strategic analysis


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  1. 1. Florida Gulf Coast University Individual Case Analysis GEB 6895 Sophie MICHELOT 11/21/2013
  2. 2. INDUSTRY VALUATION primarily operates in the cloud CRM industry, thus, we will focus our analysis on this specific industry. Here, the valuation can be increased through: Revenue growth: investors will value a company which is able to grow and expand its revenues over the years. It translates the efficiency of a business model in an immaterial industry. Frequency of new product launches: the ability of the actors in this industry to innovate is highly important as it shows the dynamism of a firm. Brand image: the plethora of competitors in the industry can lead potential customers to less rational and more emotional choice for a cloud CRM provider. Here, the impact of the brand image can be decisive. Customers portfolio: investors will tend to value firms with highly diversified customers portfolios, which translates multiple sources of revenue for a firm and less dependency toward a few large customers. COMPANY’S GOALS does not clearly state its goals for the coming periods. Nonetheless, it has published the following estimations: 2014: revenue should amount $4.055 billion; corresponding to a growth of 33% in comparison with previous year; and an EPS of $0.34. 2015: revenue should amount $5.2 billion. Growth is critical for, which operates in a highly competitive industry with fast technological changes and fact introduction of new products and services. Regarding the valuation leverages in this industry, we can establish that the following elements are critical for 2
  3. 3. Maintaining high revenues and a dynamic growth through the conquest of market shares, Explicitly and loudly communicating on new products and innovation, Building strong and recognized brand, Developing a balanced and stable customers’ portfolio. CORE PROBLEMS The major challenge of is to find promising market segments and business tactics to generate more revenues and develop a sustainable growth. Following are the key issues faced by to fulfill its objectives: Reaching new customers: focuses its efforts on direct sales forces and indirect sales (through partners referrals). It needs to diversify its sales channel to convince new customers. Generating more revenues from current customers: it is critical for to get its current customers renewing their subscription, and eventually adopting premier service and higher-priced products. Diversifying its offering to other business sectors: is trying to adapt its products, originally designed for sales departments, to other business units such as marketing and human resources. This implies accurately identifying the needs of customers for these specific activities. Expanding operations abroad: most of’s customers operate abroad and thus need support service for their foreign subsidiaries. is physically present only in 15 countries and fails to provide a high quality support service to its most internationalized customers. 3
  4. 4. Eliminating competition: there is a plethora of independent and unpredictable startups in this industry, often proposing free products and services. can suffer from this competition without a dynamic innovation strategy. Fighting skepticism toward the cloud: cloud services raise several concerns, mostly in terms of security and storage of data. To attract new customers, needs to acquire a certain legitimacy in data security. TOOLS CHOSEN We will base our analysis on the following strategic tools: Industry life cycle: we need to identify in which stage the industry currently stands in order to see what is next for, VIRS analysis: we need to identify’s competitive advantages in order to determine where the company has to increase its efforts, Business model and generic strategy: we need to clearly understand how makes business and how it responds to market trends, Strategic group mapping: we need to understand the position of competitors to evaluate the coherence and the potential of’s strategy. See Exhibit 1 efforts on the cloud CRM market to gain market shares and to try to achieve a global recognition. Revenues and profits can be expected but are highly jeopardized by a fierce competition. The use of marketing tools and strategy to attract even more customers and retain them is still critical at this point for 4 ANALYSIS & ALTERNATIVES beginning of this growth. This situation suggests that has to increase its INDUSTRY LIFE CYCLE We established that the CRM industry stands in the growth stage, more specifically at the
  5. 5. The VIRS analysis reveals that enjoys competitive parity with most of its resources and capabilities. The only sustainable competitive advantage identified is the brand image. It seems critical for the company to make its temporary competitive advantages sustainable. This implies focusing efforts on customer relationships and on the VIRS ANALYSIS See Exhibit 2 role of master of virtual business networks. The differentiation strategy followed by is possible through its business model based on subscription fees, direct sales, and the advantages of cloud technology. With this strategy, seems to surpass the competition from CRM software publishers, but is still threatened by its direct competitors using cloud technology. The mapping of competitors confirms the strategy adopted by It also indicates a strong trend: the entry of CRM software publishers in the cloud CRM market. These actors tend to choose a cost-leadership strategy directly targeting Intensifying the differentiation strategy: this will mean to develop innovation internally, to diversify the product offering (cloud CRM for design, finance,…), to develop exclusive sales channels, and to implement a strategic internal expansion through subsidiaries; Turning to the cost-leadership strategy: this will mean to acquire external capabilities from existing companies, to develop new sales channels, to reduce cost by maximizing economies of scale, and to expand the activities abroad through ALTERNATIVES SUMMARY Based on the results provided by the strategic tools, we can draw three alternatives: STRATEGIC GROUP MAPPING See Exhibit 5 BUSINESS MODEL & GENERIC STRATEGY See Exhibits 3&4 partnerships; 5
  6. 6. Diversifying activities: this will mean to use the advantages of’s business model and the cloud technology to enter new markets such as social networks, and web advertising. RECOMMENDATIONS See Exhibit 6 We base our recommendations on the comparison of the different alternatives formulated above. Regarding the stage of the cloud CRM industry, we think that can still generate significant revenues from this market. Thus, we recommend the intensification of the differentiation strategy, relying on: The creation of cloud CRM applications for every department of the firm, The constitution of powerful autonomous foreign subsidiaries, The enhancement of the referrals partnerships as the primary sales tool, The improvement of the customer support service, The enhancement of collaborative strategies (more interaction with customers in products and services design). 6
  7. 7. APPENDIX Exhibit 1: Industry Life Cycle Cloud CRM industry’s current stage Industry revenue (2012) $18 billion Industry growth (2011-2012) +12% Sales repartition 80% from North America and Western Europe Expenditures of cloud CRM providers 26% dedicated to sales, 20% to marketing Exhibit 2: VIRS Analysis Resource/ Capability Valuable? Rare? Difficult to imitate? Without substitutes? Implications for competitivenes s? 1. Ventures acquisitions YES NO NO NO Competitive parity 2. Headquarters in San Francisco YES NO NO NO Competitive parity 3. Referrals partnerships YES YES NO NO Temporary competitive advantage 4. Customer portfolio YES YES NO NO Temporary competitive advantage 5. Brand image YES YES YES YES Sustainable competitive advantage 7
  8. 8. Resource/ Capability Valuable? Rare? Difficult to imitate? Without substitutes? Implications for competitivenes s? 6. Direct sales force YES NO NO NO Competitive parity 7. Cloud technology YES NO NO NO Competitive parity 8. Social networks technology mastering YES YES NO NO Temporary competitive advantage 9. Developers’ network YES YES NO NO Temporary competitive advantage 1. has entered in a wave of acquisitions over the past years. The strategy followed is to acquire leader start-ups on very specific activities and competencies developed. It allows to introduce new products faster than by internal development. But considering the plethora of promising start-ups in the cloud applications market, such a resource is neither rare nor difficult to imitate, thus only granting a competitive parity to 2.’s headquarters is located in San Francisco. Close to a cluster of IT firms, which can create some synergies with other companies and talents. Nonetheless, every can pretend the access to such a cluster, so it only gives a competitive parity. 3. has implemented an efficient referrals partnerships program to attract new customers. In this program, partners are rewarded through fees. It is quite rare but can be imitated or substituted. Thus, we consider this resource as a temporary competitive advantage. 4. manages to have a diverse and balanced customers portfolio, which gives it a temporary competitive advantage, as the competition is fierce and can damage this portfolio at any time. 5. has become a successful brand in short time. The image is largely build on the charisma and personality of its leader, Marc Benioff. We consider the brand image as a sustainable competitive advantage in the cloud CRM industry. 6. puts many efforts on direct sales force to reach new customers. This capability can be easily acquired by competition, only granting a competitive parity to 7. masters the cloud technology and has smartly integrated it in its business model. The outstanding emergence of the cloud technology makes us believe that such a capability only generate a competitive parity for 8. combines CRM with social networks models and frameworks. The firm is highly active on social networks and gives to its customers the possibility to interact on these same networks in a more efficient manner. The knowledge and competencies of in this specific area get it a temporary competitive advantage. 9. has created a platform for developers of business apps. Thus, the firm shelters innovation from eternal sources and can have primary knowledge of novelties and innovations. We consider this capability as rare but not difficult to imitate, thus granting a temporary competitive advantage to 8
  9. 9. Exhibit 3: Business Model CUSTOMER VALUE PROPOSITION Target customer: any business of any size with sales forces, in North America, Western Europe, Japan, Australia, China, India, and Mexico. Job to be done: to provide CRM applications through cloud technology. Offering: five distinct offers, sold via direct sales forces (telephone and field sales reps), and referrals partners: “Sales cloud: allows to access accurate customer and prospect information, track leads and progress, forecast opportunities and collaborate around closing a sale on any device. Service cloud: connect the customer service agents with customers across every channel: phone, email, chat, self-service web portals, social networks and online communities. Marketing cloud: listen to conversations taking place on public social networks. Salesforce platform: provides infrastructure and many of services that application developers need to build and deliver business apps. Professional services: training sessions for the use of products.” PROFIT FORMULA Revenue model: subscription format (no hardware, no software). charges fees for any additional services (customer support service, training). The firm looks for new customers’ subscriptions and current customers renewals. Cost structure: economies of scale realized through cloud computing, which allow the commercialization of standardized services and products, that can be customized by customers themselves. The major cost is selling and marketing expenses. KEY RESOURCES People: customer service and direct sales forces Technology: internal developers and ventures acquisitions Channels: referrals partners, international subsidiaries Brand: strong PR strategy Exhibit 4: Generic Strategy has a broad customer target and tends to offer standardized products, which will become customized by customers themselves. tends to offer higher prices than cloud CRM competitors, with an emphasis on product differentiation through customization and additional services. Thus, the strategy followed is broad differentiation. 9
  10. 10. Exhibit 5: Strategic Group Mapping Market share High price Oracle CRM on demand SAP 360 Microsoft Dynamics IBM Adobe SugarCRM Low price Cloud Software To acquire external capabilities from existing companies 4 3 To develop new sales channels To develop exclusive sales channels 2 3 To implement a strategic internal expansion through subsidiaries 4 2 To diversify the product offering Risk 2 Diversifying activities Feasib ility 4 To develop innovation internally Risk Risk Turning to the costleadership strategy Intensifying the differentiation strategy Feasib ility Feasib ility Exhibit 6: Alternatives Comparison 2 4 To enter the social networks market 2 3 2 2 To enter the web advertising market 2 4 To reduce cost by maximizing economies of scale 4 3 To expand the activities abroad through partnerships 3 4 We evaluate the relevance of the different alternatives through two criteria: feasibility and risk. The feasibility criterion ranges from 1 to 5, with 1 meaning highly feasible and 5 hardly feasible. The risk criterion ranges from 1 to 5, with 1 meaning low risk and 5 high risk. We consider that in the current state of resources and capabilities of, the intensification of the differentiation strategy is the most relevant. SOURCES: (2013 Annual report),,,, 10