Strategy to improve revenue growth at GSG

Prepared by RSM Consultants

Radeshkumar BaboelalSunil Patil

Manuel PinerosGurkeerat Singh Virk

2

For revenue growth, target new segments and expand existing market through value addition to product offerings

GSGRepackage and modify products to meet changing customer needs

Improved relations with partners and ISVs

New Partners and

ISVs

Acquisitions enhance product and service portfolio

New brand image, satisfied customer and higher revenue growth leads to growth in shareholder value

Small businesses provide an untapped source of future growth.

US SB Market spending ($ billion)

378.3969%

170.0031%

Small & medium SegmentEnterprise

Newly acquired companies work in conjunction with partners and ISVs to provide better service

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2005 Q4 2006 2007 2008 2009

Time line

Revenue (in $ million)

Better products and customer services lead to customer delight

Happy customers = Higher revenues

Partners and ISVs

Repositioning through marketing

Develop sales strategy to directly cater to small businesses

3

Low revenue growth due to industry slowdown and strategy issues. Turnaround will require re-defining markets and business processes

• Slowdown in the US market due to Internet bubble burst, growth emerging from overseas markets

• Reduction in IT spending by the enterprise segment due to saturation

• Customer requirements for solution and servicing support are not addressed adequately by product driven strategy

• Sales approach focused on “license pushing”, lack of support for channel partners

• Industry expertise limited to few verticals, limited partner support

• Lack of identification and development of new market segments

Problems Solutions

• Improve revenue generation from the US market, sustain growth momentum in overseas markets

• Identify gaps in the market and provide solutions to consolidate market leadership

• Integrate customer feedback to provide solutions relevant to the business. Move from product focus to more solution support

• More responsibility sharing with channel partners, combined with system of incentives

• Optimize customer support through partner relationship management

• Segment and penetrate the small business market with a spillover on mid size markets

Key Issues

Focus on growth through solution oriented sales and by targeting small businesses

4Organic growth through value added product offerings to existing customer segments and inorganic growth through development of small business segment

Key Issues

Based on strengths of GSG, two distinct dimensions are identified as providing maximum growth potential opportunities

Growth dimension 2:Provide value added

products

Revenue growth will determine shareholder value growth

Enterprise

Mid-market

The mid-market segment is best addressed through mix of best practice strategies employed for both enterprise and small business market segments

The mid-market segment is best addressed through mix of best practice strategies employed for both enterprise and small business market segments

Small businessGrowth dimension 1:

Target untapped small business segment

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Exploiting small business segment will require focus on specific industry verticals and development of new channels

Enterprise

Mid-market

Small business

Small business segment has attractive potential:- High aggregate demand

- Not targeted by other players in the market

• Identify high potential industry verticals for effective targeting

• Develop channels to promote products directly to small business segment to increase distribution reach

Targeting specific industry verticals leads to focused approach and expertise development Demarcation of size of firms to target, prevents direct involvement in selling to small firms and avoids conflict with

channel partners

Small business (SB) segment accounts for 31% of total US business IT expenditure US SB segment spent $170 billion on IT in 2004 US SB segment is expected to spend more than $215 billion on IT products, services and personnel by 2008

The challenges in the segment are

Lack of expertise in selling to this segment, traditionally

the domain of channel partners

Too wide spread due to extremely large number of

businesses

• Demarcation of firms to be targeted by GSG sales representatives and channel partners

• Promote products directly to small business segment to decrease leakage of margins to channel partners

Key IssuesSmall business segment

6Six high potential industry verticals identified for phased targeting in small business segment to cope with segment complexity and develop expertise

• High potential industry verticals identified based on average IT spend and average size of firms• Targeting specific industry verticals dilutes risk of unfocused sales approach• Phased development of products to target specific industry verticals is recommended to build industry expertise• GSG sales representatives solely responsible for small businesses with more than 10 employees or with an annual turnover of more than 10million USD

Industry focused approach in small business segment mitigates risks emanating from, (a) large number of firms and (b) diversity of industries and functions

Industry categoriesNo. of businesses

(thousands)No. of employees

(millions)Estimated IT spend

(billion $USD)

Estimated average no. of employees per business firm

Estimated average IT spend per

business firm (USD)

Agriculture and resources 967 3.2 1.1 3.3 1138

Manufacturing 483 8 7.3 16.6 15114

Construction 1040 3.6 1.8 3.5 1731

Transportation 460 3.3 3 7.2 6522

Telecom and utilities 69 2.4 3.3 34.8 47826

Distribution (Wholesale) 612 2.5 5.1 4.1 8333

Distri (Retail) 1119 4.9 5.9 4.4 5273

Financial services (Finance & Insurance) 566 2.5 6.9 4.4 12191

Financial services (Real estate, etc) 460 0.8 1.5 1.7 3261

Business services 1538 6.3 7.6 4.1 4941

Food and accomodation 414 3.5 3.3 8.5 7971

Other services 737 3.5 1.8 4.7 2442

Government 39 0.8 0.5 20.5 12821

Education 69 1.4 0.6 20.3 8696

Healthcare 428 4.3 3.8 10.0 8879Total small business segment 9000 51 53.5 5.7 5944

Key IssuesSmall business segment

7

Change sales channel strategy to take products directly to small business customers

Sales channels

Websites: Create sites capable of selling software products, providing support and receiving customer feedback

Independent Software Vendors (ISV’s): Increase sales network through new contracts with industry specific ISV’s

Phone: Provide sales and support through 1-800 phone numbers

Retail: Undertake contracts with retailers like CompUsa, Best Buy, Media Mart, Circuit City, etc.

Customer Incentives - Offer higher discounts on direct orders from website or by phone, than through channel partners- Offer discounts on buying more than one product per transaction

Promotional campaigns- Use advertising to increase awareness of GSG’s redefined approach and new channel strategy- Leverage brand equity in enterprise segments to sell products in small business segment- Links on other websites and non-competing companies Google, Yahoo, MSN, etc

GSG has to improve visibility and increase channels through which prospective customers can procure products directly, minimizing leakage of margins to channel partners

Considering size and spread of small business market and heavy trade margins for channel partners, there is incentive to promote products directly to small business customers

Develop new sales channels to target small business customers. Support these channels through promotional campaigns and customer incentives

Clear definition of roles of various channels and partners to safeguard against future conflict of interests

Sales channels

Contributes to more visibility in eyes of shareholders, affecting increase in market cap

Key IssuesSmall business segment

8

Change marketing strategy for existing market segments, move towards providing solutions and value added product offerings

Enterprise

Mid-market

Enterprise segment is the source of largest chunk of revenues, in spite of low growth potential

Focus on providing the enterprise customers with value addition in terms of superior customer service

Set-up dedicated account teams with expertise along industry verticals to service enterprise customers

Small business

• Value added services are critical to differentiate product offerings

• Acquire or set up joint ventures with smaller companies to enhance servicing capabilities

• Identify gaps in market for future product development

Focus on moving away from product oriented approach to add value to differentiate product offers

The challenges in the segment are

Lack of integration and customization of products

to match customer requirements

Saturated market segment with undifferentiated

products

• Simplicity in integrating GSG products with customer business environment is crucial to generate dependencies

• Leverage existing strengths in enterprise industry verticals such as financial services, to penetrate other segments of the enterprise industry

Sales channels

Key IssuesSmall business segment

Enterprise segment

9

Leverage market leadership to further penetrate business solutions segment, while restructuring existing market standard products

• Develop stripped versions of products, coupled with optional modules in order to meet price/functionality requirements of divers customer segments

• Evaluate existing product portfolio to identify complementarities and create product bundles

• Develop industry specific solution suites to target small business segment meeting overall company requirements

• Provide out-of-the-box solutions to reduce implementation and integration costs

• Bundling allows to sell at reduced prices to small customers

Generic products Solution suites

• Evaluate threats from industry entrants to maintain product leadership position in generic products and identify opportunities in solutions market

• Research customer needs to identify trends and develop functionality accordingly

Enhanced features, redesigned product structure and customer driven development secure current market participation and allow penetration of the small business segment

ProductsSales channels

Key IssuesSmall business segment

Enterprise segment

10

Realign company structure to expand market coverage and capture growing business solutions market

• Create matrix structure with industry verticals and product horizontals to match customer needs and solutions provided

• Acquire specialized services firms to increase in-house industry specific knowledge

• Create a Professional Services group within the organization to develop and support relationship alignment by industry segment

• Align with industry specific partners that target small and midsize businesses

• Partners complement GSG’s market coverage by targeting businesses with under 10 employees

• Create an incentives program to improve partner relations

- Incentives for prioritizing GSG products

- Reward partners for customer support

Develop new business solutions through joint ventures with partners to drive value of product offering, improve partners knowledge of GSG products and build long-term relationships

GSG Partners

Company Structure

Sales channels

Key IssuesSmall business segment

Enterprise segment

11Increased industry specific knowledge and matrix based support structure help resolve customer and partner problems reducing time and effort required to deliver solutions

Support

• Develop new Professional Services (PS) teams with industry specific knowledge to implement and integrate business solutions

• Divide PS teams along customer segments complementing sales efforts

• PS teams work hand in hand with account teams.

• PS specialized in customer segments attain increased knowledge reducing resolution time

• Specialized partners that have knowledge and experience in specific industries

Partners

Enterprise

Mid-market

Small business

GSG

PS Enterprise

PS Medium and Small Business coupled with acquired businesses

PS specialized along industry verticals

Company Structure

Sales channels

Key IssuesSmall business segment

Enterprise segment

Acquisition of industry specific service companies contributes resources, business knowledge, and sales and marketing network

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Small andConsumer

Mid-Market

Enterprise

Capturing only 1% of the $215bn small segment IT market in 4 years leads to an annual revenue growth rate of 16% …

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PP

UDS

BSS

BIS

Revenue growth from untapped market segments will reduce dependency on enterprise segment and reshuffle contribution from product groups

New added value provided to clients via customized solutions helps GSG neutralize threats from potential competitors, secure market leadership and increase capital investment in product development

Financials

Projected Revenue Growth by Product Group ($MM)

Projected Revenue Growth by Customer Segments ($MM)

SupportCompany Structure

Sales channels

Key IssuesSmall business segment

Enterprise segment

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… A more aggressive strategy will allow GSG to capture a market share of 4%, resulting in CAGR of 37%

Comparitive Growth With Respect to market share in Small segment

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1 2 3 4 5Time Frame (in years)

US

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nu

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$m

Current Situation 1% Market Share 4% Market ShareEstimated net cash flow based on annual net investment of $500

millions and 20% profit margins

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2005 Q4 2006 2007 2008 2009

Time

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illi

on

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Investment Profits Net Cash Flow

Total revenue represents projected growth in products and solutions segments, across all customer segments.

CAGR 37%

Steady revenue growth will positively impact stock price.

FinancialsSupportCompany Structure

Sales channels

Key IssuesSmall business segment

Enterprise segment

14

The new strategy requires detailed implementation - GSG needs a schedule that allows a progressive penetration of new segments

Schedule

2005 - Q42006 2007 2008

1st half 2nd half 1st half 2nd half 1st half 2nd half

CUSTOMER SEGMENTS

Identify profitable small and medium business market segments  

  Target Financial, Manufacturing and Telecom industry segments

 

Target Government, Education and Healthcare industry segments

Target small businesses with less than 10 employees through partners

PRODUCTS

Analyze product portfolio, identify redundancies  

 

Develop prepackaged industry specific suites and keep updating the packages

Repackage and bundle products, create stripped down versions to target small and medium businesses

SALES, MARKETING

AND SUPPORT

Sales and marketing team focus on industry and market segments and provide feedback to products management about customer and industry needs

Set-up Professional Services Group  

 Professional Services Enterprise (PSE) teams support industry specific customers

Professional Services Small and Medium (PSSM) teams support industry specific customers

PARTNERS AND

CHANNELS

Identify potential acquisition targets to gain access to new markets

 

Acquire services companies  

Identify new channel partners and ISVs to improve sales

 

Create alliances with new channel partners and ISVs

COMPANY CULTURE

Educate employees about shift in focus from product to solutions

FinancialsSupportCompany Structure

Sales channels

Key IssuesSmall business segment

Enterprise segment

15

Success of the proposed strategy is dependent on careful consideration of a few critical issues

Threat Analysis

• Sales channel partners may not provide expected support

• Acquisition and subsequent integration of other companies may take longer than expected

• Competitors may copy strategy to target the small and medium businesses

• Diversity in small business firms within an industry vertical may result in products not aligned to customer expectations

• Possible internal resistance against move towards a solutions focused strategy due to strong product driven culture

Threats Solutions

• Introduce a system of regular feedback from end customers and share it with channel partners

• Implement another system of two way feedback with channel partners to prevent problems

• Acquisitions should focus on complementing market knowledge and skill set instead of size and revenue

• High visibility advertising campaign to build brand awareness and incentive programs to foster customer loyalty can pre-empt competitive pressure

• Thorough research should be undertaken to develop products addressing wide range of requirements within target industry verticals

• Top management within organization has to reach consensus and act strongly to implement business strategy requirements

ScheduleFinancialsSupportCompany Structure

Sales channels

Key IssuesSmall business segment

Enterprise segment