Strategic Management

Abstract

Sage is a United Kingdom based company that offers an enterprise resource management platform (ERP) targeted to small and medium businesses (SMB). Using the strategy canvas, the Sage offering is compared to three of its competitors, Oracle, Netsuite, SAP, and Microsoft Dynamics NAV. The comparison is based on the user adoption, customization, price, customer service, design layout, convenience, and features. The Buyer’s Utility map is used to analyze the six phases of the buyer experience cycle against the six utility levers controlled by Sage. This uncovered blocks to utility in the delivery and use stage. Two strategies are suggested to overcome blocks to utility with the most customer impact to create a blue ocean strategy. As part of the strategic sequence for developing the strategy, the three tiers of Sage’s noncustomers are identified.

Table of Contents

Introduction …………………………………………………………………………………..…04

Strategy Canvas ……………………………………………………………………………...… 04

Buyer Utility Map ……………………………………………………………………………... 06

Uncover Blocks ………………………………………………………………………………... 08

Three Tiers of Noncustomers ………………………………………………………………….. 11

References …………………………………………………………………………………...… 14

Apprendix A – Strategy Canvas …………………..…………………………………………… 17

Appendix B – Buyer Utility Map …………………………………………………………….... 19

Introduction

The company we have chosen for the Strategic Plan Project is Sage software with competitors being NetSuite Oracle, SAP, and Microsoft Dynamics NAV. Sage is a simple yet powerful software provider offering a versatile array of performance functions for a range of business owners in need of basic accounting solutions with anytime, anywhere access. Sage offers a variety of accounting features, including cash, spend, and tax management, accounts payable, accounts receivable, billing and invoicing, etc. (Capterra, 2017). NetSuite Oracle is a cloud accounting software that reduces financial costs, saves IT costs, gains daily cash balance visibility, and real-time visibility across the business with a variety of accounting features, including payroll, project accounting, revenue recognition, fixed asset management, etc. (NetSuite, 2017).

SAP software is identified as a more comprehensive financial management solution extending over a range of industries, mostly within more complex businesses. The SAP software addresses a variety of financial functions such as working capital management, regulatory compliance, core accounting, etc. The software offers accounting features, including fixed and tax management, accounts payable and receivable, and general ledger (Capterra, 2017). Lastly, Microsoft Dynamics NAV is a software offering specialized functionality for manufacturing, distribution, government, retail, and other industries. Microsoft Dynamics NAV features include accounting management, dashboard, financial management, purchasing, etc. (Capterra, 2017).

Strategy Canvas Explained

The strategy canvas serves as a diagnostic and action framework for the benefit of building a compelling and successful blue ocean strategy (Kim & Mauborge, 2005). The strategy canvas visually captures the current condition of the company based on identified factors within the market place that have an impact on the success of the company (Kim & Mauborge, 2005). Furthermore, these factors are used to formulate strategies to improve the desired company with the potential to enhance current conditions and reach towards a competitive advantage. The identified factors for this subject include user adoption, customization, price, customer service, design layout, convenience, and features, each of which have a direct correlation to the performance rating of the software.

User adoption is a strong motivator for an individual’s desire to preference one software over another. Based on the strategy canvas results, it is evident that user adoption is a potential feature which may need to be considered for improvements to ensure Sage is offering the best software possible. Customization is feature that most companies consider essentially to financial management as most companies perform a variety of tasks that require data input in an easy to customize, access software database. Given the data from the strategy canvas, the customization feature has significant room for improvement.

Price and customer service are at an advantage when compared to the competition, however; adjustments are always available to further progress the advantage. Sage is the most affordable software at less than $30 for the starting price when compared to Microsoft Dynamics NAV at over $1,000 for the starting price (Capterra, 2017). Design layout and convenience go together when searching for a software to utilize. Sage’s current condition suggests a good position within both factors with a slight advantage when compared to the competition, but has potential for improvement. Lastly, features are easily one of the most important factors to consider when evaluating a company’s current position. Sage possess a significant number of features available to customers, however; when compared to the competition lacks in certain aspects. A software requires a versatile set of features to be available to mimic the variety of tasks performed by a company in any given day.

Buyer Utility Map

Companies must continuously strive to improve their product or services to remain competitive and companies must innovate to achieve sustainability. Focusing on price and incremental features does not provide substantial growth opportunities. Companies must seek a blue ocean strategy with a product or service that has high utility, creates demand, and is in a new market. The first step in the sequence to build a blue ocean strategy is to complete the buyer utility map. This map outlines if your product or service provides exceptional utility. This step helps to identify if the product or service provides a compelling offering for your target market (Kim & Mauborgne, 2005).

The buyer utility map is based on the six phases of the buyer’s experience cycle: purchase, delivery, use, supplements, maintence, and disposal. For each of these phases, the map depicts six utility levers that a company can influence to create demand: customer productivity, simplicity, convenience, risk, fun and image, and environmental friendliness. Using this map, companies can create product or services that will create exceptional customer utility. The goal is not to incrementally improve the buyer experience, but rather to identify current industry blockers that provide opportunities for blue ocean strategies. The map which identifies levers that can be changed to provide exceptional utility to create demand. (Kim & Mauborgne, 2005).

Sage Buyer Utility Map

The Sage Buyer Utility Map (see Appendix B Sage Utility Map) outlines that while the company has high quality products and services, there are blocks to utility. A well implemented Sage ERP instance increases customer productivity. Because Sage offers both software as a service (Saas) and cloud offerings for small and medium businesses (SMB), it is inexpensive compared to competitors, is easy to implement, and requires no hardware or hosting costs. The company excels at customer productivity, simplicity, and convenience across the buyer experience cycle. However; it is important for Sage to examine the blocks to buyer utility to attract noncustomers (Kim & Mauborgne, 2005).

The blocks to utility of Sage Software for its ERP systems are not unique to Sage. ERP software solutions, whether off the shelf or highly customized, are expensive and time consuming to implement and a have high risk of failure. According to Alkakimi and Alzahary (2015), “There are two major obstacles to an ERP system adaptation decision; the huge magnitude of costs and the high failure rate” (p. 57). In the purchase phase, the blocks to utility for Sage are that ERP systems are big investments, the process of purchasing the right system is time consuming, and the risk of failure if the wrong system is selected is high. In the delivery phase, Sage has blocks in that employees are often threatened by ERP implementations and the negative impact the changes may have on their jobs cause blocks. In addition, the delivery phase has blocks because the minimal off the shelf allowable customization allowed by their software prevents some customers from achieving success with the product.

In the use phase, customers can only achieve increased productivity if the system is implemented, adopted, and used correctly. Adoption and use can be sabotaged by employees that are threatened by the new system. In the supplements phase, customers need integrations with their other business systems to achieve the full benefits of an ERP. Sage has blocks to utility in that has a limited number of supported integrations with other systems and the customization required for the customer to integrate the application themselves is not allowed. In the maintenance phase, customers experience blocks to utility because upgrades to the application can cause a disruption of service or can break their application instance. In the disposal phase, customers experience blocks to utility because the switching costs to change to another ERP provider are high. Disposing of an ERP system can potentially cause downtime and data loss while moving to a new provider and implementing and training employees on a new system are time consuming.

Across all the phases of the buyer experience cycle, the fun and image of an ERP purchase is not pleasant. While it can greatly increase productivity when implemented correctly, it is expensive, time consuming, and has the potential to fail. Customers seek to minimize the possibility for failure for their implementation during their entire buyer experience cycle as failure can be detrimental to the business as the ERP supports core business processes (Alkakimi & Alzahary, 2015)

Removing Blocks to Utility

As stated by Kim and Mauborge (2005), “The greatest blocks to utility often represent the greatest and most pressing opportunities to unlock exceptional value” (p. 122). Blocks to utility are what prevent both customers and noncustomers from receiving exceptional value from a company’s goods or services. To convert noncustomers to customers, the company must eliminate these blocks. The goal is to create differentiating value from competitors. If removing the blocks to utility only makes the offering the same as competitors, a blue ocean strategy has not been achieved. The strategic goal for a company is to remove both their own blocks to utility and to eliminate those faced by their competitors (Kim & Mauborge, 2005).

Employee Acceptance

ERP implementations change how an organization operates. Implementation failure is frequently caused by employee resistance to change. When an organization implements an ERP system, it changes how employees do their job. According to Shang (2012), “The real reason for resistance is users’ perceived values and social content gain or loss before and after system implementation” (p. 911). During the implementation, employees that are uncertain of the impact of the ERP system will have on their job are more likely to sabotage the implementation. For an implementation to succeed, the ERP system must be accepted and used by employees (Alkakimi & Alzahary, 2015).

According to Shang (2012), “An effective strategy for managing employee resistance is to involve employees in the change processes to encourage a feeling of ownership, providing employees with information regarding system change and opening two-way communications” (p. 913). Employees who participate in the process have a sense of ownership of the system and are more likely to accept the new system (Shang, 2012). Sage’s opportunity for blue ocean is to develop an implementation process that is based on collaboration.

The ERP system should include mechanisms to collect user criteria, allow users to sketch on workflows, provide mechanisms for feedback, and conduct user acceptance testing. Rather than requiring customers to hire a consultant who knows very little of the day to day job tasks inside the company to implement the ERP system, the system should take input from all the stakeholders and users of the system and develop a data scheme and workflow to support the organization.

The implementation would not be limited to just those in the implementation project team, but the entire company could participate because the system would guide all users to provide input to then build the data structure and processes. The system would be a series of decision support systems and would utilize artificial intelligence to understand the organization’s needs. Because the system is designed by the users, the users are invested in the success of the system (Shang, 2012).

SMB Customization

Small and medium sized business are more likely to license off the shelf ERP systems. ERPs targeted at SMBs are less sophisticated than ERPs targeted at large enterprises (LE). SMB ERPs are less expensive and less time consuming to implement. The less sophisticated solutions, including Sage, provide less control of the application. LE options can be highly customized but this customization is expensive and time consuming. Many small and medium businesses (SMB) have niche processes that are part of their value proposition that are not provided in the off the shelf solutions and this would be considered a block to utility for ERP systems in the SMB market, including Sage.

SMBs who business processes do not match the off the shelf ERP must either change their business processes to match the ERP, create a workaround in the ERP, or attempt to customize the application. Many times, it is ideal for an organization to modify their processes to the ERP as the ERP guidelines are often considered best practices. However, if the organization’s unique processes are part of their value proposition, it is unacceptable to modify their process or to attempt a workaround in the ERP (Beijsterveld & Groenendaal, 2016).

According to Beijsterveld & Groenendaal (2016), “SMEs have fewer resources, SMEs have limited information technology (IT) expertise and SMEs acquire their strength from being unique” (p. 26). The closer an organization’s processes match their ERP implementation, the more likely the implementation will be successful. While Sage does provide some customization in its off the shelf offering, it could achieve blue ocean strategy by allowing more customization of the structure of the ERP. More customization options provided by more configuration settings and more process changes with easily modifiable plugins. A software as a service (SaaS) ERP offering that had the ease of use of vanilla WordPress instance, but was highly configurable for each customer instance with process and feature plugins to expand the software’s capabilities would be easy for the SMB market to tailor to their business processes. If the ERP allowed more customization without requiring software development to modify the base structure of the ERP, it would be more valuable to the SMB market (Beijsterveld & Groenendaal, 2016).

The Three (3) Tiers of Noncustomers

There are several principles applied to The Blue Ocean Strategy, and one of them is precisely “reach beyond existing demand” (Kim & Maugorgne, 2005). What does this mean? Most of the time organizations focus on retaining their current and existing customers, and their differences, allowing the creation of new market segments. Focusing in those differences will not deliver the expected result, which is reaching untapped demand (that comes accompanied of higher levels of profitability), but instead, organizations should focus on noncustomers, which is the group that could potentially yield far greater returns, and the commonalities between what customers value and on de-segmentation of its market.

Sage does not escape from this, and as any company, is driving its efforts towards the creation of a blue ocean. For this, Kim and Maugorgne developed a tool to reach noncustomers called the three tiers of noncustomers, and these differ from their relative distance from the actual market of an organization.

First-Tier Noncustomers

This group represent those customers that are Sage clients, but that are constantly looking for better, smarter, and cheaper options in the market. Even though they are Sage clients, they are considered noncustomers, because it is a group that might leave or go with any of their competitors at any given time. These are customers that sit on the edge of the market, causing the market to become stagnant, and develops market growth problems, as the number of these customers increases. The first-tier customers represent an ocean of untapped demand waiting to be released. The truth is, Sage has been able to hold on to an important group of customers, mostly in the United Kingdom and Europe, thanks to their marketing strategies, and their small business, startup focus. Continued research and innovation, will be the key for Sage in the years to come.

Second-Tier Noncustomers

Sage came not long ago introduced a cloud system proposal to the market, showing that the company is willing to keep up with the technological trends that their competitors are following. This fits into a niche or group that believes that cloud computing is the future. A clear example, we have SAP as one of the leaders in this field. But Sage has only been able to offer this new service/product in the market, thanks to a partnership with a third-party company. This doesn’t give much reliability to the company, keeping those potential customers in the second tier one step away from becoming their clients.

It is important to understand that in the technological world things change very quickly, and it is not only important, as a company, to keep up, but also, to build trust and have loyal customers. At this point Sage might be a great option, but due their introduction of the product late into the market, might raise concerns into the group of businesses that are interested in this technology. Some of these potential customers, might be convinced that Sage is a great and affordable option, but a contract with a different company, or just the fact of knowing that this is company that is fighting to have a strong position in the market, or that they don’t like the company, might be setting them one step away from becoming part of their market.

Third-Tier Noncustomers

This Tier is represented by those noncustomers that are positioned the farthest away from an industry’s existing customers. These are customers that have not been considered potential customers, or that have not been targeted, by any of the companies under the same industry. It was mentioned before that Sage has an important presence in the United Kingdom, and still needs to improve and try to reach these third-tier customers. But, it even has more room to explore and create blue oceans for markets outside the United Kingdom, where other competitors have been settled as the leaders. The software industry has no hard-and-fast rule on suggesting which type of markets, or customers, an organization should focus on. As Sage is targeting SMB with their products/services, reaching to other industries and startups across the globe can open a wide range of business possibilities. The idea is to expand the scope, expand the reach, look for commonalities, even across all three tiers, to open the possibility to create a blue ocean. And as it is stated by Kim and Maugorgne, always “Go or the Biggest Catchment”.References

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Appendix A

Strategy Canvas

Appendix A

Strategy Canvas

Appendix B

Sage Buyer Utility Map