E XPLORING THE O PPORTUNITIES ON THE D UTCH AND
B ELGIAN M ARKET
E XPLORING THE O PPORTUNITIES ON THE D UTCH AND
B ELGIAN M ARKET
Date: October 26
th, 2005
Rijksuniversiteit Groningen Faculty of Management and Organization
Author: Bas Westerink
First supervisor: Drs. R.W. de Vries
Second supervisor: Mr. W.W. Wijnbeek
Preface
This report marks the end of my internship at Company X BV. Having started in November 2004 it has been a learning experience for me throughout this time. Not only was I responsible for conducting an individual research project, I was also given the opportunity to get a taste of the office lifestyle.
During the process of conducting the research and writing this report, I have been supported by many people within Company X, from the University, and within the publishing industry. I would like to thank all the people who have given up their time to help me with my research. I would especially like to thank my Company X supervisor Ruud Gerritsen and my supervisors from the University of Groningen Mr. de Vries and Mr. Wijnbeek who have given me valuable feedback, remarks, and suggestions.
Writing this report has been a long and difficult task, and I wonder whether or not the report would have ever been completed without the support of my family and friends. Their large contribution cannot go unmentioned here.
Bas Westerink October 2005
Management Summary
This research report is the result of a study at Company X, a company that produces Product Y specifically intended for publishing houses. The main research question which guided the research is:
Which relevant opportunities does the applicable market for publishing Product Y in The Netherlands and Belgium have to offer, and which suitable actions must be taken by Company X to ensure optimal exploitation of these opportunities?
In order to answer this research question the research has been split up into three parts. The first part looks at an internal analysis, the second at an external analysis, and the final part deals with strategy formulation. In order to structure the research three sub questions were formulated.
First of all, a closer look was taken at the internal environment of Company X. The current strategy, the structure and the systems were analyzed. The most important factors that play a role here are the decentralization of responsibility, the decrease in bureaucracy, and the customer orientation of the company. The decentralization and decrease in bureaucracy is done through the structure of the company. Customer orientation is enhanced through a strategy which is aimed at increasing professionalism.
The performance/importance analysis looks at the current situation of Company X and how this situation meets the demand of the market. Through this analysis the strengths and weaknesses have been determined. The strengths of Company X are the way Company X integrates the information system for the customer, the compatibility of the solution, the faster information flow the system provides for the customer, the ‘fit’ between the system and the strategy of the customers, the way the system allows the customers to react better to external influences, and the large customer file of Company X. The weaknesses are the reliability, usability, user friendliness, quality of implementation, general quality of service and maintainability.
The external analysis shows that the Dutch and Belgian markets are similar on a lot of macro environmental aspects. Key differences are the fixed book price in the Netherlands, a Dutch audience which is more eager to read, and the bilingual state of Belgium. In addition it is important to note that the technological factors change constantly, meaning that the product must remain flexible enough to adapt to new technological developments.
The second external aspect which was looked at is the industry environment. The industry analysis shows that the industry scores an average score on all five forces as named by Michael Porter. The main issues that play a role are the capital requirement and high switching costs for new entrants, the small number of substitute products, the level of necessary investment for the buyer power, the few firms that dominate the industry for the supplier power, and the equally balanced competitors, slow industry growth, similarity between industry firms and high exit barriers for the intensity of rivalry.
The customer analysis has been performed through a questionnaire which was used to analyze the general market and the buying behavior of the publishing houses active on the market. In addition the relationship between the Product Y vendors and the publishing houses was also looked at. The general market consists of publishing houses which are, for the most part, only active within the Dutch and Belgian market. These publishing houses are generally satisfied with all aspects of their Product Y system except for the production management system. Company X, however, performs well on this aspect. When looking at the relationship between the Product Y vendors and the publishing houses one can say that relationship marketing should be used by focusing on the quality of the product rather than the price. The analysis of the buying behavior has shown that the final decision in both the Netherlands and Belgium is usually made by the CEO and the IT managers when it comes to purchasing a new Product Y package. The six different roles as influencers during the decision making process were also determined: the initiator is usually the IT manager, the CEO, and the final user. The decision maker is the CEO and the buyer is generally the IT manager. The influencers are the IT managers, final users, and the CFO. Looking at the gatekeepers one can say that these are usually the IT managers and, as predicted, the final users were named as the users of the product. The main sources of information which are used by the publishing houses are direct contact and the professional contacts of the publishers.
The final part of this research is concerned with the strategy formulation. Using the generic strategies, strategy direction and methods for strategy development, the proposed strategy is one where Company X should focus on the publishing houses with a turnover of more than 10 million Euros, which should emphasize the following aspects:
1) Providing an integrated information system for the customer
2) Compatibility with other systems and programs used by the customer 3) Providing a faster information flow for the customer
4) Providing a ‘fit’ with the strategies of the different customers 5) Maintain a large customer file
6) Providing the customer with a system which allows them to react better to external influences 7) Improve reliability, usability, user friendliness, maintainability
8) Improve the quality of implementation and general quality of service
In addition, market penetration and market development need to be achieved through an increase in professionalism, and by looking into expansion into new regions. When penetrating the market this should be done through direct contact with the publishers. In addition increasing professionalism will lead to a better reputation. Since publishing houses also use their professional contacts as a main source of information when buying a new Product Y package, this improvement of professionalism will result in favorable referrals by this professional network. When all necessary research studies have concluded that the decision to develop into certain markets is a wise decision, the market development should be achieved through an alliance.
Management Summary
4
1. Introduction 8
§1.1 Company X ... 8
§1.2 The Product Y ... 8
§1.3 Research background ... 9
2. Methodology and Research Structure 10 §2.1 Background of the problem statement... 10
§2.2 Problem Statement ... 10
§2.3 Literature Review and Sub Questions ... 11
§2.4 Sub-questions and Theoretical Framework ... 13
§2.5 Questionnaire ... 20
§2.6 Summary ... 21
3. The 7-S model 23 §3.1 Structure ... 23
§3.2 Strategy ... 24
§3.3 Systems ... 26
§3.4 Conclusion ... 27
4. Performance/Importance Analysis 28 §4.1 Performance/Importance analysis ... 28
§4.2 Characteristics of the Product Y... 30
§4.3 Vendor characteristics ... 32
§4.4 Advantages provided by Product Y... 34
§4.5 Conclusion ... 35
5. Analysis of the Macro Environment 39 §5.1 Political factors ... 39
§5.2 Economical factors... 40
§5.3 Social factors... 40
§5.4 Technological factors ... 40
§5.5 Conclusions ... 41
6. Analysis of the Industry Environment 42 §6.1 Threat of new entrants... 42
§6.2 Threat of substitute products ... 44
§6.3 Bargaining power of buyers ... 45
§6.4 Bargaining power of suppliers ... 46
§6.5 Intensity of rivalry among competitors ... 47
§6.6 Conclusions ... 48
7. Customer Analysis 50
§7.1 General market characteristics for Publishing Houses ... 50
§7.2 Relationship with the publishing houses ... 52
§7.3 Buying behavior ... 53
§7.4 Conclusions ... 55
8. Strategy Formulation 58 §8.1 Generic Strategies ... 59
§8.2 Strategy Direction ... 61
§8.3 Methods for strategy development ... 64
§8.4 Conclusion ... 65
9. Conclusion 67
Bibliography 72
Appendix 1 – Product Y Overview Error! Bookmark not defined.
Appendix 2 – External Questionnaire and the Results Error! Bookmark not defined.
Appendix 3 - Internal Questionnaire and the Results Error! Bookmark not defined.
Appendix 4 – Competitor Overview Error! Bookmark not defined.
Appendix 5 – Interviews Error! Bookmark not defined.
Appendix 6 – Respondents to the Questionnaire Error! Bookmark not defined.
1. Introduction
This introduction will first look at a brief history of Company X (§1.1), followed by a description of the product (§1.2) and background to the research (§1.3).
§1.1 Company X
In 1985 the Product Y producing company Contrast Automatisering BV was established. The Product Y that was produced was aimed at supporting business operations of companies in general. New clients attained a tailor made Product Y package that met the requirements which were formulated by the clients themselves. In the year 2000 Contrast Automatisering was approached by the German company Company X GmbH.
Company X GmbH has been developing standardized Product Y for publishers and distributors of books and magazines since 1992. With over 7,000 workstations and 25% of the 40 leading international players in the publishing industry (including Bertelsmann, Wolters Kluwer, Verlagsgruppe Georg von Holtzbrinck and Springer Science+Business Media GmbH) running on the system, Company X is the European market leader in this field. The company is leader on the Dutch and German market and is a fast grower in various other European countries.
Specializing in a standard Product Y package specifically intended for publishing houses, Company X approached Contrast Automatisering as a partner in installing the Company X system at Wolters Kluwer. After this successful partnership the two companies agreed to keep on working together closely, which has led to the acquisition of Contrast Automatisering by Company X. The former Product Y company Contrast Automatisering is currently functioning as the Benelux business unit of the Company X company with the office located in Amsterdam. Although being called the Benelux business unit, this business unit is responsible for all activities on the European continent excluding the United Kingdom and Germany. Most of the activities, however, are on the Dutch and Belgian market. In addition to the office in Amsterdam, the organization is located in Berlin (headquarters), Frankfurt, Munich, London and New York.
§1.2 The Product Y
The Company X product is the Product Y which is produced by the company. This Product Y package is an Enterprise Resource Planning (ERP) package which is specifically intended for publishing houses. This package supports the entire publishing process. The Company X system incorporates a wide variety of functions which are too broad to discuss in detail here. Instead a brief product overview will now be presented (also see Appendix 1). Through Product and Planning Management (PPM) the Product Y deals, among other things, with contracts, rights and royalties, address management and marketing, product management, and sales statistics.
The Book Sales and Distribution (BSD) solution is an integrated and automatized order processing system which enables order processing for books and loose-leaf editions as well as electronic or online products and content sales. Journal Sales and Distribution (JSD) does much the same as the BSD except for journals rather than books. The availability of production status information and the scheduling of the journals and contributions is
handled by Journal Editorial Management (JEM). Through the Customer Care Management component (CCM) customer acquisition, customer classification, customer service, complaint management and call center activities are supported. The CCM also has integrated marketing tools to support the entire marketing process and a sophisticated address management system. Finally the Advertising Sales and Management (ASM) module holds all the information necessary when contacting clients and prospects. The modular design of the package allows customers to choose and implement only those modules which they need at a specific point in time, and expand the package as they grow.
§1.3 Research background
The acquisition has caused many changes for Company X Benelux. The previous tailor made Product Y was replaced by a standard Product Y package, and the once very broad market was now narrowed to the specific publishing sector. After the successful introduction of the Company X system at Wolters Kluwer, the firm attained its first foothold on the Dutch market. With a large customer base in Germany and now a respected customer on the Dutch market other publishing houses approached the company to investigate possible IT implementations. This has lead to more successful implementations at publishing houses such as Pelckmans, Wolters Noordhoff, Audax, and WPG. Through a good reputation on a ‘pull’ market an actual analysis of the market has never been necessary, and hence has never been performed. In addition the publishing market is relatively new for Company X Benelux since it has only been active on this market after the Contrast Automatisering acquisition. Not wanting to risk missing new opportunities on the market, this research is aimed at exploring the relevant market for Company X Benelux and defining the opportunities created by this market.
Although the (potential) market of the business unit includes all European countries excluding the United Kingdom and Germany, Company X has requested this research to focus only on the two countries in which it is most active, namely the Netherlands and Belgium.
2. Methodology and Research Structure
This chapter will start out by providing the background of the problem statement (§2.1) which, in turn, will lead to the problem statement (§2.2). Once the problem statement has been formulated the results of a literature study which has been conducted to obtain the relevant sub questions will be presented (§2.3). §2.4 will take a closer look at each sub question. The proposed methodology and method for data collection will also be presented for each sub question. In §2.5 the questionnaire which was dispersed will be looked at, and the response rate will be given. Finally §2.6 will conclude this chapter and provide the structure of the remaining part of this report.
§2.1 Background of the problem statement
Chapter 1 has already provided the reason why Company X Benelux has decided to conduct research regarding the opportunities on the Dutch and Belgian market. Not only should the ‘why’ question be answered before defining the problem statement, one should also look at what exactly needs to be researched and for whom this research is conducted (De Leeuw, pg. 83).
The ‘what-’ question refers to the subject of the research. In this case Company X wants to know what the opportunities on the Dutch and Belgian market for Company X are, and how these opportunities can best be exploited. The final product should provide strategic advice for Company X. The report is intended for the Company X board of management and all other stakeholders who play a role in the marketing strategy formulation process for Company X.
§2.2 Problem Statement
Although already being active on the Benelux market, Company X is currently missing a clear view of the market on which it is operating. In order to compete more effectively and to get a better picture of the market, and the opportunities which this market has to offer, the objective of this research will be:
To develop strategic advice for Company X aimed at attaining ‘new business’
on the Dutch and Belgian market.
The accompanying research question to this objective will be:
Which relevant opportunities does the applicable market for publishing Product Y in the Netherlands and Belgium have to offer, and which suitable actions must be taken by Company X to ensure optimal exploitation of these opportunities?
Since this problem statement aims at providing insight into the market through searching for opportunities and searching for actions to exploit these opportunities, this research will be of an explorative and qualitative nature.
Before looking at the problem statement in more detail, some terms will have to be defined first (table 2.1).
Table 2.1 – Definitions
§2.3 Literature Review and Sub Questions
Through this research, Company X will be provided with strategic advice concerning further market penetration of the Dutch and Belgian market. In order to provide strategic advice the steps of strategy formulation will have to be followed. Andrews states that the principal sub activities of strategy formulation are ‘identifying opportunities and threats in the company’s environment, and attaching some estimate or risk to the discernible alternatives’. Before a choice can be made out of the alternative opportunities the company’s strengths and weaknesses must be established first. These strengths and weaknesses make up the corporate capability. The resulting strategic alternative comes from matching opportunity and corporate capability at an accepted level of risk. (De Wit & Meyer, pg. 89) Johnson and Scholes also state that a SWOT analyses is a structured analysis which contribute to the formulation of strategy (Johnson and Scholes, pg. 19). Baring this in mind it seems logical to base the research around the strengths, weaknesses, opportunities and threats of Company X.
The strengths and weaknesses of Company X can be derived from an internal analysis. More specifically a performance/importance analysis looks at how Company X performs on certain aspects and how important the market finds these same aspects. To find the opportunities and threats, the relevant external environment has to be clearly defined and analyzed. According to Hitt the external environment consists of the industry environment, the competitor’s on the market, and its macro environment (Hitt, pg. 43). These can all provide opportunities on the market for Company X and therefore need to be identified. In addition it seems logical that a detailed analysis of the customer should also be provided, since their consuming pattern determines the success or failure of a company. Therefore in this research the external analysis should not only look at the supply side of the market (i.e. a competitor analysis) but also the demand side of the market (a customer analysis).
Once the SWOT analysis has been completed the relevant opportunities can be separated from the irrelevant ones. The relevant opportunities are those opportunities which play a role in the most appropriate strategies.
With the evaluation of the alternatives and the selection of the most suitable ones the first part of the research question has been answered. The second part of the research question looks at the actions which have to be taken in order to pursue these opportunities. The actions and their consequences will be given as recommendations. A detailed strategy implementation will not be presented since this falls outside the scope of this research. A schematic representation of this literature review is presented through a research model (figure 2.1).
Applicable market
All publishing companies with a turn-over greater than 10 million Euros (a restriction provided by Company X)
Optimal exploitation
The most desirable manner which is of greatest benefit to the company, yet within the boundaries of realism
Opportunities Conditions in the external environment that may help a company achieve strategic competitiveness (Hitt, pg. 48) Suitable The extent to which a proposed strategy fits the situation
identified. (Johnson and Scholes, pg. 32)
The procedure described allows one to break the problem statement down into the following sub questions:
1) What is the internal situation of Company X and which strengths and weaknesses are provided by the internal situation?
2) What is the external situation of Company X and which opportunities and threats are provided by the external situation?
3) Which opportunities remain of interest and what actions must be taken by Company X to ensure optimal exploitation of these opportunities?
This report will be structured around these three sub questions. Part one of this report will provide an internal analysis, which is used to answer the first sub question. The second sub questions will be dealt with in part two of this report which provides an external analysis. The final part of this report is used for strategy formulation and answers the final sub question. These three sub questions are the input of the overall conclusion which will provide an answer to the main problem statement.
This can also be presented schematically in a research model (figure 2.1). The dotted line separates the contents of the research from the final result of the research. The research model, in turn, can be used as input for the structure of the research on a chronological basis.
Internal Environment
• Competitive Position
External Environment
• Macro environment
• Industry environment
• Market
Opportunities/Threats Strengths/Weaknesses
Relevant Opportunities and Strategies
Strategic Advice Selection of strategy
Proposed Actions
Figure 2.1 – Research Model
§2.4 Sub-questions and Theoretical Framework
The sub questions which came forward in §2.3 will assist in answering the main research question. These sub- questions will now be presented with the accompanying methodology and data gathering methods which will be used in answering these questions.
§2.4.1 Internal Analysis – What is the internal situation of Company X and which strengths and weaknesses are provided by the internal situation?
To determine the strengths and weaknesses of the internal situation, a diagnosis of the internal situation should be made first. This will be done using the 7-S framework of McKinsey (Waterman, pg. 12) (figure 2.2). This model proposes that an organization consists of seven elements. These seven elements are all inter-related, meaning that a change in one element will have its repercussions on the other six. The first three elements are structure, strategy, and systems, and are considered to be the ‘hard’ S’s. The remaining four, style, staff, skills and shared values, are considered to be the four ‘soft’ S’s. For this research the focus will lie on the hard S’s. This is due to the fact that it is possible to objectively state and analyze the relatively stable hard S’s, while the soft S’s change continually. This means that it is usually less complicated to influence the hard S’s than the soft S’s. It would not be wise to base the resulting strategic advice on the current soft S’s when they could be completely different in a very short time. In addition, a deep diagnosis of these soft S’s could be out of date by the time this report is published. It is believed that diagnosing the three hard S’s will provide the right information necessary for an internal diagnosis since it provides insight into the relevant internal situation of Company X. The strengths and weaknesses do not become very apparent through this model, yet these will be acknowledged using the performance/importance analysis described later.
To obtain the necessary information for this model both primary and secondary information sources are used.
Through in-depth interviews with company employees (Appendix 5) and company documentation a clear picture of the company strategy, structure, and systems was created. Since the necessary information is very company specific, no other usable information sources could be used here.
- Soft S’s - Hard S’s
Strategy Systems
Staff Structure
Skills Style
Shared Values
Figure 2.2 - McKinsey’s 7-S Framework
Continue the current approach Concentrate
here
Importance
Possible waste of resources
Low priority
Performance
1 2 4 5
1 2 4 5
3
Figure 2.3 – Graphic overview of the Performance/importance analysis
To gain further insight into the specific strengths and weaknesses provided by the internal environment a performance/importance analysis will be used (Kympers, pg 66). Strengths and weaknesses are relative concepts, a strength in one industry, market, or market segment could be a weakness in another. In order to recognize this relativity the choice has been made to use the performance/importance analysis. In order to determine the strengths and weaknesses, this analysis looks at those factors which are considered important by the external environment (i.e. the customers). Once these are established, one can see how Company X performs on these same areas.
As stated before the strengths and weaknesses of Company X can be determined through the use of a performance/importance analysis. Graphically, this analysis is composed of an X and a Y axis. The Y axis measures the amount of importance potential customers place on certain aspects of the Company X product. The X axis measures the performance of Company X on these same aspects (figure 2.3). Once the aspects have been plotted on this graph, one can determine whether each aspect can be considered a strength or a weakness. In addition, the data which has been plotted can be compared to the ideal line on this graph. This ideal line has a one to one relationship between performance and importance. Analyzing this ‘gap’ will help determine the strengths and weaknesses.
In order to obtain the necessary information, the different aspects of the product need to be established and the importance and performance of these aspects needs to be determined. To determine the aspects the article A comprehensive framework for selecting an ERP system by Wei and Wang was used. As the title suggests this article looks specifically at ERP Product Y and is therefore very applicable to this research since the Company X Product Y is an ERP package. The different aspects named in this article have been combined with aspects which have come up during interviews with both Company X employees and (potential) customers during events
such as the Company X Customer Information Day and the National Publishing Day.
To measure the importance on each of the established a questionnaire was spread among current customers and all other potential customers on the market who meet the 10 million Euro annual turnover criteria. A list of these publishing houses and their contact information was obtained through the external company Marktselect. This organization specializes in maintaining an up to date list of companies active within different kinds of markets, and provides
information such as contact information, company size, annual turnover etc. Their sources vary from their own visits to companies and other forms of direct contact, the Chamber of Commerce, and Graydon (the largest supplier of trade and financial information in the Netherlands). Given this brought range of sources this information is considered reliable. Just to make sure, however, a check was made within the questionnaire to test if the information provided was, in fact, correct (see chapter 7).
To measure how Company X performs on these same aspects, an internal questionnaire was distributed. This questionnaire was spread among consultants for both the Benelux business unit and the German headquarters.
These consultants frequently interact with the customers and therefore should have an adequate picture of how Company X performs on each of the aspects. The results of both questionnaires were also compared with issues which came forward during internal and external interviews in order to provide the opportunity to reinvestigate those aspects where the results of the questionnaire did not match the outcome of the interviews.
§2.4.2 Segmentation
Before the actual external analysis takes place, it is important to identify the relevant market segment first. A market segment not only identifies the company’s customers, but also the competitors, and the general way of operating. In other words the segment determines the game, the playing arena, the players and the rules (Biemans, pg. 180). Therefore, before analyzing aspects such as the macro environment and the customer the relevant market segment must first be determined.
Previously in this chapter the applicable market (segment) for this research has already been defined. The chosen segment consists of those publishing companies active on the Dutch and/or Belgian market which have an annual turnover greater than 10 million Euros. A closer look will now be taken at this segment to ensure that the chosen segment is the best choice.
There are many ways in which a market can be segmented. In the case of industrial marketing one can use macro and micro segmentation (Biemans, pg. 181). The first looks at company characteristics (turn-over, number of employees, geographical location etc.) whilst the second looks at characteristics of the buying center (composition of buying center, degree of decentralization, buying motives etc.) and the characteristics of the involved individuals (age, function, educational, background etc.). One can see that it starts out very broad with general company characteristics and is narrowed down to very specific individual segmentation variables.
Biemans argues that the segmentation criteria from the first category should be applied first. If these are sufficient then it is not necessary to segment any further. If the company characteristics are not sufficient the buying center should be looked at, followed by the individuals involved if necessary. Using too many segmentation criteria is not advised since this could lead to a situation in which potential customers would fall outside of the market segment. On the other hand, too few segmentation criteria would lead to a situation in which resources are being wasted on customers who turn out to be of little interest.
The three segmentation variables which Company X uses are the type of organization (publishing houses), the geographical aspect (active on the Dutch and Belgian market) and turnover (minimum of 10 million Euros annually). The first variable is logical since the Product Y is already specifically intended for publishing houses.
Including different kinds of companies would not be useful since those companies could not use the product.
The second criterion which is used is the geographical aspect. The major reason for this segmentation variable is the fact that the German mother company has divided the European continent into separate business units. The Dutch and Belgian markets have been put into one segment by the mother company since they share, and therefore publish, in a common language. This has caused the two markets to intertwine, where, for example, Belgian writers can use a Dutch publishing house, or Dutch published goods can be distributed in Belgium. In addition, the countries are relatively small, allowing for easy access to the actual publishing houses around the two countries from the Amsterdam office. Another logical reason for this segmentation decision is the European legislature which allows individuals to travel freely between both countries and use the same currency.
The final segmentation variable is based on the annual turn-over of the publishing houses. The reason for this segmentation variable is the fact that the Company X system is very complex and therefore also expensive.
Companies with a lower turn-over than 10 million Euros will not be able to afford the system and should therefore be excluded from the market segment.
The three segmentation variables which are used by Company X appear to be adequate. Through these criteria the irrelevant customers are separated from the relevant ones to avoid wasting resources. The remaining segment consists of publishing houses which are of interest to Company X. Applying even more segmentation criteria would result in a situation in which certain publishing houses, which are of interest, could fall outside of the market segment. Having established the relevant market segment, the external analysis can now be discussed.
§2.4.3 External Analysis – What is the external situation of Company X and which opportunities and threats are provided by the external situation?
The external environment is made up of the macro environment, the industry environment, the competitors and the customers. Starting with the first, the macro environment affects the opportunities by eliminating some and making others more viable (Mühlbacher, pg. 475). In order to do this it must be determined which macro environmental factors are relevant and which are not. Currency risks, for example, do not matter in this research since both the Netherlands and Belgium use the same currency. A PEST analysis can be used to look at the different variables. PEST is an acronym for Political (including legal), Economical, Social and Technological factors. The relevant elements for this research are those that either create an opportunity or pose a threat. In this context, opportunities are conditions in the general environment that may help a company achieve strategic competitiveness. Threats can be defined as conditions in the general environment that may hinder a company’s efforts to achieve strategic competitiveness (Hitt, pg. 48).
Besides the external environment being a topic during some interviews, most information is gathered through desk research. Using the internet general information about the macro environment could be found. In addition several official European Union reports provided relevant information about the general external environment, but also more specifically about the external environment of publishing houses. Finally, the two trade magazines Mediafacts and InCT were also used. The first magazine looks at the publishing market, while the second looks specifically at the role of IT within the publishing market.
The second component of the external environment is the industry environment. The industry environment consists of a group of firms (competitors) producing products that are close substitutes. (Hitt pg. 61) When identifying the competitors it is important to not only look at existing competitors but also at possible upcoming competitors and barriers to market entry. Firms which have not been active on the market before might consider doing so in the future. To analyze the context of the industry environment, Porter’s Five Forces model will be used. This model looks at the supplier power, the buyer power, the threat of substitutes, the barriers to market entry, and the degree of rivalry on the market. Porter’s model is frequently used and looks at all the relevant factors within the industry environment. It is therefore considered appropriate for this industry environment analysis.
As can be seen in chapter six, each of these forces can be broken down into a number of factors. Desk research and interviews with Company X personnel are the main sources of information to analyze these factors. Through the websites of competitors, and articles in the trade magazines Mediafacts and InCT, a general idea can be obtained about the five forces on the market. Through interviews with the Company X personnel, most of whom have been active in the industry for a great number of years, this general idea can be further specified and the necessary information about the factors within these forces can be obtained. In addition the National Publishing Day provides an opportunity to talk to different parties active within the publishing industry.
Potential Entrants
Buyers Suppliers
Industry Competitors
Rivalry amongst existing firms
Substitutes
Threat of substitute products Threat of new entrants
Power of buyers Power of
suppliers
Figure 2.4 – Porter’s five forces
The third component of the external analysis consists of the competitors. Through a competitor analysis a firm can understand, interpret, and predict its competitor’s actions and initiatives (Hitt, pg. 74). In the original design of this research such a competitor analysis was included. Through interviews with sales people within Company X it was established that there are six main competitors who are active on this market segment. In trying to obtain relevant information both primary and secondary resources were used. Information was gathered through competitor websites and the annual reports. A problem here, however, is the fact that, with the exception of one, the competitors serve many different segments and markets. For example, mySAP Media, is only one of many SAP Product Y packages. The result of this is that the company websites and annual reports supply general information about the mother company and do not go into detail about this particular market segment. Therefore these secondary resources were not sufficient to provide a detailed competitor analysis. In trying to obtain primary data different methods were used. Firstly, each of the competitors was approached with a request to obtain information from them through either an interview or a questionnaire, yet these requests were all denied.
Secondly a chance of direct contact with these competitors was available at the National Publishing Day. On this day some additional information was gathered. However, due to the Company X background of the researcher, the competitors were still very hesitant in providing the necessary information. The secrecy among the competitors was also confirmed by the Company X sales people, who indicated that even after their own research, they had very little information about the competitors. This has resulted in a situation in which only company websites, annual reports, and very limited information gathered from sales people within Company X were available for this research. Since the information is very limited and diverse for each competitor it is not possible to come to a structured competitor analysis. The information which was gathered has been included in the appendix (Appendix 4).
Not including a structured competitor analysis in this research can be seen as both positive and negative. It is negative because the eventual strategy does not take into account the actions taken by the individual competitors.
On the other hand, not including a structured competitor analysis also means that this research will have an open mind to all possible strategies and there is no temptation to look at the success of competitors and benchmark that strategy. In addition, the main trends among the competitors are already included through the industry analysis which looks at the competitors as a group.
The final component of the external environment consists of the customer. In §2.4.2 the relevant customer segment has already been determined. The customer analysis will look at three main aspects, namely general market information, the relationship between the vendors and the customers, and finally the buying behavior of the customers. General market information gives the researcher insight into the publishers that are active on the market and general trends among these publishers. By analyzing the relationship between the vendors and the customers the orientation of the marketing instruments can be determined. For example, if the relationship is characterized by low risk purchases which require low switching costs, the marketing instruments used should be aimed much more at short term transaction marketing, than when the relationship is based on high risk purchases with high switching costs, which requires long term relationship marketing (Biemans, pg. 74). The buying behavior of the customers is analyzed to determine the background to the eventual purchasing decision and the aspects which play a role here of the potential customers. Once these aspects are known this can be used to
optimally approach the potential customers. The buying behavior consists of the buying process, the decision makers, the influencers during the buying process, and the buying criteria (Huff & Munro, pg. 8). Analyzing the buying process provides insight into what sources of information are used by the publishing houses when it comes to gathering information about a new Product Y vendor. By looking at the decision makers and influencers one can find out which people within the company play a role during different stages of the buying process. The final buying criteria look at which criteria the publishers find important when making a decision to buy a new Product Y system. An analysis of this, however, is already included in the performance/importance analysis where the most important criteria will already be determined.
Once an analysis of the general market, the relationship between the vendors and the customers, and the buying behavior has been completed one can make much more specific strategic recommendations. One can now focus on specific marketing instruments, and build up a relationship through the right manner and the right people within the publishing houses. This means that the final strategic advice of this research, which incorporates the actions which should be taken by Company X, will be more specific.
Since little reliable market statistics can be found using secondary sources, the same questionnaire which has been used before, was used to gather information about the general market, and the buying behavior of publishing houses. The questions on the questionnaire have been derived from a literature study.
§2.4.4 Strategy Formulation – What actions must be taken by Company X to ensure optimal exploitation of the previously determined strengths, weaknesses, opportunities and threats?
Part one and part two of this research were of a diagnostic nature and have been used to determine the strengths and weaknesses of the internal environment and the opportunities and threats of the external environment. This part of the research will be used to formulate a strategy which coincides with the two diagnoses of part one and two.
Accoring to Johnson and Scholes there are three main aspects which must be looked at here (Johnson & Scholes, pg. 319). First of all a choice out of one of Porter’s generic strategies must be made. The options here are a cost leadership strategy, a differentiation strategy and a focus strategy. The first strives to provide the product at the lowest possible price. A differentiation strategy does not focus on price but strives to differentiate the product in such a way that it is unique in the market. Finally a focus strategy is a strategy where all efforts are directed towards a single market segment. Within this segment one can then choose to either differentiate the product or try to achieve a position of cost leadership. This is an important step in strategy formulation since it forms the base on which a business unit might achieve competitive advantage in its market (Johnson & Scholes, pg. 319).
Once the proper generic strategy has been selected the direction of the strategy must be determined. According to Johnson and Scholes one can go in six different directions (Johnson & Scholes, pg. 363). First of all one can protect and strengthen ones position on the current market with the current product through consolidation. One can also use market penetration, which is used when an organization gains market share with the same product.
Through product development an organization delivers modified or new products to the existing market. The opposite is true for market development where new markets are entered, but the same product is used. Finally a strategy can have a direction in which diversification is used. This means that the organization is taken away from its current markets or products.
Once the direction of the strategy has been determined one must also look into the method of development.
These methods can be divided into three types: internal development, acquisition (or disposal) and joint development (or alliances) (Johnson & Scholes, pg. 374). Internal development is where strategies are developed by building up an organization’s own resource base and competences. Acquisition is where an organization develops its resources and competences by taking over another organization. Finally joint development is where two or more organizations share resources and activities to pursue a strategy.
Using these three steps and applying these to Company X provides the company with structured strategic advice which has a solid base, a clear direction and a proper method of development. In order to make sure that the strategy is a valid strategy it must, however, still be evaluated. This is done throughout the strategy formulation process with the three evaluation criteria suitability, feasibility and acceptability (Johnson and Scholes, pg. 384).
Suitability refers to the extent to which a proposed strategy fits the situation identified in the strategic analysis and how it would sustain or improve the competitive position of the organization. Feasibility is the extent to which the strategy can be implemented in terms of resources. Finally acceptability is the extent to which the strategy will be accepted by the employees and other important stakeholders.
§2.5 Questionnaire
As mentioned, a questionnaire has been send out for this research. The first part of the questionnaire was used to serve as input for the performance/importance analysis and the second part for the customer analysis.
In total 32 of the 69 publishers (approximately 46%) who were approached responded to the questionnaire including the follow up. Given a usual response rate between 10-50% on mail surveys (Carter & Williamson, pg.
215), the 46% is at the upper end of this range. Of these 32 respondents 12 surveys were filled out anonymously.
Since the questionnaires, however, were returned through mail, the stamp on the envelope gave clarification on whether these anonymous questionnaires came from a Belgian or Dutch publisher.
In total 20 of the 49 Dutch publishers responded (approximately 41%) and 12 of the 20 Belgian publishers responded (approximately 60%).
Looking at the internal questionnaire the issue of response rate was not a large problem. Since the questionnaire was spread among Company X employees, the respondents were inclined to help with the research. The most relevant employees were selected and all fifteen of these responded to the questionnaire. The relevance of the employees was based on the fact whether or not they had a good insight into the material and whether or not they were approachable.
§2.6 Summary
This chapter has laid the groundwork for the rest of this thesis through defining the purpose of this research and the way in which it will be conducted. Having established the problem statement the relevant sub questions have been determined. In addition the methods which will be used in answering these sub questions, and the data collection method for each have been provided.
The remainder of this report is separated into three different parts. The first part (chapter 4 and 5) will provide an internal analysis. Chapter 3 will now look now look at the 7’s model. This will be followed by the performance/importance analysis in chapter 4. The second part of the research (chapter 5, 6, and 7) delivers an external analysis. The fifth chapter looks at the macro environment followed by a chapter on the industry environment. Chapter 7 will take a closer look at the customers and their buying behavior. These chapters will all be used as input for the final part of this research, namely the strategy formulation. Finally the last chapter provides the conclusions of this research.
P ART 1
I NTERNAL A NALYSIS
What is the internal situation of Company X and which strengths and
weaknesses are provided by the internal situation?
3. The 7-S model
This chapter will look at the internal environment through the 7-S model. Through this model the Hard S’s structure (§3.1), strategy (§3.2) and systems (§3.3) of Company X will be looked at. The result of this chapter should be a clear picture of the relevant internal environment.
§3.1 Structure
Since January 2005 the Company X company structure has transformed from a single executive board member to a new executive board. This new board functions as the new decision making body of the company. Through this transformation the company shows its intentions to decentralize responsibility, increase efficiency and decrease bureaucracy.
Company X is originally a German company, with business units in North America, the United Kingdom and the Benelux. This research is intended for the Benelux business unit, and therefore the structure of this SBU, and its relationship to the mother company will be looked at here.
The mother company, also known as Company X GmbH, consists of an executive board and two regional boards, one for Europe and one board for North America/ United Kingdom. The Board Europe is responsible for business in Germany, continental Europe, and the Benelux SBU. This board, in turn, falls under the responsibility of the executive board. Through this construction the executive board is relieved of some responsibility, since the heads of each business unit will report to the regional board rather than the executive board.
The Benelux business unit is responsible for activities within the Benelux and the rest of Europe excluding the United Kingdom and Germany (which have their own business units). In addition, the Benelux BU also handles the operative business with the UK based Nelson Thornes, due to the fact that this company is part of Wolters Kluwer. The goal of this new structure is to bring the company, products and services closer to the customers and to become more profitable.
§3.2 Strategy
For this research we will look at strategy according to Waterman’s (1980) definition. This definition states that strategy is made up of the actions a company plans in response to or anticipation of changes in its external environment. In other words the strategy refers to the specific plans that are currently either on the table or in the process of being made, to react to changes which are expected to happen in the future.
A strategy also needs direction. A company must have certain goals which it is striving to achieve. With these goals in mind a company can plot out a specific strategy which will be followed to achieve these goals. For Company X the goals are to bring the company, products and services closer to the customers and to become more profitable.
The structure of a company can be seen as a representation of the company’s strategy. As mentioned before the Company X structure is designed to decentralize responsibility, increase efficiency and reduce bureaucracy. This can be seen as a general strategy to reach the previously mentioned goals.
Looking at the general strategy more closely, allows one to see the specific plans which make up the strategy.
Given the structure of the company one can look at the strategy at different levels of aggregate. There is overall strategy, which applies to the mother company and all of its business units, and there are strategies which only apply to the specific business units. Looking at the overall company one issue which comes forward in the strategy is the relationship between the individual and the team. The believe is that there is a reciprocal relationship between all members of a team. As the founder and CEO of the company, Ulrich Company X von Glowczewski, states “We all function within a set of complex dependencies, which can allow each of us to ‘hide behind the bigger picture’. We are seldom able to act on our own. More often than not, our individual performance depends on that of others. The reverse is also true, individual performance affects that of the team
Executive Board
Regional Board Europe
Regional Board US/UK
BU Germany
BU Benelux (incl.
continental Europe)
BU North America
BU United Kingdom Supervisory Board
Figure 3.1 – The structure of Company X
… All too often we do not strive for this 100% quality in our own performance and are quick to qualify issues when something goes wrong. If a team member is performing below par, the quality of the overall team’s performance suffers” (CEO Newsletter 2005, pg. 5) This quotation shows that the role of the individual within the company is an important role. It is believed that one must start with the individual in order to improve the performance of the team, which in turn would improve the performance of the company as a whole. An improved performance of the company as a whole would, in turn, contribute to reaching the company goals.
A second important company wide chosen strategy is the standardization of the product. In producing Product Y, a company can choose between providing the customers with a standard package or a customized package.
Having chosen for standard Product Y, Company X follows a cost-effective strategy. Producing customized Product Y would lead to high maintenance and servicing costs. With continuous changes in the industry one would have to service each individual produced Product Y package whereas a standard package would allow for regular updates through easily installed patches. In addition, the immediate availability of standardized Product Y shortens the implementation time.
Thirdly, a recurring theme in internal documentation is the improvement of professionalism. Through understanding how to make the customer benefits clear the business will be optimized. To attain this, the company must work very close with its customers, making the company very customer-oriented. This increased professionalism must lead to better marketing of the successes and more intensive PR work and it is believed that this will then lead to new projects and pay off on investments.
Looking more specifically at the Benelux BU, one can see that this business unit is the most important one for international success. In 2004, the revenue accounted for 3,5 million Euro, which was equal to 54% of the revenue generated in Germany. Through the completion of projects at Wolters Kluwer, Liber, and ten Hagen &
Stam a situation has been reached where the product is established on the market. This can be seen as part of a roll out strategy. Through the completion of implementation at these large publishing houses the Company X name has become known on this market which in turn makes the acquisition of new projects easier. With the current project at VNU this strategy is further developed. With more large publishing houses running on the Company X system, other publishing houses will see the Company X system as an increasingly suitable alternative for their own systems. The following conviction within the company applies here: “the more companies that use a particular Product Y, the more reliable the Product Y application is.” - Carl-Hubertus Mann Garcia, Director of Sales (Standardized Product Y for the publishing industry, pg.3) This strategy is also reflected by the company website, on which a lot of attention is paid to press releases about successful implementation projects at publishing houses.
The short term objectives for the Benelux business unit are to maintain the current level which has been reached and to improve effectiveness over 2005. An important note here is the fact that the word ‘maintain’ is stressed.
Instead of improving the results over 2004, the objective is to maintain these results. “The biggest mistake we could make would be to expect ‘more and more’ and think that because we have achieved a certain growth rate one year that we can do it again the next.” (CEO Newsletter 2005, pg. 9) This shows that the strategy looks at
realism and is slightly conservative, trying to gradually grow larger, rather than growing very quickly and later realizing that the growth rate was faster than the company could handle.
Another important strategic choice made by the company is the fact that the modular design of the Product Y plays a role during the acquisition of new projects. Rather than trying to sell the entire package to publishing houses, the Benelux business unit focuses more on selling individual components. The reasoning behind this approach is that through selling and implementing one component one can gradually enter a publishing house.
Since the implementation time usually covers a number of months one can use these months to build up a relationship with the publishing house. After successfully implementing a certain component the two parties can then evaluate the process, and depending on the success of the project, the publishing house can decide to purchase other components of the system. The publishing industry itself is also very decentralized. Given the broad field of publishing (for example the different sectors newspapers, books, magazines, and the specializations within these sectors) many publishing houses are very specialized and owned by mother companies. For example, WPG publishers is the mother company of 15 individual publishing houses. Bearing this in mind, a successful implementation at one publishing house can lead to a roll out at more publishing houses due to the decentralized nature of the business. This is also strengthened by the fact that the publishing industry is known to be an industry with a very tight network. Managers from the different publishing houses are known to each other, and ‘word of mouth’ plays a large role within the industry.
§3.3 Systems
Systems refer to the procedures, both formal and informal, that make the organization go day by day, year by year (Waterman, pg. 8). One can think of budgeting systems, training systems accounting systems etc. Since the problem statement for this research is externally oriented it would be irrelevant to analyze and describe each procedure within the company. Though there is much room for improvement of efficiency in certain procedures, these improvements would be very internally oriented and are not applicable for this research.
One system within Company X, however, is relevant for this research. This is the system which contains the procedures involved in the interaction between Product Y development and the rest of the company. This system is relevant because it directly influences the customers or potential customers. The Product Y development team has little or no contact with the actual customers. The customers indicate their demands to Company X consultants who will then use the current system which will eventually lead to Product Y development acting on the customer demand. It has already been acknowledged by the company that this system is currently not efficient nor effective. The quality of Product Y development is not optimal due to the fact that the procedures concerning the iterative communication between customer, management, sales, and Product Y development are currently not followed. This leads to a poorer quality in investment projects which does not benefit the company itself, or the product, or the current and potential customers of the Company X Product Y package.
§3.4 Conclusion
This chapter has looked at the internal environment of Company X. The goal of chapter three was to determine what the relevant internal environment of Company X looks like. To answer this question one must first determine what falls under the term ‘relevant internal environment’. Since this research is externally oriented not all internal aspects play a role for this research. The important ones are the three hard S’s in the McKinsey model, namely the strategy, the structure, and the systems. These are the three internal characteristics which have been designed to optimally react to the external environment.
Looking at the structure of Company X one can see that a switch has been made from a centrally controlled company towards a more decentralized company. Through this decentralization the company will decrease bureaucracy and bring the company closer to its customers. This falls within the company strategy of becoming more customer-oriented. Besides bringing the company, products, and services closer to the customer a second goal of the company is to become more profitable. The chosen strategy which needs to lead to these goals is one which looks at the individual within the company, increases professionalism, achieves cost effectiveness through the standardization of the product, aims at selling components of the Product Y rather than the entire system, and looks at growth as a gradual process rather than a radical process.
4. Performance/Importance Analysis
This chapter looks at the specific strengths and weaknesses which the internal environment provides for Company X. This will be done using a performance/importance analysis. §4.1 describes this analysis and explains how it will be used. This analysis looks at Product Y characteristics, characteristics of the vendor, and the advantages provided by the Product Y. These will be analyzed in §4.2-§4.4 respectively. Finally the conclusions of this chapter are presented in §4.5.
§4.1 Performance/Importance analysis
The goal of this analysis will be to determine the strengths and weaknesses of Company X BV. As stated before the strengths and weaknesses are relative concepts, a strength in one market could be a weakness in another. This is taken into account by the performance/importance analysis, which measures how Company X performs on certain predetermined factors and compares this to the importance the market gives to these same aspects. Since the importance the market gives to each aspect differs from one market segment to another, it must be stressed once again that the resulting strengths and weaknesses are specific to this particular market segment.
The aspects which have been taken into consideration have been derived from a careful literature study. Wei and Wang distinguish between three important factors when a company makes the decision to acquire a new Product Y package. These are project factors, Product Y system factors, and vendor factors. Looking at these more closely a number of aspects which could play a role during the buying process can be derived. To be complete these aspects have been extended with non-overlapping aspects proposed by other researchers and aspects which have been brought forward during interviews. These aspects have been translated into a questionnaire (Appendix 2) which has been distributed among all publishing houses within the relevant market segment. On this questionnaire the respondents, who were primarily of a managerial level, were asked to state how important they found each of the predetermined aspects on a five point balanced attitude scale (Carter & Williamson, pg. 218).
This scale was used since it provides numerical data which is optimal for the performance/importance analysis.
On this scale a score of one indicated the factor was of no importance at all to the respondent, and a score of five indicated the factor was of great importance to the respondent. Through this questionnaire insight was provided into which aspects are considered to be important by the potential customers.
In order to find out how Company X performs on these same factors a similar questionnaire (Appendix 3) was distributed among Company X staff members who are actively involved in working with the product and implementing the product. These people are very familiar with the product and have frequent interaction with the customers about the performance of the system. Therefore these people should be able to give a suitable indication on the performance of the system and how this performance is perceived by the customers. Through interviews with customers during events such as the National Publishers Day, and the Customer Information Day this data is verified and the performance of Company X on each of the predetermined aspects can be determined.
To visualize the performance/importance analysis the data acquired through the questionnaires can be plotted on the axis. Figure 2.3 shows how each factor should be treated, according to which quadrant it is placed in. A diagonal line has been drawn crossing the intersection of the X and Y axis. This line represents the points at which there is a one to one relationship between the performance and importance. In other words, at all points along this line the performance of Company X equals the importance the customers give to it. Aspects which fall perfectly on this line have the ideal combination of the way Company X is performing on this aspect and the importance the market gives to this aspect. All points above the line are points at which Company X is
‘underperforming’. In other words, the importance given to the aspect by the customer is higher than the performance on the same aspect. Similarly the points below the line are points at which Company X is ‘over performing’. Since it is impossible to have the performance of every single aspect of a company completely congruent with the importance, one must look at the relativity between the points. Those that need most attention are the points where the gap between the actual performance and the importance of that aspect is the largest.
One may say that those aspects which fall exactly on the line that corresponds to a perfect match between performance and importance are strengths of the company. These are the points at which Company X is performing at the right amount. It has already been stated, however, that it would not be realistic to have each aspect fall exactly on this line. Therefore a slight deviation from the line does not necessarily imply that the aspect is not a strength. This deviation, or ‘gap’, can be calculated by taking the absolute value of the difference between the performance and the importance on each aspect. The absolute value is used here since the size of a gap can never have a negative value. It is, however, important to note whether or not the value is a positive or negative value since a positive value indicates that Company X is underperforming on this aspect and a negative value indicates that Company X is over performing.
Since there is no specific rule to determine how large the ‘gap’ is allowed to be the choice has been made to use the average gap size to determine the ‘norm’. Using this value the aspects can be separated into three categories.
First of all there are aspects which are strengths to the company, second of all there are the weaknesses, and finally there are those aspects which are neither strengths nor weaknesses. In order to separate those aspects with significant gaps (the strengths and weaknesses) from those which deviate an accepted amount from the ideal line the standard deviation will be used.
To analyze whether or not there are differences between the Dutch and Belgian market, the choice has been made to use the average value for each individual country plus one standard deviation in both directions to determine the aspects which are neither strengths nor weaknesses. This implies that all aspects which fall outside of this range are either strengths or weaknesses. Using the average and standard deviation means that we are using a range which encompasses the majority of the aspects (the standard deviation) with a most typical aspect being in the middle of this range (the average) (Carter & Williamson, pg. 99). An important note here is the fact that we are looking at gap size, meaning that for the negative numbers the absolute value will be taken when calculating the average and standard deviation.
