Information Technology is increasingly moving to the center of national competitiveness strategies around the world, due to its ground-breaking power as a significant enabler of growth and development. Economic history has shown that, as developed countries approach the technological frontier, Information technology is crucial for them to continue innovating in their processes and products in order to maintain their competitive advantage. On the other side IT has also proven crucial and important for enabling developing economies to leapfrog to higher stages of development and fostering economic and social transformation. . In recent years there has been a global boom in IT consulting and services which has resulted in the development of IT industry and has also revolutionized its practice. IT consulting deals with getting business sectors to utilize information technology in their day to day business needs and in meeting various business objectives. According to the Datamonitor (2009) the global IT services industry grew by 6.7% in 2008 to reach a value of $1,057 billion with compound annual growth rate of 9.4% in the period of 2004 -2008 as shown in figure 1.
Figure 1: Global IT services industry value. Source: Business Source Premier
UK being the financial hub of the world, has seen its IT industry growing immensely over the period of time as result of which , many IT consulting companies have come into existence. According to the prospects, (2009) IT industry nearly employs 5% of UK workers and use of IT is particularly important for over 90% of managers, professionals, associate professionals, and administrative staff and most importantly in the financial service markets. According to the Datamonitor, (2002), UK is the largest source of IT expenditure in Europe mainly because of its dominance in the financial markets sector, particularly in investment banking and asset management. The UK IT Expenditure in Financial Services market grew by 0.6% in 2000, to reach a value of $7.03 billion with compound annual growth rate of 3.3% in the period 1999-2001 as shown in figure 2.
Figure 2: United Kingdom IT expenditure in Financial Services. Source: Business Source Premier
As the use of IT becomes increasingly important as a key driver of business competitiveness, increasing emphasis is placed upon the development of skills such as relationship management, business process analysis and design and project management.
b. ORGANISATION/COMPANY BACKGROUND:
Nasim Consulting is a UK based premier IT consulting and Development Company, dedicated to helping candidates and clients achieve peak performances with professional services. The company was established in 2002 and is based in ‘Cardiff’ with its head office in ‘Ebbw Vale’. Its founders have a long and established record in the Business Intelligence Industry.
The company aims at supplying efficient consulting solutions to its clients across UK and Europe. The company provides different information technology services to its clients such as, Portal initiative, Integration services, Custom Application Development, Web services, Content Management, Dual shore development (about us, 2009). The company has business associations with a varied number of prestigious clients and companies including BEA systems, British Telecom, Sky Digital and Alliance Value Proposition (about us, 2009).
Nasim Consulting also delivers high end service at reduced expenditure to its clients with the implementation of latest software technology and commitment. As a company, Nasim Consulting strives to keep strong ties with its partners and clients by building business relationships and enhancing technology. The long term objectives and aim of the company is to make the Nasim Consultancy a global organization. However given the current market condition there is an immense competition and challenge for organizations in order to sustain in the market.
c.NATURE OF THE PROBLEM:
The IT service industry is immensely competitive in nature with the giant market players enjoying the significant economies of scale (in their ability to handle large volumes of transactions more economically) and also economies of scope which makes it difficult for small IT consulting firms like Nasim consulting to survive and increase their market share. On the other hand due to the current market scenario established companies, relying on an existing business image, may be unwilling to trust smaller, less established companies, which offer larger market players an advantage.
This financial meltdown and also the growing competition in IT consulting is has resulted in Nasim consulting, facing a huge challenge to survive, grow and maintain its positioning in the current market and at the same time achieve its corporate objectives of increasing the market share, customer base and service range.
As customer spending is slowing down to its worst, the company is experiencing huge decline in its sales and profit and also on the other hand, the company is facing a huge challenge of satisfying its clients and partners who are more interested in service quality, than in quantity.
Given the necessity for growth it’s important for the company to develop the effective strategy to achieve long term sustainability and establish its market position. Nasim consulting being a small firm in a fairly fragmented market, targets and serves the needs of local and regional small business, as well as small companies that target clients in specific industry.
Because of the economic slowdown small business are spending less on IT development, new technology and innovation. A recent survey according by Mintel reports, (2009) shows that 42% of the small businesses are expected to spend less on new technology and development and 19% of the small businesses have already stopped spending on new technology and innovation making it more difficult for IT consulting firms to survive in the market. According to the Vavra, (1992) due to low customer spending and considering the decline in attracting new customers, the only way to make profit is to increase the life time spending of the existing customers.
Therefore the main problem and challenge that Nasim Consulting is currently facing is customer retention.
d. RESEARCH AIM:
The aim of this research is to identify the resource based or market based factors which are responsible for Nasim’s poor performance in customer retention. De wit and Meyer, (2004) states that for organizations to be successful in today’s intense competition, it’s important that they find right alignment between its external environment and internal operations.
Therefore, this research will focus on identifying the strategy development of ‘Nasim Consulting’ in context of both market based and resource based views.
Taking into account MBV the research will focus on following issues;
Sales and Marketing
Taking into account RBV following issues will be analyzed;
Employee relationship and motivation.
Employee training and development
Development of firm- owned resources.
This study would commence with the analysis of the literature review in chapter 2. Then the methodology with which the study was carried out is outlined in chapter 3. The methodology includes semi-structured interviews with 4 senior managers at Nasim Consulting, it also includes 2 focus groups in which 4 support staff and 3 highly skilled staff working for the organization was interviewed.
The findings from the results are outlined in chapter 4. They are analyzed using a deductive approach in which they are categorized according the to theory in the literature review. The discussion in chapter 5 however is not arranged according to the literature review, but it aims to adopt a coherent approach to answering the research question. The research conclusion is expatiated in Chapter 6 and the recommendations in Chapter 7.
2. LITERATURE REVIEW
a.MARKET BASED VIEW:
Market based view has certainly been the earliest and most primitive viewpoint in the field of strategic management for organizations to gain competitive advantage and sustainable growth. De wit and Meyer (2004) claims that to achieve sustainable growth and competitive advantage firms should take outside-in approach by taking external environment as its core and starting point in order to formulate and build effective strategy. Panagiotou (2008) goes on to state that firms who adapt MBV perspective are objective and rational and are driven by external market with their focus on planning and positioning. In addition to that Day, (1994) states that it can be argued the successful companies are externally oriented and market driven as they focus on exploiting the particular segment of the market by targeting the price sensitive consumers. Jaworski and Kohli, (1993) states that for successful companies markets are leading and resources are following. He goes on to say that market driven company’s strategy begins with the analysis of the environment to identify attractive market opportunities and target potential customers. However he argues that it’s also important that once these customers have been won over and market position has been established, the firm must build on its position by adapting itself to changes in the environment. On the other hand, Mintzberg, et al., (1998) refers MBV approach as the “positioning approach” because this perspective of strategy focuses on market positioning and responds to external developments.
Porter, (1979) suggests that companies that focus on a particular niche and companies that strongly differentiate their product offering can achieve strong and profitable market share. Buzzell and Gale, (1987) emphasizes that the position of being a market leader is particularly important, as companies with the high market share benefit from economies of scale. Porter, (1979) argues that there are two important factors that firm must underline in order to choose a competitive strategy. Porter proposes five-force framework in order to compete and determine the attractiveness of an industry by analyzing the power of the different factors as shown in the fig (2.1.1). These five forces impinging on the firms profit potential are
Threat of new entrants.
Threat of substitutes.
Bargaining power of suppliers.
Bargaining power of buyers.
Rivalry among the existing customer
Figure (2.1.1): porter’s five forces
Source: Framework adapted from Porter, M.E. (1979)
On the other hand Panagiotou, (2009) proposes the modified integrated framework to analyse industrial structure. Apart from Porters five-force, he highlights the importance of further three more forces, which firms need to take consideration to gain and sustain competitive advantage which are as following;
Complementary Products and Services
He goes on to further suggest that a good spread of alliances and other partnerships provide the company with diversity and reinforcement. Figure (2.1.2): Modified framework
Source: Adapted from Panagiotou, (2009)
Porter, (1979) suggests that after the firm identifies its capability and strength by assessing these five forces, they must then choose defensible positions by selecting one of the three generic strategies. On the basis of the main competitive advantage of a firm in relation to its competitors Porter (1980 and 1985) has defined three generic strategies as shown in the fig. (2.1.3) which are as following;
A) Cost leadership: The first generic strategy is cost leadership, Porter, (1980) states that low cost leadership helps the firm above average returns in the industry despite strong competitive forces. This type of strategy can be chosen by a firm capable to produce and commercialize at a lower cost than its competitors. Both the profitability and the market shares controlled by these firms are significant, because low cost leaders are able to match the prices of their most efficient competitors and these firms will usually target groups of consumers that have basic, needs, requiring low quality products and services. However, porter, (1996) emphasizes on the need of consistency and says that lack of consistency dilutes the positioning of the company. So if the goal of the firm is to be a low cost provider, then costs of each activity should be kept to a minimum, while still maintaining the threshold features that are required to Stay in the market .Porter argues that strategic positions are not sustainable if there are no tradeoffs with other positions. Also ,Miller and Dess,(1993) argue that in order to achieve cost leadership, the firm has to obtain a high relative market share, which requires capital investment in product R&D and manufacturing, as well as aggressive pricing.
Figure (2.1.3): Porter Generic
Source: Adapted from Porter, (1980)
B) Differentiation: The second generic strategy is differentiation. In a differentiation strategy firm seeks to be unique in its industry by differentiating its product or service offering and along with some dimensions that are widely valued by buyers (Porter, 1980). It can be design or brand image, technology, features, customer service, dealer network or other dimensions Differentiation can be achieved on the grounds of any specific organizational skill or competence that represents a competitive advantage in contrast to other firms. However it can be argued that cost leadership strategy can also represent version of the Differentiation strategy, but in this strategy the focus is rather on differentiation through superior quality and service, in order to develop a distinctive market proposition. A firm that can achieve and sustain differentiation will be an above average performer in the industry if its price premium exceeds the extra cost incurred in being unique. Therefore it’s important that the firm must seek the ways of differentiating the lead to a price premium greater than the cost of differentiating. Porter, (1980) goes on to state that although the Cost Leadership strategy is characterized by a successive reduction of the selling price, but through a differentiation approach the firm is capable to use a premium price, with higher profit margins. In these conditions, the main aim of the organization is to create price loyalty and price inelasticity, which can create entry barriers for direct competitors, and mitigate the power of buyers, who lack comparable substitutes.
C) Focus strategy: The third generic strategy advocated by Porter is focus strategy. This strategy is quite different from the others because it is based on the choice of a narrow competitive scope within an entire industry. Companies pursuing this strategy focus on the selected segment or a group of segment, particular buyer group or geographic market in the industry by tailoring its strategy to serving them to exclusion of others (Porter, 1980). Porter states that a company can achieve and sustain focus strategy if it is capable of developing a highly specialized expertise in satisfying a clearly defined group of customers, with specific needs and demands and by optimizing its strategy for target segment a firm can achieve a competitive advantage even though if it does not possess a competitive advantage over hall. Like differentiation strategy, focus strategy can take many forms; it has two variants which are “Cost and Differentiation”. In cost focus a firm seeks cost advantage in its target segment, while in differentiation focus a firm seeks differentiation in target segment. However it can be argued that focus strategy or the Market Niche Leadership is usually followed by small firms, which lack the level of resources to develop a cost leadership or a differentiating advantage at overall market scale.
Porter, (1980) states that Effective implementation of any of these generic strategies usually requires total commitment and supporting organizational arrangements that are diluted if there is more than one primary target. Porter outlines that the worst position for a firm is to be ‘stuck in the middle” in other words, if a firm is trying to pursue simultaneously more than one competitive strategy. He considers that each type of competitive advantage is independent and specific, and any attempt to combine low cost leadership and differentiation skills leads the firm’s management in conflicting directions. However, it can be argued that this argument has lost its appeal given the current market environment where the competitive pressures have multiplied substantially. These days some highly differentiated firms are forced to reduce prices to sell their merchandise, because of the fierce competition developed within their strategic group (Panagiotou, 2006)
Despite the significant contribution of porter’s generic strategy, his research has received its share of academic criticism. Stonehouse et al., (2000) argues that low cost leadership alone does not lead to competitive advantage unless there is an element of differentiation. Johnson and Scholes,(1999) argued that a strategy combining elements of low cost, price and leadership is known as hybrid strategy and Mintzberg et al., (1998) advocated the hybrid strategy for it combines both elements of low cost leadership with differentiation. On the other hand, Chrisman et al., (1988) argue that porter’s generic strategies are too general and are not considered in the context of different market environments (Boyacigiller and Adler 1991). Day and Wensley (1988) argued that generic strategies have limited practical application because of their simplicity and rigidity while as Rubach and McGee, (1998) argued that the strategic framework is different in the highly fragmented markets of the retailing sector. On the other hand Dawes and Sharp (1996) in their analysis of various Generic Strategies clusters argue that Porter’s model “does not describe/fit empirical reality, and provides no support for the notion that these generic strategies are routes to superior profit” (Dawes and Sharp 1996, p. 36)
Despite its criticism, Porter’s models are still important and valuable tools for business managers in order to analyze the market environment and formulate effective strategies. Boulding et al. (2005) state that the main advantages of Porter’s work is the incorporation of market fundamentals in the strategic framework of the business enterprise which has shifted the priorities of the firm from production to marketing and customer relations, by highlighting the importance of satisfying the needs of customers in order to achieve long-term profitability and sustainability.
Given the nature of business of ‘Nasim Consulting’ that is providing IT services, it’s important for them develop a strong marketing strategy with the focus on particular market segment to exploit the market opportunities. As the customer is the main focus in MBV, it also highlights the importance of the service quality in order to win these customers.
Kotler and Armstrong state that marketing strategy is a marketing logic by which a business unit expects to achieve its marketing objective. Marketing strategy consists of making decisions on business’s marketing expenditure, marketing mix and marketing allocations in relation to expected environmental and competitive conditions. According to the Palmer, (2000) corporate mission statement provides a focal point for the marketing planning process. It’s important for organizations to integrate market orientation into their strategy in order to obtain competitive advantages over their rivals as company creates value through the configuration and co-ordination of its multi-market activities (Collis & Montgomery, 2005). On the other hand McDaniel, et al., (2006) states that developing a marketing strategy is important in creating and maintaing a fit between the organisation’s objectives and resources and evolving market opportunities. Drucker, (1973) claims that the successful strategy depends on understanding and identifying customer needs and offering the product or services that satisfies their needs. McDaniel, et al., (2006) addresses that for firms to discover the marketing opportunity; it must also know how to find the alternatives.
Ansoff, (1989) proposed strategic opportunity matrix also called as “Ansoff Matrix” as shown in the fig, (220.127.116.11) that can be used to develop strategic alternatives. Ansoff Matrix is an effective and a good basic tool for analyzing and planning where an organization may go, and assessing the risk. In order for firms to match products with the market, they need to explore four options which are “Market Penetration”, “Market Development”, “Product Development” and Diversification. McDaniel, et al., (2006) addresses that through market penetration the firms can try to increase market share among existing customers. Through Market Development firms can attract new customers to existing products. On the other side product Development strategy entails the creation of new products for current customers and Diversification helps in increasing sales by introducing new products into new markets. In addition this Lynch, (2006) proposes a modified framework of “Ansoff Matrix” called as Market Option Matrix which identifies the product and market option available to the organisation, including the possibility of withdrawal and movement into unrelated markets. He states that “Market Option Matrix” examines the options available to the firm from broader strategic perspective than the simple market matrix, which only doesn’t consider the possibility of introducing new product but also explores the possibility of withdrawing from the markets and moving into unrelated markets.
Figure (18.104.22.168): Ansoffs’s Matrix- Strategy Development Directions:
Source: Adapted from Ansoff, (1988)
On the other hand Palmer, (2000) states that “Marketing Mix” framework as shown in the fig,(22.214.171.124) highlights the principal decisions to management in configuring the offerings to suit customers needs and can be important to develop long term marketing strategies. In addition to this McDaniel, et al., (2006) states that “Marketing Strategy” involves the activities of selecting one or more target markets and developing and maintain a marketing mix that will produce mutually satisfying exchanges with target markets. Zeithaml, et al., (2006) defines “Marketing Mix” as a unique blend of product, place, promotion, pricing, people, process and physical evidence which are designed to produce satisfying exchanges with a target market. McDaniel, et al.,(2006) states that ‘Product’ is the heart of marketing mix and the starting point is the product offering and strategy, which in IT consulting is service as well, therefore quality of the service or product is important to gain competitive advantage. ‘Place’ strategies are concerned with making product available when and where customers want them (Palmer, 2000). ‘Promotional’ strategies are concerned with bringing out mutually satisfying exchanges with target market by informing, by informing, educating and reminding them the benefits of the company or the product (McDaniel, et al., 2006. P.52). Pricing is “a critical element of most companies’ marketing mix, as it determines the revenue that will be generated” (Palmer, 2000, p. 22). It also determines the generic strategy of an organization, if a firm is pursuing low cost strategy to gain competitive advantage and to attract price sensitive customers. (Palmer, 2000) states that ‘people’ are important part of the marketing mix and to the marketing of the services. Effectiveness of the marketing is likely to be affected my employees who interact with customers. ‘Process’ is also important but more important in the service sector and can be of critical concern to the consumer of high contact service. This highlights the importance of proper training of the staff in the service sector (McDaniel, et al., 2006). ‘Physical evidence’ is also important in order to guide buyers of intangible service through choice available to them (Palmer, 2000, p. 23). However within the marketing mix, important customer-focused issues such as quality of service can become a lost, scholars argue that more holistic approach should be taken to approach customer needs (Gronroos, 1994).
Figure (126.96.36.199): Marketing Mix.
Source: Adapted from Panagiotou, (2009)
b. SERVICE QUALITY:
Quality of service has båån studied in the area of business management for years because the market is more competitive and marketing management has transferred its focus from internal performance such as production to åxtårnal interests such as satisfaction and customers’ perception of service quality (Zithaml & Bitner 1996). Now, the major ålåmånt in world market competition is quality. McDaniel, et al., (2006) states that “service is the result of applying human or mechanical efforts to people or objects which involve a deed, a performance, or an effort that cannot be physically possessed. McDaniel, et al., (2006) argues that although a comparison of goods and service marketing can be valuable but it’s hard to differentiate between manufacturing and service firms and many firms can point to service as a main factor in their service. On the other hand Kotler, et al., (1996) defines service as a benefit that one party can offer to another which is intangible and doesn’t result in ownership of anything. McDaniel, et al., (2006) also addresses that services have unique characters that differentiate them from goods and is also important that marketing strategies need to be adjusted for these characteristics. Those characteristics are ‘Intangible’, ‘Inseparable’, ‘Heterogeneous’ and ‘perishable’.
Levitt, (1981) argues that “there is no such things as service industries, as there are only industries where service components are greater or less than other industries”. McDaniel, et al., (2006) states that service quality is difficult to define because of its characteristics, but research has shown that customers evaluate service quality on the basis of five components. ‘Reliability’, ‘Responsiveness’, ‘Assurance’, ‘Empathy’, and ‘Tangibles’. Reliability has been found one of the most important components to the consumers. It is the ability to perform the service dependably and consistently. It’s important to provide reliability in order to achieve sustainable growth and build customer relationship (Zeithaml, et al., 1996). ‘Responsiveness’ is an ability to prompt service (McDaniel, et al., (2006). ‘Assurance’ is the knowledge of the skilled employees who treat customers with the trust and make them feel that they can trust the firm (McDaniel, et al., 2006, p.365). ‘Empathy’ on the other hand is the care and attention shown by the firm towards loyal customers, it’s also important for the retention of the customers for long period of time ((Palmer, 2000). And Tangibles is the physical element which is included in the service. The overall service quality can be measured by analyzing the customer response to all of the five components. However, given the service organisations need to focus on the customer and to use knowledge about the customer in order to drive business strategy. Zeithaml, et al., (2006) proposes a ‘Gap Model of Service Quality’ as shown fig, (188.8.131.52) in order to improve quality service and service marketing. The model identifies five gaps that can cause problems in service delivery and influence customer evaluation of service quality.
GAP 1: Th³s gap is båtwåån consumår åxpåctation ànd management pårcåption. Th³s gap occurs whån management ³s not aware îf cårtain critical consumårs åxpåctations. Àt th³s stagå, thå management doås not know how thå service should bå dåsignåd. Thåy also don’t know what thå right quality is for the customer. (McDaniel, et al., 2006) argues that firm that does little customer satisfaction research is likely to experience this gap.
GAP 2: Th³s is the diffåråncå båtwåån Thå Company’s quality spåcifications ànd management pårcåptions îf consumår åxpåctations îf thå service ànd its quality. Management was awarå îf critical consumår åxpåctations but à variåty îf factors such às råsourcå constraints, markåt conditions, ànd/îr management indiffåråncå might pråvånt thåm from såtting spåcifications tî mååt thoså åxpåctations.
GAP 3: This is the gap between the service quality specification and the service that actually is provided. (McDaniel, et al., 2006) states that if both gap 1 and 2 have been closed then this gap is due to poor trained employees. This gap can be closed by training the employees and encouraging them.
GAP 4: Th³s is the diffåråncå båtwåån thå quality îf thå service dålivåry ànd quality promisåd ³n markåting. À potåntial råason fîr poor pårcåptions îf service quality by consumårs ³s that thåir åxpåctations arå booståd by mådia advårtising, salås pråsåntations ànd othår communications tî låvåls beyond à company’s capabilities.
GAP 5: It is the most crucial gap às ³t indicates thå diffåråncå båtwåån åxpåctåd ànd pårcåivåd service quality. ²t ³s à gap båtwåån the customers’ åxpåctations îf thå service ànd thå service thåy actually råcåivå. Gap 5 ³s thå function îf the other four gaps.
Zeithaml, et al., (2006) states that the ‘Gap Model’ positions the key strategies and decisions in service marketing to begin with customers and build the organizational task around what’s needed to close these gaps between customer and management perception.
Figure, (184.108.40.206): Gap Model
Source: Adapted from Zeithaml, et al., (2006)
2.1.3 CUSTOMER RETENTION:
Hoffman, (2006) states that “customer retention refers to the focusing the firm’s marketing effort towards the existing customer base”. In contrast to seeking new customers, firms engaged in customer retention work to satisfy customers with the intent of developing long term relationship. Due to the several changes in marketing environment and increase in the competition customer retention has become increasing important. Customer retention is a key strategy in today’s leading-edge services firms, as the competition is intense and services and goods differentiation among competitors is minimal (Vavra, 1992). Despite its potential benefits, customer retention did not obtain much attention in strategic or marketing planning processes. Grant’s (1995, p. 122) classification of resources, for example, ignored customers as an important resource or asset and, hence, his recommended strategic planning process did not consider the value of relationships with existing customers. Dawkins and Reichheld (1990) brought the substantial advantages of retaining customers into importance. Based on their consulting experience, they claimed that a 5% increase in retention rate led to an increase in the net present value of customers of between 25% and 85% in a wide range of industries.
On the other hand, Berry and Parasuraman, (1991) state that any firms end goal and objective of marketing activities in profit sector is to make profit, irrespective of the way sales are made, whether by transactional encounters or relationships. Therefore from Relationship management perspective, successful organizations are those who manage to turn their customers into clients and from prospects into partners (Christopher et al., 1991). In addition this Vandermerwe, (1996) have pointed out that successful firms are those that `Own’ their customers and pursue ongoing values for them. Fornell and Wernerfelt (1987) suggest that based on the assumption that existing customers are profitable and cost less than to replace them, firms should therefore emphasize on spending marketing resources on the existing customers than acquiring new ones and should be aware of the profitability of not only their products but also their customers. This argument is also supported by Vavra, (1992) who goes on to state that considering the cost of wining new customers, the only way to make profit is to increase the life time spending of the existing customers. Customer retention is therefore far important than customer service. Ahmad and Buttle, (2001) state that benefits of customer retention can be both qualitative and quantitative or more specially it addresses economic and non –economic benefits. Reichheld (1996) identified six economic benefits of retaining existing customers which are as follows;
Saving on customer acquisition or replacement cost.
Guaranteed base profit.
Increase in per-customer revenue.
Low operating costs.
Free of charge referrals of new customers from existing customers.
price premiums as existing customers do not usually wait for promotions or price reductions before deciding to purchase
Now over the period of time, relationship management has emerged as an important tool in order to retain the existing customers. Levitt in 1960 already highlighted the importance of market relationships in the area of business-to-business and business-to customer’s transactions. indicated that firms should not focus on selling products, but rather on fulfilling needs by arguing that the customer is attracted by the entire buying and consumption experience, and not only by the core product. With the development of new information technology applications has opened the way to an increased personalization of marketing activities with the techniques like CRM being considered as new source of competitive advantage for modern business organizations.
Customer relationship management has emerged as a new trend in marketing that focuses on understanding customers as individuals instead of as part of a group. McDaniel, et al., (2006) defines ‘CRM’ as a “company–wide business strategy which is designed to optimize profitability, revenue and customer satisfaction by focusing on highly defined and precise customer groups”. Dyche, (2002, P.4) states that ‘CRM’is the infrastructure that enables the delineation of an increase in customer value, and the correct means by which to motivate valuable customers to remain loyal – indeed, to buy again”. However, on the other hand, Technological innovation and information liquidity have changed competitive landscapes. Fewer and fewer companies can exploit propriety, one-of-a-kind technology and exclusive supply or distribution channels to maintain competitive advantage (Chew, 2000). For the vast majority of businesses, the ability to acquire, retain and enhance customer relationships is the last place left to find advantage. CRM and its accompanying measurement potential, is then a key technique for understanding customers and managing ongoing customer activity. CRM can be used to understand past and future customer behavior, the ability for companies to convert that knowledge into business results can be a significant form of competitive advantage.
The challenge for traditional, product-oriented companies is in pulling together customer data from across the different product silos so that customer behavior can be researched more comprehensively. Pine, et al., (1995) argues that many managers continue to look at business through “the twin lenses of mass marketing and mass production” rather than with the “twin logic of mass customization and one-to-one marketing. But McDaniel, et al., (2006) argues that ‘CRM’ is a much broader approach to understand and serve customer needs than is one-to-one marketing. Hair, et al.,(2002) addresses that ‘CRM’ is a closed- loop system which helps to build relationship with customers and it is continuous and circular with no predefined starting or end point. McDaniel, et al., (2006) suggests that in order to initiate ‘CRM’ management cycle or closed –loop system, a company must identify the customer relationships by learning who the customers are and where they are located. The company must understand the interactions with current customers and using that knowledge of interaction they must capture relevant customer data. After capturing the data, the company must store the data (By efficient ‘CRM’ technology and tools) in order to identify the best customer and then leverage the customer information. The key point in ‘CRM is that customer should take centre stage in any organisation Companies that implement ‘CRM’ system follow a customer-centric focus (Zeithaml, et al., 2006). McDaniel, et al., (2006) defines customer-centric focus as an internal management philosophy, to customize the product offering based on the data collected through customer interaction. By collecting the feedback on products and services the customer-centric learn to enhance the product offering. ‘CRM’ is an important tool to build up the strategy and differentiating the product offering which is important in order to achieve competitive advantage. It is important that the companies implement efficient ‘CRM’ system to enhance the customer relationship, although some people argue that implementing ‘CRM’ is a complex process.
It’s important to conclude that customer retention should be the important business goal as customer retention management has the potential for delivering substantial profits to firms in term of long-term profitability. However, the choice of appropriate strategies may be influenced by the nature of the product, the stage of the product in the life cycle, and customers’ buying behaviours (Ahmad and Buttle, 2001).
Although MBV focuses on external environment and highlights the importance of exploiting the opportunities with the industry to achieve competitive advantage but it overlooks the internal functioning of organization which are important to even achieve external market opportunities. Also Porters framework even though outlines the main drivers of competitive advantage; it does not provide any guidance regarding their operationalization. Also the framework doesn’t include some key variables like quantity dimension which is crucial to explain the success of a cost leadership strategy where profits are not driven by high margins but rather by large quantities. Hungenberg, (2004) argues that MBV frameworks emphasizes more on the importance of profitability while as there are also other approaches that take a much broader view of strategy. Most importantly, these perspectives also include other stakeholders such as employees or the external Community surrounding a company.
b. RESOURCE BASED VIEW:
Resource based view also called inside-out perspective of strategy has a long antecedent; with research stretching back to Edith Penrose (1959). However, since early 1990, the RBV view of the firm has increasingly come to dominate the field of strategic management. According to the De wit and Meyer (2004), RBV deals with the competitive environment facing the organization but takes an inside-out perspective by formulating strategy around company’s strengths, i.e. its starting point is the organizations internal environment. As such, it is often seen as an alternative perspective to porters (1980) five forces frame work, which takes the industry structure (outside-in) as it’s starting point. Resource- Based View of firm focuses and emphasizes on the internal capabilities of an organization to evaluate and formulate strategy in order to achieve competitive advantage in their respective markets and industries. It draws upon the resources and capabilities that reside within the organization in order gain competitive advantage. Ormanidhi and Stringa, (2008) state that firms are considered to differ in competitive advantage and in operational efficiency as a result of their capable and acquired internal resources.According to Johnson and scholes, (2002) it is the distinctiveness of organizations strategic capabilities that provides them an edge to achieve extraordinary profits compared to others in the market where the strategic capability is the sufficiency and suitability of the resources and competences that organization possesses in order to be successful. Resources can be thought of the inputs that enable organization to carry out its activities and can be categorized as tangible and intangible where tangible are the physical assets that organization posses such as plant & machinery, finance and human resources while as in tangible resources are the resources that are developed by the organization over the period of time such as knowledge, culture and brands. Johnson and Scholes, (2002) state that whilst possessing of resources is important but it’s the way the firm uses its resource or in other words it’s the efficient configuration and arrangement of the resources that provides an organization with competencies.
Prahalad and Hamel, (1990) states that taking an inside-out perspective tends to emphasize the importance of a firm’s competences over its tangible resources by arguing that the critical task of management is to create an organization capable of creating products which customers need but not yet even imagined and with the collective learning of individuals within the organization itself and their ability to work across organizational boundaries, firms can achieve core competencies. Prahalad and Hamel, (1990, p.82) argue that;
“The skills that together constitute core competence must coalesce around individuals whose efforts are not so narrowly focused that they recognize the opportunities for blending their functional expertise with those of others in new and interesting ways.
However, on the other hand Kay, (1993) argues it is the distinctive capabalities of an organisations resource that are important in provididing it with competitive advantage ,i.e.reputation and product innovation. Although possessing distinctive capability or characteristic is important but it doesn’t not guarantee success fit is not sustainable and suitable which could be assessed over a period of time and if it primarily benefits the organization itself.
Johnson and Scholes, (2002) state that core competencies or distinctive capabilities provide an organization a basis to outperform its competitors, therefore it is important for organization to identify and develop the unique resources and core competencies to achieve competitive advantage as shown in the fig,(2.2.1).
Figure, (2.2.1): Core Competencies.
Easy to imitateDifficult to imitate
COMPETENCIESThresholdCompetenciesCore CompetenciesOrDistinctive Capabilities
Source: Adapted from Johnson and Scholes, (2002).
On the other hand ,Grant,(1991) distinguishes resources and capabalities. He goes on to state that resources are the sources of organisations capabilities and its capabilities that are the main source of its competitive advantage. The greater the rate of change in a firm’s external environment, the more likely internal resources and capabilities are to provide a secure foundation for long-term strategy (Grant, 2000, p.108). Grant proposes a framework as shown in the fig, (2.2.2) for strategy formulation comprising of five steps which are as follows
Identify and classify the organisations resources. Appraise strengths and weaknesses relative to those of your competitors and identify oppurtunities for bettre resource utilization.
Identify the organisations capabalities, i.e. what it can do better than its rivals and identify the resource and complexity of input to each capabalities
Appraise the profit-generating potential of resources and capabalities of organistion.
Select an appropiate strategy to expliot organisation resources in relation to the oppurtunities that exist in the external enviroment.
Identify the resource gaps which need to be filled,i.e. by investing in improving organistion resource base.
Figure, (2.2.2): Grant’s Resource-Based View of Strategy Analysis.
Source: Adapted from Grant, (1991).
Johnson and Scholes, (2002) state that it’s important that firm’s develop long lasting and durable strategic capabilities that provide advantage for long time in order to achieve sustained competitive advantage. They should also develop effective knowledge management and must be able to adapt and innovate in rapidly changing environment.
On the other hand, Barney, (1991) argues that all the resources that firm have access to may not be strategically significant, since some may prevent the organisation from conceiving valuable strategy. He states that a sustained competitive advantage occurs when an organisation is implementing value- creating strategy that is not implemented by potential competitors. He proposed that organization’s resource must have four attributes to provide potential sustainable competitive advantages which are as;
Resource difficult to imitate.
No strategic substitute.
Although RBV provides broad insight about formulating strategy of an organization to gain competitiveness. However, it can be said that it says very little of how resource can develop and change over time. Priem and Butler, (2001) argues that resource based view of strategy lacks detail and is difficult for organization to implement. A more detailed road map is required if it is to be more useful to organizations.
a.EMPLOYEE RELATIONSHIP AND MOTIVATION:
According to the Armstrong, (1999) “employee relationships are the relationships that exist between the employers and employees in the work place”. Maund, (2001) states that relationship with employer and employees are very crucial for organization to be successful. It’s important for the senior managers to find out what employees are actually thinking. Armstrong, (1999) states that it’s important for management deal with the issues of sensitivity and demotion in order to gain the loyalty and trust from the employees. It also about getting that bit extra from the employees; that is the willingness to act beyond the job role. However Palmer, (2000) defines employment relationship as a relationship based on an (implicit) reciprocal agreement in which employees provide physical and labour in exchange for (economic and social) rewards supplied by employers. According to Kessler and undy, 1996(cited in Maund, 2001.p.324) relationship of employment consists of four dimensions, each which interrelate to form a comprehensive whole. These components are; Parties, Operation, Structure and Substance. However, Rouseau and Wade-Benzoni distinguish the relationship of employment between two types of contract; transactional and relational (Rouseau and Wade-Benzoni, 1994, cited in Maund, 2001.p.324). Building a trustworthy relationship with the employees is important in achieving the objective of an organization and sustaining growth which highlights the importance of HR strategy of the organization as well. On the other hand, Maund, (2001) states that employment development is another important factor in order to be successful. Ignoring people development and training is not an option for any organization, in order to get the best out of them it is important to invest in them as well. Armstrong, (1999) states that “employment development policy should express the organizations commitment to the continuous development of the skills and abilities of employees in order to maximize their contribution”. Maund, (2001) addresses that because of changing environment which places a unique demand on the skills and knowledge of people. It’s important for the management to provide training programmes and education in order to cope with these demands. Rewards and bonus programmes are also important in order to keep the employees motivated.
In the current economic scenario the motivation of staff is important and it is lifeline of an organization, however still on a business perspective it is an ignored area. Motivation should feature as one of the focal points when thinking about the functioning of an organization and should be given paramount importance by taking a clear and coherent approach. Mostly organizations turn a deaf-ear to motivation until its functioning is affected due to motivation. Orlando, (2002) states that motivation is a seminal element of peak performance and improving both internal and external facts of motivation is undeniably prerequisite for success.
Theories of motivation are largely grounded in the field of psychology however psychologists in turn rely on the philosophical tradition of theory building efforts. Two categories of motivation theories evolve from this starting point are content theories and process theories.
Content theories provide a link between individual needs and work rewards and offer perspective based upon the relative value people place on various rewards. Maslow’s Hierarchy of needs (theory of human motivation, 1943) is one of the earliest theories about motivation and comes into the category of content theories. The theory assumes that human beings always seek to satisfy needs both in social and working life. Maslow developed the concept of pyramid of requirements’ or hierarchy of needs and highlighted five hierarchical levels of human needs and discussed how the satisfaction of the basic need leads to the desire of acquiring and satisfying higher needs. Maslow’s theory states that humans can only progress through the five levels of needs as shown in the fig, (220.127.116.11) by satisfying each one in turn with the self actualization being the highest level in hierarchy, until ones safety and security needs are not satisfied, status based needs will have little effect. McClelland, (1961) theory of acquired needs also falls in to the category of content theories; his theory focused on needs similar to the higher order needs identified by Maslow. He specifically argued that individuals have needs for achievement, affiliation and power. Other theory which falls into the category of content theory is Motivation- Hygiene theory of Fredrick Herzberg( 1950), which says that there are two types of motivators, one type which results in the satisfaction with the job called ( motivators) and other one which merely prevents dissatisfaction called (hygiene factors) which include company policy and administration, supervision, status, salary. According to Herzberg, et al., (1959), Hygiene factors are those factors which do not lead to the higher motivation but without them there is dissatisfaction. Despite the huge significance of Maslow’s and Herzberg theories, they have received fair academic criticism. Maslow’s theory has been criticized as being static and descriptive and like Herzberg; it cannot predict behavior by analyzing needs.
Figure,(18.104.22.168): Maslow’s hierarchy of needs
Source: adapted from Maslow,(1943)
On the other hand, process theories take much dynamic approach by trying to analyze the thought process of individuals which affect their behavior. The two process theories which offer significant amount of implication for motivation in work places are expectancy theory and equity theory. According to Vroom’s theory of expectancy, (1964)the performance is a multiplicative function of motivation and ability. This theory is based on the belief that employee effort will lead to performance and performance will lead to rewards. Rewards may be either positive or negative. The more positive the reward the more likely the employee will be highly motivated. Conversely, the more negative the reward the less likely the employee will be motivated. Also this feedback from the company in form of rewards has a decisive effect on motivation (Van-Dijk and Avraham, 2004).
On the other hand Adam’s Equity theory (1963) defines that in an organization When people feel fairly or advantageously treated they are more likely to be motivated; when they feel unfairly treated they are highly prone to feelings of disaffection and demotivation (Bussinessballs, 2009). According to the equity theory which is considered as one of the justice theories, he asserted that employees seek and pursue the balance between the inputs they bring to the job and the outputs against the perceived inputs and outputs of others. So the basis of equity theory lies in the process of individual comparison. The benefits of being treated fairly by the company, in terms of the feedbacks and rewards for the hard work and dedication you have put in has a positive effect on your motivation (Harvey et al., 2003). The relevance of equity theory to motivation is that it explains a rationale for human behavior which is not tied into the hierarchies or to specific kind of individual drives. On the positive side, equity theory helps in explaining a potential list of factors which can lead to motivation. On the negative side, its basis as a theory of motivation places emphasis upon the managers whose task becomes that of changing the levels of reward to create the balance. This also takes into consideration the inputs (time, effort, loyalty, hard work, skill) you put into the job and the outputs (salary, employee benefit, recognition, esteem, achievements) you get from it but this theory goes on to say that these two factors alone decide the level of motivation of an individual as it also takes into consideration the comparison with an individual, who is in a similar scenario and of whom you think is quite relevant to you (referent). Similarly, such efforts by the organization improve performance and productivity of its human assets which in turn benefits the organization itself (Dawn et al., 2000). However, with the Equity theory it varies from person to person and also varies with the referent one has in mind as with this theory an individual only keeps comparison with other people in mind and completely neglects the amount of contribution the two have made and this leads to demotivation of the individual towards his job.
Motivation is therefore a driving force in every front of life and it pretty much decides your approach to a given task. According to the various theories given on motivation it is highlighted in every theory that the level of motivation of employees has a paramount impact on the organization. As Likert, (1967) has put forward in his Management Systems and Styles theory that for an organization to achieve maximum profitability, good labor relations and high productivity, every organization must make optimum use of their human assets.
b. RECRUITMENT PROCESS:
Maund, (2001) defines recruitment as a process of finding and employing individuals to carry out the tasks that need to be done within the organization. Dowling and Schuler, (1990) state that recruitment is a process of ‘searching and obtaining potential job candidates in sufficient numbers and quality so that the organization can select the most appropriate people to fill its job needs’. For organizations to be successful it’s important that they have effective and efficient members of workforce, as employees are the force of organization (Maund, 2001). Effective organizations use a strategic approach to recruitment and development of their staff with their recruitment strategy linked to their overall strategy in order to utilize their people as a sustained source of growth and competitive advantage (Hill, 2008). Fombrun and Devanna argue that organizations would find it hard to implement strategy if they were not intertwined with the appropriate HRM policy (Fombrun and Devanna, 1984. Cited in Maund, 2001). Maund, (2001) states that organization with the effective recruitment strategies have to key assets; they ensure that the potential of the employees is identified, developed and utilized and they use finance on its people who directly contribute towards achieving the goals of the organizations. It is suggested that recruitment procedure is to be based on a system approach which is necessary to carry out analysis of inputs, output, and environmental context of recruitment. Maund, (2001) suggests that the aim of the recruitment is to maximize certain critical concepts which are Validity, Reliability and Utility analysis. Hill, (2008) states that recruitment process is usually divided into three distinct stages.
Definition of requirements of staffing.
Selecting the employee’s candidates.
Selection is the last part of recruitment; it’s when the organization decides who to employees. However, selecting is the most important part of the recruitment process. As Maund, (2001) states that at the end it’s about employing the right people for the right job. With IT industry demanding high knowledge and skilled consultants. It’s important that selecting process meets all the criteria’s; Qualification, skills, knowledge, abilities and personal qualities. Without the efficient workforce it’s hard for organizations to be successful as people are the most valuable resource for organizations to gain competitive advantage.
1. RESEARCH METHODOLOGY:
The aim of this research is to find out the main reasons for Nasim Consulting’s lackluster performance in the IT consulting industry. The initial hypothesis was that this inefficiency could be attributed to inability to efficiently retain customers. The following subchapters would outline the methodology used in testing this hypothesis.
The epistemological stance being adopted in this study is Interpretivism. According to the Saunders et al., (2007) “Interpretivism is an epistemology that advocates that it is necessary for the researcher to understand differences between humans in our role as social actors”. Easterby-Smith et al (2008) asserts that an understanding of the research philosophy being adopted in management research is useful as it helps clarify research designs, showcases the best research approach and it also aids the researcher in identifying, creating and designing studies which may not be consistent with their past experiences.
The heritage of this strand of ‘Interpretivism’ comes from the intellectual tradition of phenomenology. Phenomenology refers to the way people make sense of the world (Collis and Hussey, 2003). The positivist perspective, which focuses on observing and generalizing social reality, is not being utilized in this study. The reasons being that a positivist perspective would not help explain the inner feelings and attitudes of the staff within the organization. It would also not aim to understand or identify the actual point of view and concerns of individuals in the study. These reasons thereby make the positivist view an unviable approach in answering the aforementioned research question.
This Interpretivist’ view is synonymous with the Social Constructionist view expressed by Easterby-Smith et al (2008), in that the focus of research should be on people, individually or collectively. Research should be concerned on how people think or feel about certain occurrences. He further asserts that human action arises from their perception of different situations.
A major limitation of the Interpretivist view is that the researcher would have to adopt an empathetic stance by entering into the world of research and understanding the issues from the participants’ point of view (Saunders et al, 2007). Easterby-Smith et al (2008) also asserts that a non-positivist research is not objective, therefore qualitative results gathered could be interpreted falsely based on the reader’s point of view. This research stance brings into question, the issue of reliability, validity and generalisability of subjective methods of research. These issues have been addressed in this research and are illustrated in following chapters.
One method of securing the reliability and validity of a subjective research, as postulated by Collis and Hussey (2003), would be to adopt a befitting approach to research. Also as Saunders et al., (2007) argues, the Interpretivist’ perspective of epistemology highly suits the area of business and management research particularly in marketing and HR management. Therefore this study, which is centered around issues concerning management, marketing and HR would adopt a social Interpretivist perspective.
Collis and Hussey (2003) state that any research method adopting an Interpretivist perspective should be inductive, as it represents the most appropriate approach to social science research. By adopting an inductive approach, Bryman and Bell (2007) postulate that the study would aim to answer the research question by generating alternate hypothesis that would focus on the importance of informal social relationships.
However, in as much as this study is based on an Interpretivist epistemological stance, there is still evidence of deduction. The deductive approach is the dominant research approach in natural sciences, where laws present the basis of explanation (Collis and Hussey, 2003). The deductive approach represents the most common view of the nature of the relationship between theory and research and results gotten from this approach are developed through logical reasoning (Bryman and Bell, 2007).
The purpose of this research is to discover why an occurrence is evident in a particular institution, and also to compare these occurences with already existent theory. This comparison is done so as to ascertain which theory has the most influence on their performance; therefore a mixed method approach has to be instigated.
Saunders et al (2007) therefore argues that a mixed approach could be instigated, whereby a deductive approach would be used initially to compare findings with relevant theories, and in instances whereby there is no relevant theory available to explain the findings observed, then an inductive approach would be used in order to explain these occurrences.
Based on these arguments, this study would adopt a mixed method approach. A deductive approach would be utilized in the formulation of a viable research question, and analysis of the findings. In the event that there is no apparent explanation for a finding, then an inductive approach would be utilized in formulating a hypothesis. As illustrated by Collis and Hussey (2003), the most distinctive feature of qualitative analysis is its emphasis on the interpretation that can result in confrontation of multiple realities.
d. Research Strategy:
This study involves the empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence; therefore, the most befitting strategy, as postulated by Robson (2002) is a case study strategy.
Robson (2002) asserts that the case study strategy would be useful if the aim of the study is to gain a rich understanding of the research perspective and the process being endorsed. Therefore as this study aims to understand the business process within Nasim Consulting and also the reason for their lackluster performance, then based on this argument, a case study would be most effective.
The case study approach has been attacked for its lack of generalisability and for the fact that they produce huge amounts of data, which allow researchers to make any interpretation they want (Easterby-Smith et al, 2008). Therefore Oppenheim (2000) argues that the case study lacks the ability to generate objective answers to questions asked. Robson (2002) in response to these criticisms, suggests that case studies should have a clear design, which is be tailored specifically to the research question.
Easterby-Smith et al (2008) further asserts that the case study strategy should be less concerned with issues of validity and generalisability, but more on uncovering rich data that could best explain the life and behavior in organizations and groups. These assumptions illustrate why the case study approach was chosen as a suitable strategy for this research.
Triangulation, as proposed by Saunders et al (2007), would be utilized in the course of this study. Triangulation is essential when the study aims to capture data using different data collection techniques. Therefore this study would aim to collect data using semi-structured qualitative methods and also focus group qualitative studies.
Saunders et al (2008) defines a cross sectional study, as a study that aims to research a particular phenomenon at a particular time. Whereas a longitudinal study, as defined by Adams and Schvaneveldt (1991), is a study that allows the research to observe people and events over a period of time.
Therefore since the aim of this research is to discover the effects of some organizational factors, within a time frame of 3 months, a cross-sectional study has been chosen. This is due to the nature of the case-study research strategy and also the time limit of this research. Saunders et al., (2007) states that research taken for academic reasons are likely to be time constrained and don’t not allow sufficient time for longitudinal study.
Easterby-Smith et al (2008) asserts that a cross sectional study, is mostly useful in survey strategies and also comparative researchers. However they may also be used for qualitative case studies. Saunders et al (2007) therefore concludes that case studies that are based on interviews, which are intended to be studied over a short period of time, should adopt a cross sectional study.
f. Data Collection:
Based on the research objectives and the issues to be investigated, it would have been most appropriate if all population of staff within the organization were interviewed. However, due to the time constraints and resource limitations inherent in this study, a non-probability sample of the population was selected.
Saunders et al (2007) asserts that a non-probability sample is most often used when adopting a case study strategy. A non-probability sample, as described by (Oppenheim, 2000), is a sample in which the probability of each case being selected from the total population is not known. it is impossible to answer research questions or to address objectives that require statistical inferences about the characteristics of the population (Oppenheim, 2000). A non-probability sample is being adopted as opposed to a probability sample, in which the probability of each case being selected from the population is known and equal in all cases (Saunders et al, 2007).
Robson (2002) further asserts that non-probability sampling could still be used to generalize findings, but these generalizations would not be based on statistical grounds. Due to the qualitative nature of this study, a non-probability study would suffice (Easterby-Smith et al, 2008).
The population samples interviewed are in 3 different categories.
Firstly, 4 members of top management were interviewed regarding the corporate strategy, sales and marketing of the firm, client relations and also human resources. All these interviews were carried using a semi-structured format.
Secondly, focus group sessions were carried out with 4 members of support staff, while 3 another focus group was carried out with 3 highly skilled support staff
A purposive sampling method, as described by Saunders et al (2008), was utilized in the sampling of participants. This method requires the use of the researcher’s discretion in selecting cases that would be most suited to answer the questions raised. This form of sampling is often used when working with small samples such as in case studies (Neuman, 2000). Collis and Hussey (2003) further assert that the logic unto which the purposive sampling should be selected should be dependent on the research question and objectives.
The top management staff were chosen in this research because of their knowledge of the areas being investigated. The support staff and highly skilled staff were also chosen because they were also believed to have an opinion regarding the organization.
S/NParticipantsA.K.AInterview formatTOPIC OF DISCUSSION
1Head of Corporate strategyHOCSSemi-Structured interviewCorporate strategy, marketing strategy, sales and marketing and human resources
2Head of client operationsHOCOSemi-structured interviewClient operations
3Head of SalesHOSSemi-structured interviewSales and marketing
4Head of Human ResourcesHOHRSemi-structured interviewsEmployee recruitment, retention, motivation, training, development
54 Support StaffFGSSFocus GroupEmployee motivation, retention, training, development
63 Highly skilled staffFGHSFocus GroupCorporate strategy, employee motivation, retention, recruitment.
Semi – Structured Interviews
A semi-structured interview is a qualitative interview that is defined by a pre-set question guide. It aims to provide in-depth findings through informal discussions with participants (Collis and Hussey, 2003). This interview method was chosen over unstructured or structured interviews, because this study intends to answer the research questions by asking specific questions, but not so much (unstructured) that it generates useless data, and not so less (structured) so as not to miss out on any unanticipated information.
Easterby-Smith et al, (2008) states that in less structured interviews, the researcher is encouraged to make choices and ask further questions regarding which line of questioning they should explore further, and which lines of enquiry to discard. Saunders et al (2007) also advises that in semi-structured interviews, specific questions could be omitted during the course of the interviews, while in others; additional questions could be added if they are deemed relevant.
The interview themes in the semi-structured interview are in appendix. The themes utilized in this study were derived from the literature review, knowledge of the organization and its industry, discussion with workers at the organization and the dissertation supervisor. The themes are not a set of questions per se, but general discussions that the researcher intended to focus on, in a bid to find answers to the research question.
The meeting environment and atmosphere of the interview area were not so formal. Saunders et al (2007) asserts that semi-structured interviews that are not so formal are usually more favorable amongst senior management, as the reply usually tends to be confidential in nature. Also, an informal environment could act as an ‘ice breaker’, which would allowed the researcher to bypass the initial confidentially issues of the organization. This was helpful in discovering the underlying factors responsible for the firm’s lackluster performance.
The semi-structured approach also provided the researcher with the ability to probe answers. Answer probing was particularly useful in responses whereby more explanation was needed in order to fully understand the occurrences. This was very important especially during the interviews with top management, whereby some respondents were initially wary about voicing their opinions. Answer probing and an informal environment were tools that were utilized in forgoing these barriers.
Focus Group Interviews
Focus group refers to group interviews in which the topic is clearly defined and the focus is on enabling and recording interactive discussion between participants (Saunders et al, 2007). He further asserts that the main aim of the focus group is to focus on a particular issue, product, service or topic and create an environment of interactive discussions amongst participants.
Focus group sessions were used in this study. There were used to record the perception of highly skilled and support staff to issues such as customer retention and employee recruitment, training and motivation. Saunders et al (2007) states that focus groups typically involve up to 8 participants, depending on the information sought.
A non-probability sampling method was used in the selection of respondents. The interview method was non-standardized, as in the case of the semi-structured interview, but instead of having just one recipient, the focus groups had a number of recipients. 3 highly skilled staff and 4 support staff.
Easterby-Smith et al (2008) asserts that in cases whereby a focus group would be the most appropriate form of data collection, the role of a researcher would shift from the interviewer to the role of a moderator and facilitator. The researcher therefore had little input in the course of the focus studies, except for the occasional insertion of new areas to discuss. The aim of the focus groups was to ask the support staff and highly skilled staff for their opinion about the firm, its performance and their motivation to progress within the organization, if given the opportunity.
g. ANALYSIS OF RESEARCH FINDINGS
Quantitative and Qualitative methods are two methods mainly used in the data collection process of research. The former involves data that is either in the form of, or expressed as numbers while the latter involves collecting data in the form of words (Easterby-Smith et al, 2008). This study gathered only qualitative data, therefore the analysis of findings were based solely on qualitative methods of data analysis
Saunders et al (2008) states that it is possible to approach a research approach and analysis using either a deductive or inductive position. And the choice of analysis should be greatly determined by the research approach adopted. This study adopted a mixed method research approach, therefore in the analysis of findings, a decision had to be made as to whether to adopt a deductive or inductive data analysis stance.
Yin (2002) suggests that in studies whereby the research question has been formulated based on the literature review; these theories that have been used in the postulation of the research question could also be used in analyzing the findings. Thereby suggesting that a deductive approach to data analysis would be essential for theoretical driven studies. He also believes that an inductive approach to data analysis may be a difficult strategy to follow. Easterby- Smith et al (2008) further asserts that though a research might commence from an inductive standpoint, a deductive method of analysis does have its advantages. A deductive approach would link the existing body of knowledge in the subject area, it would also assist in getting the research started and providing the initial analytical framework.
Based on these arguments, this study analyzed its findings using deductive methods. The findings were analyzed according to the literature review topics discussed. In the instance whereby different respondents had something to say about a particular issue, all their opinions were recorded and taking into consideration in the analysis of findings. A fact sheet of all findings according to the theory is illustrated in chapter 4. Full transcripts of the interview are in the appendix.
The pattern matching procedure, as postulated by Saunders et al, (2007), would be utilized in this deductive analysis. It involves predicting a pattern of outcomes based on theoretical propositions. These propositions are thereby analyzed in the data analysis process. This procedure involves the development of an analytical framework, utilizing existing theory, and then testing the adequacies of the framework as a means of explaining the findings (Saunders et al, 2007). In the instance where a pattern is found as initially predicated, it would be evidence that suggests that there is indeed an explanation for findings.
This pattern only strengthens the previous deduction approach proposed. This study has built a pattern whereby it hypothesis that the main reason for the company’s poor performance is customer retention. Therefore the findings and literature review would shed light on whether this approach is viable or not.
h. CREDIBILITY OF RESEARCH FINDINGS:
According to the Easterby-Smith et al. (1991) reliability refers to the extent to which data collection techniques or analysis will yield consistent findings. There may be four threats to reliability which are ‘participant error’, ‘participant biases, ‘observer error’ and ‘observer bias’ (Robson, 2002). During the interview apart from the audio-recording, key notes were taken as well in order to maintain the richness of the data. To increase the reliability, interviews will be conducted in a professional manner by proper and effective communication in order to avoid any loss of data. However there is also an informal air in the environment, which allowed the researcher’s to feel more relaxed about voicing their opinions on corporate strategy or employee motivation.
Saunders et al., (2007) states, “Validity is concerned with whether the findings are really about what they appear to be about”. Robson (2002) further states that there are many threats to the validity of the research which are; testing, mortality maturation and casual direction. The research will be based on effective research design in order to avoid the threats to the validity. Interviews and questionnaire will be effectively and appropriately designed to examine and identify the appropriate findings. Multiple methods will be used in this research to provide better opportunities to answer research question and to evaluate the extent to which findings may be trusted. Also the researcher will be informed about any change in the strategy of the organization that might affect the area of investigation. Finally researcher is fully desired and committed to complete the research project within the given period of time.
Blumberg, et al., (2005) states that ethics refers to the appropriateness of your behavior in relation to the rights of those who become the subject of your work. This research will be strictly conducted within the “Research Ethics Policy” of the ‘London metropolitan university’. The research will be designed in way that it is both methodologically sound and morally defensible to all those who are involved. Questionnaire and interviews will be designed in way that it doesn’t offend, harm or provoke anxiety or stress in participants. At the same time the objectives and academic expectations of the research will be fulfilled.
A number of other ethical issues have been raised with regard to this study
The top management of the organization were worried about their information getting into the hands of competitors who are equally lobbying for support contracts.
Other managers, support staff and highly skilled staff were particular about not being identified in the study, because of the sensitivity of the discussions.
Therefore based on these issues, this dissertation has been classified CONFIDENTIAL.
The researcher has been granted the right to access and publish the research finding from ‘MR. BASHARAT MALIK’ who is the managing director/owner of the Nasim Consulting.
This full access was used in arranging the semi-structured interviews with management and also the focus group interviews with support staff and highly skilled staff.
v.Limitations of Research
The following limitations were observed during this research.
The non-probability sampling utilized in the semi-structured interviews could have been expanded to include all staff within the organization. This approach would have further strengthened the reliability and validity of the findings. It would also have taken into account the perception of all staff within the organization. Thus resulting in indisputable data.
The participants which were interviewed could have been expanded to include some clients of the firm. Areas such as client retention could have been expatiated further if the opinions of the clients were put into consideration as well.
The data collection method could have been expanded to include quantitative questionnaires as well. If these questionnaires were included, it would have been possible for this study to quantify its findings, thereby making it objective and irrefutable.
3. RESEARCH FINDINGS
The results chapter has adopted a deductive analytical approach, therefore the findings of this study would be collated according to the research questions asked and theories read. The transcript from the semi-structured interviews and focus groups are shown in appendix.
The results are categorized according to the section under study and also according to the perception of recipients towards particular questions. All questions asked are also shown in appendix.
a.Market Based Factors
i.Brief overview of corporate strategy
Head of Corporate Strategy (HOCS)
The company’s main strength is in support services and these services are dependent on return customers. Therefore Nasim’s main strategy is focused on acquiring those resources that could help in retaining and servicing these customers. The HOCS also believes that due to the economic climate, it may be seemingly impossible to attract new customers. Based on this assumption, 80% of Nasim’s marketing budget is currently being diverted towards customer retention.
The generic strategy currently being adopted by Nasim is a low-cost focus strategy. The cost of Nasim’s services to its limited range of customers is lower than that of most competitors. Nasim’s immediate future strategy is to invest in customer retention. They intend to do this by lowering the cost of support services even further, especially for multi-year contracts.
A merger with another firm, or being acquired by a larger firm, are the only feasible strategies with which Nasim could diversify into the outsourcing market.
Focus Group – Highly Skilled Staff (FGHS)
Outsourcing is being supported as a viable diversification strategy, which Nasim could look into. Outsourcing commits clients to multi-year contracts and also increases clients’ switching cost.
New customer acquisition is also a recommended approach. Respondents from the focus group assert that old customers would not need to continue signing support services, if the installation process was very successful. Therefore Nasim should focus on the acquisition of new customers, as it is seemingly more profitable.
ii.Nasim’s marketing strategy
Head of Corporate Strategy (HOCS)
Nasim Consulting does not specifically target any customer segment. They provide broad range IT consulting services to any client that is interested in their products. Most of their previous customers are competing in the energy and telecommunications industry.
Strategy of focusing on support services was profitable prior to the economic downturn. Clients were able to order new installation services and signed yearly contracts that secured Nasim’s income. However this has changed, sales of new installations has dropped by 60% and some old customers are refusing to renew support contracts, citing a lack of need for it.
Head of Sales (HOS)
Marketing effort for acquisition of new customers is not so good. 20% of turnover comes from new customers and only 20% of the marketing budget is for the acquisition of new customers. Most of Nasim’s effort is bent on the retention of previous customers.
Head of Corporate Strategy (HOCS)
Nasim currently provides outsourcing, installation and support services. 80% of turnover is from support services being offered to previous installation clients. 10% comes from installation services to new and old customers while the 10% left comes from outsourcing services. Sales of new installation services have reduced by up to 60%.
Head of Sales (HOS)
Sales of services are primarily done through the Internet. An online presence has been designed in which all the services being offered is listed. Therefore interested clients are advised to call.
Meetings are also set up with prospective clients through telephone, and consultants are sent out to outline the client’s problem and how Nasim could solve it. Brochures are also occasionally sent out to prospective clients.
However, the performance of the sales team is low. The sales team comprises of 4 staff that are equally responsible for customer relationship management. There are no training facilities that teach the sales team how to sell IT infrastructure, neither are there any added incentives apart from a little commission paid out for every sales made. Only 20% of the sales and marketing budget is currently being used for the main sales activities. The other 80% is used in retaining previous clients.
Proposals for sales and marketing campaigns have been previously dismissed. The company’s main focus is on ensuring repeat customers.
‘I would advise my company not to ignore sales and marketing completely; in as much as they are trying to attract the big firms and hook them up with support contracts, I think there are bigger fishes out there that have not been touched yet. These bigger fishes could attract more income through larger installation.’
Clients only need IT infrastructure when they have a budget or when they have a dire need for it. Clients can easily forgo installation and support services if they are cash trapped and need to focus on core business activities.
‘Therefore if senior management believes that their main bread lies with support services, then I beg to differ.’
If sales department received appropriate funding, investments could be made in acquiring competent sales and marketing staff, and also in the conceptualization of a new marketing strategy that aims to attract new staff and ensure their loyalty.
‘One main focus point I have is the need to build a brand. We have no strong brand, therefore we can easily be swept under the rug by bigger competitors who have a better name.’
Head of Corporate Strategy (HOCS)
Most of Nasim’s corporate strategy is focused on satisfying the customer so that they invite the company again for the next job. Installation and support services being offered makes it easier for Nasim to satisfy return customers. However, customer retention is believed to be a major problem. The new strategy is therefore to get customers to sign multi-year contracts that could secure Nasim’s future.
Most of the corporate marketing budget is being utilized in the delivery of occasional free support, follow-up visitations and also in the recruitment and training of support staff.
Head of Client Operations (HOCO)
Nasim provides support services, and these services are based mostly on customer retention. However, to retain customers, these customers must need the services that they are being retained for. Not all IT solutions that Nasim provides actually need support services. Therefore, there is a better opportunity in new customer acquisition, than in customer retention.
b. Resource based factors
i.Acquisition of firm owned resources
Head of Corporate Strategy (HOCS)
Nasim has a long-standing alliance with larger IT companies who provide the infrastructure being installed to client sites.
‘Without these alliances, we would not have anything to install or support’
Nasim has gained experience in the field of installing IT solutions and providing support services. They have developed notable client relationships with the firms that develop the solutions, that Nasim implements and installs for clients.
Brand development is not currently a major priority for Nasim.
‘We believe a brand is more useful when targeting end-users and not necessarily business-to-business sales.’
Head of Corporate Strategy (HOCS)
Staff recruitment process is basically centered on staff that can maintain installation services.
Head of Human Resources (HOHR)
Nasim consulting basically recruits for middle management positions, highly skilled positions and also support staff positions. The basic recruitment strategy in Nasim is to fill the basic need. The basic need is for support staff that can maintain client installations. These staffs usually have the knowledge of the installation being supported, but do not necessarily have any higher IT skills.
Most highly skilled staffs are employed on temporary contractual basis. Installation services that come in for highly skilled staff do not come in as often as services for support staff.
‘Therefore it would be unfeasible to hire full-time highly skilled staff where the frequency of finding work for them is not yet secured and where their pay is very high.’
When new contracts come in, vacancies are put out to agencies so they could find candidates that meet the skills requirement required for the installation. This strategy is deemed to be effective and saves the company from monthly salaries, benefit packages and training and development.
Once projects are done, temporary contracts are not renewed if there are no further pending contracts.
There is currently no laid out career path where junior staff can easily advance in their career. All staffs (temp and permanent) are encouraged to apply, in the advent that a senior or middle management role does become available. Competent applications are given the opportunity of an interview. This process has been utilized in recruiting a number of middle managers.
iii.Employee relationship and motivation
Head of Human Resources (HOHR)
High turnovers of employees are witnessed in the firm. Most of these staff are recruited on temporary basis and are not needed after a project has been completed. Permanent roles do not witness that much turnover. However, a number of middle managers and support staff have left to work for competitors.
There is currently no profit sharing scheme available to middle managers, highly skilled staff or support staff. The only income gotten from the organization is yearly income, and commission paid to sales staff.
A profit sharing scheme, initially proposed as a tool required to increase motivation and reduce staff turnover, was dismissed.
Focus Group, Support Staff (FGSS)
Most support staffs are working in the organization because of scarcity of other jobs in the market.
‘The truth is, given the current job climate; we are either working here in support, or out there looking for a job. I am happy I have a job.’
Focus Group, Highly Skilled Staff (FGHS)
Most highly skilled staffs see the job as a stepping-stone. Focus is not on job satisfaction, but on getting the job done, getting paid and finding the next job.
Temporary work in a small IT consultancy is not seen as a career move. There is no perceived career path. The aim is usually to complete the job and look for further opportunities.
‘…Due to the fact that I have a broad range of IT skills, I believe I would be wasting my potential by staying in a small firm like this. I would be more suited to a firm that has a long portfolio of clients which everyday challenges. I would be more suited in an organization where there is a larger work to do, and immediate resources with which to perform these tasks.’ – Participant 1.
The lack of organizational, marketing and sales strategy is cited as a reason why some highly skilled staff would not be interested in taking up full time offer. The lack of an explicit career path is also cited as a reason why highly skilled staff would not be interested in working in Nasim for full time roles.
iv.Employee training and development
Head of Human Resources (HOHR)
There is no official policy on the training and development of staff. Support staff once recruited, are trained further based on the specificity of the infrastructure being supported. Highly skilled staffs on temp work are usually given the adequate support they require to complete their projects.
‘All temp staff are primarily recruited based on their suitability for the role, therefore there is hardly ever any need to re-train them.’
Focus Group, Support Staff (FGSS)
Support work provides little opportunity for promotion. Staff turnover within the organization, does not permit them to stay long enough to be considered for promotion. Permanent vacancies advertised are often given off to applicants from bigger firms.
Nasim is a small organization and the only service being offered is installation and support; therefore opportunity for progression within, is low. In order to progress, most participants believe that a move would have to be made , out of the organization, into a larger firm.
Support staffs do not believe they are being provided with adequate training and development. The only training being offered is how to support client installations and how to act in client sites.
Participant 4 – ‘I once asked human resources for a sponsorship to study my CCNA examination and it was declined. They said that I had not worked with the organization for up to a year and that the company does not currently have available resources to sponsor individual education forays’
Head of Client Operations (HOCO)
‘Officially, I would state that service quality represents a core of our marketing strategy and that we intend to provide the best of services to all our clients. But realistically, I would confess that our service quality is archaic.’
‘Our main point of contact with these clients is through skilled temporary staff who want to get through with the job so they can start looking for another job and also through partially qualified support staff who are under trained and unmotivated. Therefore how exactly is service quality supposed to progress?’
There is currently budget for service quality. The only related budget is for the training of support staff. This training includes sessions where the staffs are advised on ways to deal with clients and adhere to client rules when at client sites.
‘They focus on retaining customers and selling support services but they do not teach the support staff how to cross-sell other installation services, neither are these support staffs motivated with any form of incentives incase they make a sale. Therefore what is the motivation to deliver service quality?’
The clients demand a high level of service. They expect to get value for money if they are to be committed to a one-year support contract. Support staffs are not adequately trained in the delivery of premium customer service to clients.
The aim of this study was initially to ascertain what resource based or market based factors were responsible for the poor performance in Nasim Consulting. The introduction and literature review pointed towards the fact that the performance may be as a result of the customer retention strategies the company was currently focusing on.
The following research question was therefore drafted, in order to ascertain the nature of this issue: ‘what resource based or market based factors are responsible for the success, or lack thereof, of business strategies in small IT consultancy firms. How can these factors be exploited in the development of sustainable competitive strategies?’
The main factors, based on the literature review, were therefore researched. These were the core factors on which the questions asked in the semi-structured and focus group interviews were based. The findings of the interviews, and also its relationship to existing theories would therefore be discussed in the following subchapters. A deductive analytical approach, as stated in the methodology chapter, would be utilized in the analysis. Analyzing the findings, based on their context in the literature review, would do this. The resource based and market based factors would first be analyzed, in a coherent way, and then possible ways in which Nasim could exploit these factors would be discussed afterwards.
b. Research discussion
Nasim’s low cost focus strategy has been described by the HOCS, as Nasim’s way of curbing the issue of customer retention. The intention is to target all available customers with low cost services. Their initial belief was that with low cost installation and support services, they would be able to attract a number of companies that are in dire need of IT solutions at affordable prices. However this strategy does not seem to be paying off, as they are not acquiring that many new customers and the customers they have served, are not repeating business as Nasim expects them to. This puts into question, the reliability of Nasim’s low cost focus strategy as a method of securing customers in IT consulting.
Porter (1996) asserts that for a company intending to be a low cost provider, the cost of each activity should be kept to a minimum, while still maintaining the threshold features that are required to compete effectively in the market. Miller and Dess (1993) also argue that in order to achieve cost leadership, firms must have achieved a relatively high market share, which requires capital investments in product R&D, manufacturing as well as aggressive marketing. Nasim does not currently have a large market share; neither does it have the resources to invest in product R&D or in aggressive marketing.
The competitive scope of the low cost focus strategy requires that any company pursuing such a strategy should focus on selected segments, group of segments, particular buyer groups or geographic market in the industry, by tailoring its strategy to serve them, thereby excluding others. Porter (2008) further asserts that a company can achieve and sustain focus strategies if it is able to develop a highly specialized expertise in satisfying a clearly defined group of customers. However, these arguments may not hold with respect to the current economic climate. Nasim’s high-end indirect competitors may be forced into price rivalry and therefore start competing on the same cost level as Nasim. Because of the economies of scale that these firms possess, they would be able to better service Nasim’s customers. Stonehouse et al, (2000) therefore argues that the low cost focus strategy does not lead to competitive advantage unless there is some form of differentiation.
A Possible strategy, which could be beneficial in retaining customers in such an industry, as discussed by the HOCS and FGHS, is outsourcing. Outsourcing involves multi-year contracts in which a large company outsources some or its entire IT department to an IT services firm, either locally or internationally. Outsourcing contracts involves the outsourced being reputable for delivering premium services; it also involves the outsourced acquiring all the required resources in order to emulate the services of the outsourcer.
Collis and Montgomery (2008) assert that good corporate strategy requires the continual assessment of the company’s scope, continuously evaluating how the company’s valuable resources may be upgraded or leveraged across changing markets. However the inability to upgrade or leverage core resources are two reasons why growth and diversification strategies are usually poor or unsuccessful in small companies.
Nasim may not be able to acquire the relevant resources, neither would it be able to leverage current resources. These limitations are due to its low-cost focus strategy, which is incompatible with the outsourcing industry. A change of generic strategy to achieve a ‘value focus’ status would require Nasim to employ competent staff, purchase required infrastructure and become a larger company. McGahan (2006) asserts that a merger with a similar firm, or acquisition by a larger firm, may be the most appropriate approach for a small firm trying to enter a larger market, provided it does not already have the resources to compete effectively in that market.
A value focus strategy would also be beneficial in the acquisition of new customers and retention of previous customers. By building value, through an effective marketing strategy and also through the acquisition of firm-owned resources, new customers would be attracted to an already established brand with an indigenous IT solution. Old customers would have a huge switching cost because the IT solution being provided to them is indigenous to Nasim consulting alone.
This customer driven strategy would therefore be concerned with meeting the needs of the Nasim’s actual and potential customers, and could result in delivering its major objectives, be it an increased customer base or profit (Hooley et al, 2004). Sustainable competitive advantage and long term profits could therefore only be achieved by attracting and retaining the right kind of customers (Doyle, 1997)
A successful marketing strategy, as illustrated by Doyle (1997), involves the selection and analysis of a profitable and sustainable market segment, the development of an appropriate marketing mix, marketing the right brand and retaining these customers through an effective use company resources. This marketing strategy should be built on an understanding of the changing organizational environment, and how each industrial force impacts value creation (Porter, 2008)
Nasim’s marketing strategy, as expressed by the HOCS and HOS, is based on the assumption that the major issue facing Nasim is customer retention. This explains why most of their marketing budget is currently being diverted towards the alienation of that perceived problem.
Nasim’s marketing strategy is not specifically targeted at any one market. They have a broad based segmentation that is designed to attract all those who wish to patronize Nasim. Levitt (2008) postulates that the importance of defining customers lies in developing strategies that target them correctly and in ensuring that competitors have been properly identified. An inability to accurately define this segment would lead to competitors stealing customers without the company realizing it until its too late. Therefore, in order to attract customers, Nasim needs to understand the market segment in which they intend to compete, and then modify their marketing strategy and competitive positioning to fully exploit the market opportunity (Weinclaw, 2008)
The inability to identify a customer segment and target it specifically can explain why Nasim has problems with the retention of old customers and also with the acquisition of new customers. They aim to please a broad market segment, but end up with just a few customers who are with them because of the low cost of their services. Market segmentation and positioning are strategic capabilities that give the organization the ability to identify alternative opportunities in appropriate market segments. Segments where the firm’s core competencies could be most efficiently utilized (McDonald, 2008)
A firm focusing on a particular generic strategy should know who their intended customer is (Porter, 2008). Therefore Nasim, intending to focus on its low cost strategy, should have a customer segment in mind. If they intend to concentrate on low cost services, then they should identify the forms of businesses that may prefer low cost services, acquire the necessarily resources to specifically target them, then build a brand image around installation and support of those services.
Hoffman (2006) asserts that firms engaged in customer retention work to satisfy customers with the intent of developing long-term relationships. Firms that mainly provide services to clients, are characterized by intense rivalry and minimal differentiation amongst competitors, therefore customer retention should be a leading strategy (Vavra, 1992). Dawkins and Reichheld (1990) also assert that increasing retention rate by 5% could increase the net present value of customers by up to 85%. However for the effectiveness of this strategy to be concentrated on, it must first be understood whether the customers are likely to be profitable return customers. Ahmed and Buttle (2001) assert that customer retention should be a very important business goal, as it has the potential for delivering substantial profits to firms in the long term. However, the choice of adapting a customer retention strategy is highly based on the product/service life cycle and customer’s buying behavior (Hooley et al, 2004).
The installation and support services industry has a low life cycle of one year for support services, and may not necessarily profit that much from customer retention, especially when the firm focuses on a low-cost focus strategy without any form of differentiation. The lack of viable efforts to attract new customers may result in Nasim losing income every time a customer’s contract terminates.
The HOCO believes that instead of focusing on customers who do not necessarily wish to be retained, a more suitable approach would be to focus on the acquisition of new customers. This notion has also been supported by the HOS. Berry and Parasuraman, (1991) support this notion, by arguing that the role of any firm’s marketing activities in the private sector, is to make profit, irrespective of how the sales are made. Therefore, an effective organization is one that is able to retain its customers and also acquire new customers. Fornell and Wernerfelt (1987) therefore assert that firms should emphasize their marketing resources on the retention of its most profitable customers, and also on the acquisition of new customers.
If Nasim generates 80% of its income from support services, which is not that profitable a service, then it illustrates that they may not necessarily be running a profitable business. More profitability lies in installation services that could provide increased cash flow and potential for growth. McDaniel (2006) therefore suggests that in order to initiate a CRM cycle, the company must learn who the customers are and where they are located. This information must be understood and used in the formulation of marketing strategies.
iv.Acquisition of firm owned resources
Collis and Montgomery (2008) state that a firm seeking to develop a sustainable competitive advantage could do so by investing in new resources, upgrading existing firm resources or leveraging existing resources in order to capture new markets.
Nasim, according to the HOCS, claims that apart from the long standing alliances with large IT companies that provide infrastructure, the firm does not currently own any indigenous firm based resources. A number of theorists (Prahalad and Hamel, 1994; Collis and Montgomery, 2008), suggest that for a firm to be able to compete effectively in any said market, the resources, upon which it intends to compete must be inimitable, durable, lack any direct threatening substitutes, have competitive superiority, have innovative capability, build on existing strengths of the organization and finally, it must be owned by the company and not the buyers, suppliers, distributors or any one particular employee.
The inability of Nasim to acquire indigenous firm owned resources, increases the threat posed by suppliers in that industry. McKiernan (2006) postulates that the supplier strength of an industry determines to a large extent the price and quality of the end product. It also defines the level at which a firm can differentiate its products from that of competitors (McGahan, 2000). Collis and Montgomery (2008) state that one of the main conditions for firms seeking to sustain competitive advantage in their industries is to have full ownership over their core competence. This would ensure that they maintain their competitive stance in the market. It also makes it harder for them to lose such a core competence through the transfer of relevant assets.
A major disadvantage is that if Nasim is totally dependent on its suppliers to provide IT infrastructure to install for clients, then this increases the switching cost for Nasim, as they cannot easily shift IT suppliers, however it reduces the shifting cost significantly for the buyers. The buyers can go to any other retailer offering a better price or deal and get the same infrastructure, as Nasim does not own it. And since the only reason for conducting business with Nasim initially, was mostly based on price, Nasim’s clients do not stand to lose anything by shifting.
This assumption has been expatiated by Collis and Montgomery (2008) who argued that the presence of an overwhelming buyer power in an industry could shift the value creation considerable towards the consumers and away from the industry players. Porter (2008) further asserts that the buyers could force down prices, demand better quality of products or services and could generally play industry participants against each other, all at the expense of industry profitability.
Firms should therefore aim to create value by designing corporate strategies in a way that it attracts and keeps these customers (McKiernan, 2006), thereby ensuring their brand loyalty and establishing a huge switching cost between the firm and its competitors (Porter, 2008).
The intensity of competitive rivalry in that industry could be calculated by ascertaining whether Nasim’s direct competitors are equally adapting a low cost strategy, investing in increasing their capacity (low cost differentiation) or increasing their value through branding and marketing (value differentiation). This would help quantify Nasim’s competitive stance, to see whether they could compete effectively by either increasing capacity or increasing value.
A company adopting a low-cost strategy should be able to protect its positioning with an effective low cost advantage (McKiernan, 2006). Low cost advantages are usually in the form of economies of scale in which the company can produce large amounts of products or services at reduced cost (McGahan, 2000). This advantage is essential in industries whereby there is intense price rivalry and the key factor for success is on being the provider of the cheapest services.
If Nasim were to only compete based on price without having a low cost advantage, then that reduces the switching cost for buyers and increases the intensive rivalry with its competitors. Bigger companies with more pronounced economy of scale, may attract Nasim’s customers because of a reputable brand, or an even lower cost.
Branding, as argued by Kotler (1997), is a very effective marketing tool, that could shift the competitive pressure of a company’s service away from price. The importance of branding in a firm’s marketing strategy is important in services that are indistinguishable from those of competitors (Zeithaml, 1988). Branding thus serves as the only factor which could help distinguish between services in a market, as the client would usually makes purchase decisions based on what they perceive about one product in relation to another (Kotler and Keller, 2009).
The lack of a recognizable brand image, though stated by the HOCS as not being a major priority, poses the greatest risk to Nasim’s future. The inability to compete on other factors apart from price is a huge threat that needs to be curbed before Nasim loses all its customers to competitors.
All results gathered with regards to the sales effort of the organization coheres with the fact that the company is currently neglecting efforts to acquire new customers, just so they could retain previous customers.
This strategy may be the reason why the sales of new installations has dropped to 60%, and 80% of turnover is as a result of support services being offered to previous clients. The 60% drop in sales could also be explained by Nasim’s mediocre marketing strategy in which most of the sales is primarily done through the Internet. Do large firms who intend to have installations go to the Internet to find low cost small IT firms to install for themOr do they seek firms with reputable dealings who can offer premium services at a moderate price?
This strategy may have worked out well in the past, maybe before the economic downturn. However, Ansoff (1984) warns that firms learning from successful models of its past could be a major obstacle in adapting to the changing organizational environment. Piercy (1997) also illustrates that detrimental effects could arise when firms continuously revisit outdated strategies as a method of developing responses to changing market situations. These arguments help emphasize the need for companies to respond to market change by continuously revising its strategies, thereby adopting a proactive approach to market opportunities and threats while still practicing reactive operational approaches to inevitable changes in its macro-environment and industry (Lynch, 2009).
Though Nasim specifically aims to maintain its customers, a marketing strategy, as defined earlier, with a defined positioning, brand image and dedicated sales staff would be sufficient enough to acquire new customers and also retain previous customers. The main point of the HOC, which was that clients only need IT infrastructure when they have the budget, or when a dire need has been aroused, should not be neglected. It may not be profitable to keep trying to retain customers who do not need the services being provided. The HOS is confident that with appropriate funding, a sales and marketing campaign could be devised. A campaign that focuses on the identification of Nasim’s true customers, retention of profitable customers, and also the development of a reputable brand.
A viable future approach may be that instead of focusing on support services for previous customers, efforts could be made to provide installation services to new customers.
This campaign, if formulated, should also take into account the service quality currently being delivered to clients. A reason why a low cost strategy may be unattractive to firms may be because of the quality of service received. Findings from the interview with the HOCO, illustrate that Nasim’s service quality is poor. There is a GAP between the customer’s service expectation and Nasim’s service delivery. This, according to Zeithaml et al, (2006) represents a GAP 2, in which management may be aware of critical customer expectations, however a variety of factors such as resource constraints, market conditions, management indifferent may prevent them from setting specifications or training relevant staff to meet those recommendations.
The main point of service delivery is through support staffs that have not been trained to deliver professional customer service to high-end firms. The lack of an appropriate level of service quality is unacceptable for most firms who outsource their IT infrastructure and also firms who bring in consultants to perform work on their systems. This could also be deemed a contributing factor to Nasim’s lackluster customer retention effort.
Another reason for the poor service quality lies in Nasim overpromising the clients of the service they can offer, especially when they do not have the resources to perform these tasks effectively. Zeithaml et al (2006) asserts that a GAP 4 is a situation whereby there is a difference between service quality promised, and service delivered. The inability of Nasim to deliver on perceived service expectations and also service promised, may also be attributed to its low cost focus strategy. This generic strategy, and the lack of a viable supporting differentiation, puts Nasim as a disadvantage when trying to acquire the resources required to deliver on promised quality.
Maund (2001) defines recruitment as a process of finding and employing individuals to carry out tasks that need to be done within the organization. Nasim’s recruitment strategy, as argued in prior subchapters, is aimed at satisfying its corporate strategy. So its recruitment strategy of hiring temporary highly skilled staff and permanent, low skilled support staff does correlate with its corporate strategy.
The recruitment of highly skilled staff might be considered by some to be an acquisition of firm owned resources. These staff could lend to the firm’s credibility and also strengthen their knowledge base. However, since they are only recruited on a temporary basis, then they are in no way owned by the organization.
Nasim’s strategy on employee recruitment does seem to be effective as it saves them a lot of cost. Hill (2008) postulates that an effective organization uses a strategic approach to recruitment and development of staff. The recruitment strategy is often linked to the overall corporate strategy in order to utilize staff as a sustained source of growth and competitive advantage. Fombrun and Devanna (1984) argue that organizations would find it difficult to implement strategy if they were not intertwined with an appropriate HRM policy.
However, Nasim’s strategy of employing staff mostly on temporary contracts has the side effect of de-motivating staff. Most of the FGSS claim to be at the job, because of the economy, in which they cannot get better jobs. The FGHS, also expatiated this stating explicitly that they would not like to take up full time offers, even if they were given the opportunity to.
A primary step, which the organization could use in the attainment of its organization goals, may be to start recruiting permanent highly skilled staff. This staffs are expensive, and therefore risky to the company’s cash flow. However, if this effort was combined with the marketing effort of targeting a niche market with specific indigenous services, then it could assist in enhancing Nasim’s reputation and eligibility to customers.
viii.Employee relationship and motivation
Armstrong (1999) defines employee relationships, as those relationships that exist between employers and employees in the work place. Maund (2001) further asserts that relationships between employers and employees are very crucial for organizations to be successful. Management should treat issues such as sensitivity and motivation in order to gain the loyalty and trust of employees (Armstrong, 1999)
According to the HOHR, there is low motivation amongst staff in Nasim; the lack of an organizational career path or recruitment strategy, like the other big IT consulting companies, may be possible reasons.
The high staff turnover could be easily related to the temporary contracts that most of incoming staffs sign up to. However Nasim has been unable to retain competent staff neither has it made any explicit effort to retain managers who leave to competitors. Is Nasim therefore focusing on retaining its customers, without putting that much effort on retaining its own staffIn organizations, especially start-ups and relatively small organizations, motivation of staff, though ignored in most cases, is important and represents the lifeline of the organization (Palmer, 2000); Companies usually ignore motivation, until one or more corporate functions are affected. Orlando, (2002) states that motivation is a seminal element of peak performance and improving both internal and external facts of motivation is an undeniably prerequisite for success.
The lack of appropriate motivational schemes within Nasim could also be a reason why this organization has failed to retain important staff. Palmer (2000) defines employee relationship as a relationship based on an implicit reciprocal agreement in which employees provide physical and labour in exchange for rewards supplied by employers.
According to Kessler and Undy, (1996), building a trustworthy relationship with the employees is important in achieving the objective of an organization and sustaining growth. Inexistent reward schemes in Nasim have resulted in a situation whereby most staffs working at Nasim, are only there because they cannot find a better job yet. This was uncovered with the FGSS. The FGHS also illustrated that they are only interested in working for Nasim because of the installation services they are providing and the added experience it gives them.
Most of the FGHS even professed to not being interested in full time job offers at Nasim if they were given the opportunity. That not only demonstrates how de-motivated these people are, it also expresses their attitude to Nasim as a business entity.
Motivation, as expressed by Maslow (1954), is therefore a driving force in every front of life, and it pretty much decides an employee’s approach to any given task. The level of an employee’s motivation therefore has a paramount impact on the organization (Maund, 2001). Likert (1967) therefore states that for an organization to achieve maximum profitability, they must make optimum use of their human assets. A strategy that Nasim has failed to develop and exploit.
ix.Employee training and development
Employee development and training has been deemed as an important factor that could facilitate the success of any organization (Armstrong, 1999). Accommodating this process of human asset development is essential, as it would aid organizations in getting the best of out their staff. Nasim does not currently offer any sort of training and development activities for staff, except those that are directly related to any project at hand. Therefore the likelihood of staff within Nasim being indebted to the company, after the company has paid for their learning, is therefore inexistent.
Maund (2001) also postulates that changing environments demand that employees within organizations be up to data on the skills and knowledge required to compete effectively in their industry. It is therefore important for management to provide adequate training programs and education to cater for these developments. The inability of Nasim to support, train and retain staff; also coheres with their inability to acquire resources that are indigenous to the firm alone. Therefore the threat of buyers, suppliers and competitive rivalry is therefore very high for Nasim.
In summary, all these factors do have a huge influence on the performance at Nasim. The most important being its low cost focus strategy. Relevant theories dictate that any firm pursuing a low-cost strategy should do so if it has an element of differentiation or if it has a low cost advantage. Both of which are inexistent at Nasim. Possible ways in which Nasim could exploit this shortcoming could by through the acquisition of firm based resources, which have the ability to shift its positioning into a narrow range, value strategy.
Nasim’s marketing strategy is based solely on customer retention. This marketing strategy, though understandable, is aiming for the right thing in the wrong market. Customer retention is not as profitable as customer acquisition in the IT consulting industry. Consulting companies get paid more for the installation of new services, than for single year support contracts. Therefore focusing solely on customer retention in this industry puts Nasim at risk of losing its potential customers to competitors. If Nasim therefore has no resources, focuses on customer retention of a few customers, competes on just price and only employs highly skilled staff for temporary jobs, then what is their competitive advantage?
Ways in which Nasim could effectively target a new customer segment and also aim to retain these customers are through effective brand marketing, acquisition of indigenous resources, improved service quality, a defined marketing strategy, and an improved human resource policy.
The motivation of staff within Nasim is perceived to be low. This was found out during the semi-structured and focus group interviews. The low motivation level is caused primarily by the lack of a viable career path, Nasim’s inability to provide training and development, the generic strategy being pursued by Nasim, and the firm’s recruitment strategy that focuses solely on temporary staff. This low motivation level results in the delivery of inferior service quality to customers, the lack of willingness for highly skilled staff to join the organization and also, the loss of important staff to competitors. Competitors that could provide all the services that Nasim currently fails to.
However, focusing on all these shortcomings, may be impossible as they require the investments of a huge amount of time and resources, therefore the following chapter would outline the most feasible and realistic recommendations, based on Nasim’s positioning, which could be exploited in the development of a sustainable competitive advantage within the industry.
Based on the discussions in the preceding chapter, the following recommendations have therefore been postulated for Nasim as a business entity and to Nasim, with reference to market research.
These recommendations would build up on the strength of the discussion in the prior chapter, and therefore aim to utilize the important factors, in the conceptualization of a sustainable competitive strategy for Nasim Consulting.
FINDINGS FROM INTERVIEWS
LITERATURE REVIEW EXTRACT
Nasim is currently adopting a low-cost focus strategy.
A company can achieve and sustain a focus strategy if it can develop a specialized expertise in satisfying a clearly defined group of customers (Porter, 2008)
A low cost focus strategy is not a viable strategy, given the intense rivalry and buying power in the industry. The creation of value may be a more effective approach.
Corporate strategy and marketing strategy currently emphasize customer retention
The choice of adopting a customer retention strategy is highly based on the product/service life cycle and customer’s buying behavior (Hooley et al, 2004)
There is more opportunity in acquisition of new customers, than there is in customer retention.
The only basis of competition and customer attraction is price
Firms should therefore aim to create value by designing corporate strategies in a way that it attracts and keeps these customers (McKiernan, 2006), thereby ensuring their brand loyalty and establishing a huge switching cost between the firm and its competitors (Porter, 2008).
Competing solely on price, in such an industry poses a great risk. Buyers can easily switch to competitors who have a cost advantage.
Support services generate 80% of all income. New installation and outsourcing get 10% each
Ansoff (1984) warns that firms learning from successful models of its past could be a major obstacle in adapting to the changing organizational environment. Piercy (1997) also illustrates that detrimental effects could arise when firms continuously revisit outdated strategies as a method of developing responses to changing market situations.
Prior to the economic downturn, there might have been success in the support sector, however the economic crisis showcases the need for the company to spread its market segment.
Nasim does not currently own any indigenous resource. IT solutions are owned by suppliers
Collis and Montgomery (2008) state that one of the main conditions for firms seeking to sustain competitive advantage in their industries is to have full ownership over their core competence. This would ensure that they maintain their competitive stance in the market
The acquisition of firm based resources would reduce the supplier strength and also increase switching cost for buyers. Thus increasing Nasim’s competitive stance.
Most employees are not motivated. High turnover rate and no clear career path
Orlando, (2002) states that motivation is a seminal element of peak performance. Improving both internal and external facts of motivation is an undeniable prerequisite for success.
There is a need for a change in HRM policy.
Brand development is not a priority. Marketing budget is for customer retention
Branding, as argued by Kotler (1997), is a very effective marketing tool, that could shift the competitive pressure of a company’s service away from price. The importance of branding in a firm’s marketing strategy is important in services that are indistinguishable from those of competitors (Zeithaml, 1988)
If Nasim intends to differentiate itself from competitors and make itself more attractive to prospective customers, then efforts should be made to build the brand image of Nasim, just so it communicates to everyone and attracts the desired market segment.
Staff trained only for support purposes. No training for staff development.
Employee development and training has been deemed as an important factor that could facilitate the success of any organization (Armstrong, 1999). Accommodating this process of human asset development is essential, as it would aid organizations in getting the best of out their staff
Training of staff is crucial to staff development. It provides motivation and also enhances the knowledge and ability of the staff.
Based on the literature review, research findings and the deductions in table *. These are my recommendations:
A new campaign, nicknamed Shift (for the purpose of this study), should be set into motion for the attainment of a narrow range value strategy. This entails the definition of a suitable market segment, the positioning and re-alignment of the firm’s resources to fit into that segment, and then the formulation of a marketing strategy to specifically communicate Nasim’s abilities to that market segment.
Once Shift is in motion and a viable customer segment has been identified, all the resources within the organization should be evaluated against the requirements for that industry (ies). Resources that are not needed, or whose specifications do not closely match should be discarded, while new resources could be acquired that could specifically target that segment.
Emphasis should be placed on the acquisition of new customers, in as much as the retention of old customers. This should be done by commissioning dedicated sales and marketing task force, this task force would be part of the Shift campaign, and would be dedicated to the acquisition of new customers.
Once the Shift campaign has identified its customer segment and also set up a sales task force, efforts should be made to develop bespoke services that specifically match the requirements of these customers. Bespoke services would result in the clients being dependent on Nasim, thereby increasing their shifting cost. It would also reduce the threat of suppliers within the industry.
Impetus should be placed on service quality. An effort should be made to train staff on Nasim’s attitude towards customers; this should be communicated to all support staff and highly skilled temporary staff working over at client installation sites.
Brand development should be a corporate priority. Without it, price is the only factor on which Nasim’s services would be judged.
A dedicated HR policy that focuses on employee motivation, reward systems, training and development should be put into action. Its major objective may be to recruit a number of competent highly skilled and support staff that would participate in the Shift campaign.
b. MARKET RESEARCH
Surveys should be carried out with all of Nasim’s staff, this should be done so as to confirm whether the lack of motivation amongst staff is truly common amongst all support staff and high skilled staff. The findings could assist Nasim in drafting human resource procedures to help tackle this issue.
Semi-structured interviews could be carried out with Nasim’s customers, both recent and former. In order to know why the present customers are staying, and why the former ones left. It would also be useful to ascertain the perception of customers to Nasim’s service delivery.
If Nasim intends to concentrate on its Shift campaign, then a survey should be carried out on a probability sample of all businesses in which Nasim could efficiently tailor its resources. A survey of this magnitude would put into account the needs of these customers and how Nasim could specifically target that need.
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