VERIFONE ENVIRONMENTS
The key stakeholders and influencers (Block 1, Session 1, p.11) in VeriFone EMEA, and the environments, within which activities are carried out today, may be portrayed as follows:
Figure 1: VeriFone EMEA’s stakeholder environment
THE EXTERNAL ENVIRONMENT
The demarcation between our internal environment, over which we have full control, and our near environment, over which we have influence, is not always clear. Increasingly common network arrangements between key suppliers, customers and even competitors contribute to this.
Example 1 Customer, Distributor or Supplier?
Our Spanish VIP (VeriFone International Partner), Necomplus, provides total solutions to local clients by purchasing and reselling VeriFone terminals (hence our customer), but they are also contracted as a software developer by VeriFone (hence a supplier) for when we sell through OEM contracts with global Spanish bank BBVA. Conflicts of interests are also common as Necomplus’s services division repairs competing products (“too close for comfort”). Likewise when approaching new prospects there can be disagreements over whether business negotiations should be handled by Necomplus or VeriFone directly (see Figure 4 VeriFone EMEA’s sales channel structure on page 10).
Example 2 Competitor, Customer or Partner?
Italian competitor DAsistemi recently approached VeriFone about purchasing and re-branding our new product for sale in specific markets where we are not present.
VeriFone approached French competitor Sagem about OEM-ing a specific wireless terminal.
I will now focus on the most relevant groups and relationships that can strongly influence VeriFone’s success, and ultimately our profitability, over the next 5 years.
COMPETITION
The fact that 30+ organizations compete within the payments sector and that payment terminals are commodity products (little real differentiation), merits close attention through Michael Porter’s model of the forces governing competition in an industry (Porter, 1980). This will help VeriFone understand how others are meeting the challenges of satisfying customers and managing operations (Block 1, Session 3, p. 13).
Key: = Threatening for VeriFone
= Neutral effect
= Positive for VeriFone
SUPPLIERS
The commoditization of the payment terminal in recent years, and the standardization of hardware components across technological industries (viz. micro-chips & modems), led to an increase in the number of factories capable of manufacturing high quality security products. While the bargaining power and costs of these outsourced suppliers has drastically decreased, this has been compensated by the need for VeriFone to generate constant sales orders in order to produce the high volumes required to benefit from economies of scale, and consequently drive the price of terminals down.
CLIENTS
Porter’s theory of customer bargaining power is relevant to this industry. Product similarity, standardization of global payment regulations, and the multitude of competitors has led to a steep downward fall in profit margins in the payment terminal business. Large volume selling is crucial. Main clients are in the banking and retail sectors.
However VeriFone’s case is unique, in that we are the only global terminal manufacturer to rely heavily on the use of resellers and distributors (hence “intermediary” clients); all our main competitors have a direct local country presence. This situation occurred because GTCR’s (successful) goal of making VeriFone profitable within the first 100 days of ownership, led to a radical decision to close all local VeriFone offices in Europe, leaving only the UK as headquarters.
INTERNATIONAL CARD ASSOCIATIONS
As an individual company, VeriFone command little influence over the “political” organizations (Block 1, Session 3, p.27) that govern the industry we are in: Visa and MasterCard. The drive for global consolidation of rules and regulations heavily influences the sector’s profitability. Standardization of payment systems represents excellent new business opportunities for VeriFone, but has also dramatically spurned global competition.
THE INTERNAL ENVIRONMENT
STRUCTURE
At a multi-national level, VeriFone today is structured along geographic lines, with each region acting its own company within the company:
Figure 2: VeriFone’s geographic structure
In terms of span of control, the EMEA region has been restructured to focus on 3 areas; expanding market share, delivering quality service products and tight financial control. All other departments and roles (marketing, business operations, and logistics) fall under these three main categories:
Figure 3: VeriFone EMEA’s span of control
The closure of local VeriFone offices during GTCR’s strive toward profitability in the first 100 days of operation, led to the following sales structure based on geographic lines and through the use of local partners / resellers:
Figure 4: VeriFone EMEA’s sales channel structure
CULTURE
GTCR inherited VeriFone from HP with many of the structural weaknesses identified by J.Child (1984): low staff morale, lack of clear performance measurements, failure to respond innovatively to changing circumstances, etc.
With a basic new structure in place, GTCR’s next step was to tackle the company’s culture.
The mentality of how “things get done around here” (Deal and Kennedy, 1982) was tackled head on through the creation of a cohesive and dynamic management team. As a private equity fund intent on creating value for the planned IPO, GTCR’s philosophy is to instil a sense of strong corporate culture through the adoption by all employees of senior management’s values, interpretations and preferred ways of doing things (Block 1, Session 5, p.12).
Dynamic, “tough guy/macho” (Deal and Kennedy, 1982) managers are now heading up each of VeriFone’s geographic units. Similar culture prevails in the sales area, and the software delivery area, traditionally a “task culture” (Handy, 1988) is also being pushed toward a more entrepreneurial mentality.
CRITICAL ANALYSIS & RECCOMENDATIONS
The external environment described in this report portrays a highly competitive landscape with high growth opportunities over the next couple of years. Competitors will be vying for the business of swapping out millions of older generation payment terminals to upgrade them with industry compatible security and performance standards.
VeriFone has its own purpose and objectives, as discussed earlier and below, and therefore our organization must be structurally and culturally ready to pro-act with the external environment, not simply be pulled by it, if we are to focus on our end goals.
The timing of VeriFone’s restructuring by the GTCR led management has so far been in line with industry timeframes. Key achievements have been:
- Profitability and positive cash flow;
- Launch of a new “cool” line of payment terminals; a product roadmap, specific to the EMEA region, has been timed for the end of 2003;
- Software delivery has been turned on its head and is now operating efficiently;
- Successful sales results are being achieved through a more customer focused approach and efficient product forecasting procedures.
Key considerations on the appropriateness of our culture and structure must be made in order to fully leverage the good work done to date and drive VeriFone’s long standing brand back to the position as the market leader. These will now be discussed.
GOING TO MARKET
The structure of how VeriFone goes to market needs to be re-evaluated. The policy to use VIPs as our sales channel was useful in the cost-trimming / getting-to-profitability phase. In theory the local knowledge and relationships a good VIP can bring are also invaluable.
In hindsight this strategy of outsourcing sales has produced negative effects in big markets such as Spain and Italy. Long standing local VeriFone customers there, were annoyed to see such a rapid pull-back and loss of long-standing relationships with skilled local VeriFone people. As Calori (1994) mentions, the perception in these markets is that VeriFone is too much of an “American” company, with short term orientation and too much emphasis on shareholders rather than customers. It will take time to re-establish good relationships.
The downside of using the VIP structure is a lack of focus by the partner on VeriFone products (often a non-core business), higher end prices to end clients (and thus a less competitive terminal), and less VeriFone visibility of the market and the customer.
Selling payment terminals to banks and the retail market is a core VeriFone activity and should be brought back in-house through local direct offices (where the business case is feasible). This will provide VeriFone with a decentralised local structure and the benefits this brings in terms of customer closeness, matching to national culture and local market responsiveness (Block 1, Session 4, p.26).
Suggestion:
- Run a pilot test: open a small office in, say, Spain and over 6 months benchmark in terms of profitability, sales and perceived market value; run parallel PR campaign and executive roadshow
- If successful consider same pilot test phase in other key markets.
DEALING WITH COMPETITION
Competition in our industry is intense, driving margins down. Through GTCR, VeriFone EMEA now has an opportunity of consolidating this situation through possible acquisitions of local market players. This may provide us with opportunities to get back into certain markets, acquire local manufacturing facilities, recruit skilled local personnel, run parallel product lines, and acquire new customer contracts.
Better sales co-ordination within VeriFone, as well as knowledge sharing, is needed between the EMEA regions; as Morgan (1988) states, we need to be extremely proactive to deal with the highly competitive environment out there.
Suggestion:
- Hold quarterly sales meetings for past and forecasted review;
- Implement a Europe-wide strategy of creatively attacking specific competitors (This strategy was successfully implemented in the USA, where 7 key accounts of a VeriFone competitor were targeted, resulting in a 15% market share loss over a 6 months!).
SUPPLY CHAIN
The decision to out source global manufacturing presents advantages such as economies of scale and the ability to expand/reduce resources (Block 1 Session 3, p.11). Something we should consider is the possibility of manufacturing locally in the EMEA region. Whether in-house or outsourced, the benefits would be shorter lead times, lower or no import duty tariffs (impacting directly on gross margins), and flexibility to specific product request.
Suggestion:
- Run feasibility study on manufacturing in Malta (Italian competitor produces here)
THE FAR ENVIRONMENT
Earlier in this report I touched on the importance of the international card associations. Today we have little influence. We need to cross this boundary. In restructuring VeriFone, with the aim of positioning ourselves again as a market leader, we should proactively involve these organizations rather than simply react to new rules, regulations or standards they set.
Suggestion:
- Host quarterly committee sessions for updates; involve end users as well;
- Propose to run pilot tests for current and new products.
COMPANY CULTURE
Although current management within VeriFone may perhaps consider internal restructuring complete, as Hendry and Hope (1994) identified, there are still signs of problems to be resolved within the company culture: for example, there appears to be resistance to the new dynamic way of doing things (viz. slow-down of order processes), and there are mismatches between organizational and individual values (viz. customer responsiveness), etc.
Suggestion:
- Monthly newsletter with achievements, who is new, what business we are doing;
- Empower “old” staff to be more responsible and proactive.
CONCLUSION
It is probable that some of these suggestions are likely to meet resistance as they may not reflect the strategy or the goals of our senior management in GTCR. These changes are not intended as a criticism of our current environment, rather they should be interpreted as an acknowledgement that cultural and structural differences do exist within VeriFone and that the needs of subunits, such as regional EMEA sales regions, should be accounted for in future corporate restructuring activities.
REFERENCES
Calori, R. (1994) Common Characteristics of European Management, Englewood Cliffs, N.J., Prentice Hall.
Child, J. (1984) Organizations: A guide to problems and practice, London, Harper & Row.
Deal, T. and Kennedy, A. (1982) Corporate Cultures: The rites and rituals of corporate life, Addison-Wesley.
Handy, C (1988) Understanding Voluntary Organizations, Harmondsworth, Pelican.
Hendry, J. and Hope, V. (1994) “Cultural change and competitive performance”, European Management Journal, Vol. 12, No. 4.
Morgan, G. (1988) Riding the Waves of Change: Developing Managerial Competencies for a Turbulent World, San Francisco, Jossey-Bass.
Porter, M.E. (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York, Free Press.