Branch Exchange equipment, used in applications for fixed telephony. Among its competitors are AT&T, Rolm, Northern Telecom, Siemens and many other big and small companies. The firm was established recently in 1978 and as of 1982, it has a 1% US market share. The US market is dominated by firms such as AT&T, Northern Western and Rolm and InteCom is ranked at the 13th position, among the lowest. The market is expected to grow by 7 % till 1988 and the demand would be for large digital systems. InteCom has a robust product called the IBX S/ 40 digital systems. This product is based on digital technology and does not have problems of ‘Blocking’ that other product suffer from. It also has an open architecture and allows easy integration with foreign language systems, other than English, something other products do not have. Among different segments in the PBX market, there is a growth forecast for large customers line segment. While the US market has a lot of competition, the overseas market has double the demand. InteCom is very well positioned to enter the domestic and international markets with its IBX S/40 systems. The company suffers from low branding and it needs to improve its wage structure and the HR policies. The strategy report has performed a detailed SWOT analysis to understand the current market situation and has framed some strategic objectives along with vision and goals. Details of the strategy implementation are also given 1.1. About Strategic Development Plan The strategic plan provides a blueprint for the objectives for the future. The plan analyses the current business environment and frames the strategic goals that are to be achieved. Risk and opportunity areas are analysed to form an understanding of the market and then a vision is framed. The strategic plan has to be iterative and would have to be updated as and when fresh market inputs become available. A broad based framework for strategic planning is illustrated in the following figure (Moorman, 1998). Figure 1.1 Strategic Planning Framework (Moorman, 1998) A strategic plan would have clearly defined sections such as Executive Summary; Strategic Planning Methodology; Current Situation; Target End-State; Requirements; Implementation Program and Appendices if any (Song, 2003). The strategic plan for InteCom is provided in this chapter. The plan is laid out as per different headings with each heading giving information about a certain objective. 1.2. Strategic Planning Methodology According to Minztberg (1994), the strategic planning process is a type of story telling exercise. There would be a number of inputs that would be processed and then result in an output. Please refer to the following illustration. Figure 1.2. Strategy Formation Process (Mintzberg, 1994) Earl (1993) recommends that the methodology should cover stakeholders involved, information sources, and other factor. The methodology adopted is: Stakeholders: The identified stakeholder in this case are the management and engineers of InteCom, Lending institutions that lend finance and the Customers. The management and engineers are the employees of the firm who would be creating and delivering the product. Financial institutions have a stake since it is their money that is getting exposed. Customers are relevant at this stage since they would be removing existing PBX systems and installing InteCom products (Ghemawat, 1986). Information Sources: For the data related to the case, the only source allowed is the case report by (Ghemawat, 1986). 2. Discussion A discussion of the market is provided by using tools such as SWOT analysis and Porters Five Force Analysis. 2.1. SWOT Analysis The SWOT analysis tool is frequently used in the strategy formation and gives the strength, weakness, opportunity and threats that the firm would face. The SWOT analysis is as given below. Please refer to ‘Appendix A1. SWOT Analysis’ for detailed information. Strength The company has a very good product called the IBX S/40. This product is based on digital technology, does not have problems of Blocking and can be easily adapted to foreign languages. There is a demand for such products in the US and overseas markets. Weakness The firm is a new entrant and yet has to consolidate its markets. Being steeped in technology, it has not developed branding and has a low product awareness among customers. Employees are not paid the best salary and they may leave to join rivals Opportunity There are opportunities in the form of US and international markets Peripherals markets is growing and there is a lot of potential in this field Threat Rival firms have a head start over InteCom and they have better distribution channels. The main product IBX SL/40 does not have a patent and it may be duplicated by rivals. The salaries of employees are not among the best in the industry. 2.2. Porters Five Force Analysis The external market analysis is done by using the Porters Five Force Analysis as shown in the following figure. Figure 2.1. Porters Five Force Analysis 2.3. Regional Market Analysis The US market has a number of players with strong offerings. InteCom would remain at its position in the near future. The overseas market has a huge potential. Since IBX S/ 40 can easily be integrated in other nations systems, InteCom should explore overseas market for expansion. It can form tie-ups and joint ventures in other countries. Time frame estimated is 1 year, program launch – within 1 month. Figure 2.2. US Line Shipments (Ghemawat, 1986) A proper branding exercise with effective advertising, promotion and brand awareness has to be launched. Customer’s perceptions and awareness has to be bolstered. A professional advertising agency can be hired for this purpose and target telecommunication managers in large organisations. Time frame for campaign – 3 months; Program launch – within 10 days. 2.4. Customer Preference Analysis The current product of IBX S/ 40 is very well suited for market needs of 1000 to 4000 lines. The product can be sold in US and overseas markets also. A patent has to be registered quickly for this product and process for registration can be subcontracted to a qualified lawyer. The product can be upgraded as per future trends. Time frame – 10 days; program launch – immediate. Figure 2.3. US Line Shipment by System size for 1982 (Ghemawat, 1986) Peripherals: The peripheral market is very strong and InteCom should develop a strategic relation with vendors of suitable peripherals. These products can be sold as bundled offerings with revenue sharing. Time frame – 1 year; Program Launch – immediate, along with product launch Contracts: InteCom should consider offering lease facilities for customers. Such an arrangement would substantially reduce the cost of ownership for customers and reduce change over costs from AT&T. Program Launch – can be integrated with the branding exercise as part of the advertisement. 3. Recommendations for the Strategy Objectives of the strategic plan are the actions and activities that have to be initiated and run to complete the vision and goals. There is a scope to quantify the goals and target so that the objectives have measurable values. Some examples are: to increase market share to 10% from the current 8% (Liu, 1997). The case has already given detailed markets share and other information. Objectives framed are: Branding: To increase brand awareness among customers. Markets: To enter and expand in overseas markets. Product Upgrade: To ensure latest products are sold in the market. Peripherals: To offer peripherals along with IBC products. Contracts: To offer more customer friendly contracts to customers. 3.1. Implementation Program Leonard (2002) comments that the implementation programs for technology products need to be time based. The implementation should be planned based on internal core strengths. Vapon (2007) notes that the strategy implementation should not become very expensive, as this would have a negative result on the project finance. The implementation program, based on the objectives are as given below: Figure 3.1. Recommended Strategic Plan for InteCom 3.2. Evaluation Evaluation of the strategic plan can be done every week, monthly and even quarterly. The evaluation is only possible if there are clear benchmarked figures available for previous performance results. These results can be compared to the actual performance after the strategy implementation. References Berry. Maureen., 22 July 2002. Strategic planning in small high tech companies, Long Range Planning, 31(3), pp. 455-466. Earl. M.J., 1993. Experiences in strategic information systems planning. MIS Quarterly, 12(3), pp. 45-48. Geus. A. P. de., 1988. Planning as Learning. Harvard Business Review, p. 71-78, Ghemawat. Pankaj., 11 March, 1986. InteCom. HBS Case Services, Harvard Business School, Boston, USA. Leonard-Barton. Dorothy., 2002. Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development. Strategic Management Journal, Special Issue, 13, pp. 111-125. Liu. Shang-Jyh., 1997. Strategic planning for technology development with patent analysis. International Journal of Technology Management, 13(5-6), pp. 661-680. Mintzberg. Henry., 1994. Rethinking Strategic Planning Part II: New Roles for Planners. Long Range Planning, 27(3), pp. 22-30. Moorman. Christine., 1998. The Convergence of Planning and Execution: Improvisation in New Product Development. The Journal of Marketing, 62(3), pp. 1-20. Song. X. Michael., October 2003. Critical Development Activities for Really New versus Incremental Products. Journal of Product Innovation Management, 15(2), pp. 124-135. Vapon. Noel., May 2007. Strategic planning and financial performance, Journal of Management Studies, 31(1), pp. 105-110. Appendix A1. Detailed SWOT Analysis Following table gives the detailed SWOT analysis Strength InteCom has a product called as IBX S/ 40 - Integrated Business Exchange, which is an integrated system for voice and data transmission. In 1982, the company had sold 30,000 lines with revenues of 34.4 million USD. The IBX S/ 40 product is a third generation PBX product since it had been specifically designed to integrate voice and data. It is a vast improvement over current available systems in the market since it is digitised and has transmission speeds of 6 six times over the existing second generation systems. It is also free from the serious problem of Blocking that other PBX systems face when there is excessive traffic. Software controls are partially distributed and this reduces the number of lines affected by a failure in any one part of the system (Ghemawat, p.3). IBX S/ 40 had an open architecture and allowed easy integration of other party systems. As a result, IBX S/ 40 could easily be adapted into other countries. Products of other companies had compatibility problems with other languages and office systems and they required extensive reconfiguring. As a result these products could not be used in other countries where English was not the official language. IBX S/ 40 has recently been installed at the University of Chicago with a high level of success. The installation would allow InteCom to use the success to enter other large universities. However, the firm has not yet registered a patent for IBX S/ 40 and it must immediately do so. Weakness Among the main competitors are Northern Telecom, Rom and Western Electric and these have a 49% of the market share. Western Electric made only analog PBX and the future was project to be 90% digital systems. Northern Telecom was a multi product company and 16% of the revenues in 1982 were from PBX. It had developed the SL-100 that could handle 30,000 lines. By 1982, the installed base of the system was at an average of 600 lines per system and the rates were also kept low. The rivals are a serious threat to InteCom. Its vast product lines allowed interchange of components and thus it was regarded as a low to average cost producer of PBX. Rolm have developed a product called the VLCBX and this is a 4000 line PBX. It is expected to announce another product by 1983. It had attempted to set up its own distribution system and as a result, the administrative expenses had increased to 31% over 24% of revenues for 197-1982. Western Electric is a part of AT&T and makes analog systems called Dimension Systems. These are less than 100 lines system and meant for small business and offices. With the world moving to digital, there is some doubt about how long the analog products would be in demand (p. 8-9). Opportunity 6 % annual growth forecasts for the PBX shipments for 1982 to 1987 were made and it is estimated that by 1990s digital PBX systems such as IBX S/ 40 would get about 90% of the market share. In 1982, the sales break-up for different sectors was 22% of installed units for wholesale traders; retail trade 18%; hotels accounted for 15%; transportation and communication system was 11% and banking sector was 11%. The forecast was that the over 1000 lines business was expected to grow. In addition, 50% of the lines installed by 1988 would transmit data (p. 4-5). Firms that supply peripherals such as electronic phone terminals, messaging services and other software services would increase revenues. A PBX system that would cost 1 million USD would have 0.5 million USD worth of peripherals. This is a strong area of added growth and it is up to the PBX manufacturer to either outsource peripherals or build them on their own. (p. 5). Foreign markets are expected to be about 2 times larger than US markets but they are protected by respective governments. Major overseas markets are Canada, EEC, Japan and others. In 1982, US companies had sold equipment worth 261 million USD and with easing of access restrictions, the business was expected to expand. However, there are differences in telecommunication standards, power supplies and languages and it takes firms such as Rolm about 1 and half years to modify its PBX system for Italy (p. 5). Threat The distribution channels in 1982 for PBX in US markets was: Bell Operating Companies - BOC; independent telephone companies and Interconnects. InterCom was a part of the Interconnects and this group was made of three types. There were manufacturers who sold their PBX directly and operated nationally; sold larger volumes with very quick services and so on. PBX installation cists were in some cases, 50% of end user prices. Smaller companies sub contracted their systems. Quality of service was a very important issue and it was expected that repair and maintenance was brought online very quickly. In some cases, the repair time took up to four hours and this was not acceptable. Remote diagnostics had been introduced and technicians could find faults and rectify them remotely or give instruction to less skilled personnel (p. 6). InteCom does not offer higher salary and wages to the employees. There is a good chance that key employees may leave and join rival companies. InteCom takes orders only for sales contracts that cover equipment and installation costs and warranty. It did not lease products and this is an area where it could gain more business if customers were allowed to lease the systems. Costs of IBX S/ 40 are about 1200 USD per line while costs of competitors are 1000 USD per line. It sells products through own direct sales force. Sales cycle took about 1 year and in some cases, customers had to pay AT&T 3 million to terminate the existing lines. There was little documentation, no advertising, no press release and very poor publicity (p. 10-12). Read More