What is a Strategic Window?
The term strategic window is the limited periods during which the “fit” between the key requirements of a market and the particular competencies of a company competing in that market is optimal. In this article we will use the case of VXL Instrument to elaborate the concept.
What is VXL’s business?
VXL Instruments enables companies around the world to build a flexible, secure, manageable and cost-effective IT infrastructure. Its range of thin client devices help businesses beat the desktop obsolescence cycle, free up internal resources from non-productive functions, and save millions of dollars spent protecting systems. The thin client is a server-centric computing model in which application software, data, and CPU power reside on a network server rather than on the client computer. VXL Instruments won the “Highest TI Hardware Exporter Award in Non-SSI Category” for year 2006-2007.
The VXL Dilemma
VXL Instruments is a leading manufacturer of thin client devices and has an 11% share of the global market. Its largest share of sales comes from export to the US and the EU. The company is trying to explore a new market in India for its thin client devices. Competitors like Wyse and HP offer a wide range of products not only in the west but also in India. Therefore, it is high time that the company started thinking about the Indian market.
How to trade TC in India?
The company’s products such as the TC23xx and TC73xx are reliable and cost-effective. The TC (thin client) can help eradicate various pains in server-based computing. It is very useful in the case of SMEs (Small and Medium Enterprises) where the IT requirements are quite specific. In the case of sectors like hospitality, we need to explore various features to unlock value so that they can charge a premium. The main challenges are the following:
1. How to provide maximum utility without making the product too complex?
2. How to convince existing clients to switch from thick clients to thin clients?
3. How to trade TC in India?
Actually, the answer to the third question will give us a framework for finding the answers to the first two questions.
I will consider VXL as a company that takes minimal risks. It is more focused on the product than on the customer. So their products are world class, but the market penetration is not that impressive. VXL currently markets its products through customer interaction and third party distributors such as Priya Limited. This approach reduces marketing expenses, but the approach has its own limitations.
In 2005, Mumbai-based dealer Priya Ltd invested $2 million (about Rs 10 crore) in shares in VXL Instruments. The investment was part of the trade finance deal that gave VXL $9 million (around Rs 45 crore) earmarked to finance its growth.
VXL outlined expansion plans and a growth strategy with a view to increasing its thin client market share to 25 percent by 2007-2008. He has dabbled in different verticals like ERP, Healthcare, Telecom, Education and Banking with a client list that includes SAP Belgium, Birmingham City Hospital UK, DOT India, British Telecom, IIM Lucknow, IIT Roorkie, Haga Bank Jakarta and HDFC India etc. . But currently its market share is well below its target.
Product knowledge and customer perception
We can roughly divide clients into two categories:
* Tech-savvy customers with financial muscle: These types of customers already know the products (TC) and we need to convince them that the thin client is a better option than the thick client. For example, the upcoming Velankani group 5-star hotel in Electronic City, Bangalore. The Velankani are in IT and infrastructure and are knowledgeable about technology and its implementation. According to Mr. R. Shiva Kumar (Information System Manager, Velankani), it is best to approach such customers when the product is in its embryonic stage. Once they acquire FCs for their project, they won’t be interested in TCs due to the cost of switching. Here we need to market TC as a device that will not only lower the total cost of ownership, but also provide a simple solution for all comfort requirements.
* Less technically savvy with mid-range investment capabilities – These types of clients don’t have their own IT department. They usually play it safe and go with the thick client technology used by other players in their segment. In addition, they consider that their computing needs are minimal and do not find IT investments attractive. Here, we need to educate them on the various advantages of server based computing and the advantage of TC over FC. These types of companies need to be addressed to provide a total solution.
Market Redefinition
Often, as markets evolve, the fundamental definition of the market changes in ways that increasingly disqualify some competitors while providing opportunities for others. The trend toward “system” marketing of products as opposed to the individual piece of equipment provides many examples of this phenomenon. We will discuss this point with the help of the Docutel case.
Docutel – This automated teller machine (ATM) manufacturer supplied virtually all ATMs in the US until the end of 1974. In early 1975, Docutel found itself losing market share to large computer companies such as Burroughs, Honeywell and IBM when these manufacturers started to look at the total EFTS (Electronic Funds Transfer System) needs of banks. They offered the bank an equipment package that represented a complete system of which the ATM was only one component. In essence, their success can be attributed to the fact that they redefined the market in a way that seemed to increasingly disqualify Docutel as a potential supplier.
Conclusion
The redefinition of the market is not just limited to the banking industry; Similar trends are underway in scientific instrumentation (steel, cement, and aluminum industries), process control equipment (Siemens, Vesuvius, and SMS redefined the market); the machine tool industry, office and home equipment (VXL is already a player) and electronic control equipment as some of the other examples. In each case, manufacturers who base their focus on marketing individual hardware items are seeing their “strategic window” close as computer system manufacturers move to take advantage of emerging opportunities. HP has capitalized enough on the CT market by virtue of some aggressive M&A. In India, companies like HCL Technologies and Satyam plan to enter the CT market as a total solution provider. Wipro is also exploring opportunities in SMEs. We can expect Wipro to venture into this segment in the near future.
As competition grows, SMEs are also getting lean. Most companies follow the make-to-order philosophy. All of these necessitate an imperative of free flow of materials, information and finance. As practices change, many new applications of network technology have evolved. Here, we can see a scope for VXL to be a consulting provider and not just a product manufacturer.