Management of SME's
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The company considered in the case study is EYE-Q based in New Zealand. The EYE-Q is a company operating in the market of products for blindness and low vision in New Zealand which is attempting to expand its activity to larger markets of the United States.
Originally, EYE-Q emerged as an independent company separated from the large Securicorp company headquartered in the United States. During the late 1980s stock market faced severe collapse forcing a lot of companies to close up some of their businesses, restructure and reorganize their business divisions as well as focus only on highly profitable ones. Securicorp was not an exception and it was required to evaluate its profit and costs structure in order to maintain its activities on the market. As a result, management of the company decided to support its central business division activity of security systems along with selling or closing all non-core business divisions.
One of its business divisions that produced goods for the markets of products for blindness and low vision was the one that experienced the highest costs rates with the lowest profitability. Moreover, its operation was not related to the Securicorp’s core security systems business division. Therefore, a decision was made to sell this business division that was based far from the company’s headquarter, in New Zealand.
In the framework of market crash there was very limited number of stakeholders interested in the purchase of the New Zealand Securicorp’s business division. However, considerable potential of the R&D pipeline of products as well as associated sales and distribution network for the existing products for low vision was envisioned as substantial asset by several Securicorp’s employees, including Stevens, McDonald and Hensen. Therefore, in 1988 New Zealand division was bought-out by Randolph Stevens and other eight local New Zealand engineers that were working in Securicorp. They have purchased the division for 700,000 of New Zealand dollars with the help of mortgaging their houses to the hilt in order to put the whole deal together.
The New Zealand division of Securicorp was renamed to “EYE-Q” covering all types of electronic activity in the medically related fields. Soon after emergence of EYE-Q as an independent company in New Zealand, it has acquired the distributorship and soon became a fast growing health products company. It operated in New Zealand, however, at the same time aimed to commercialize new products and expand its markets abroad. Health products of EYE-Q were produced by its two major business divisions: products for blindness division and products for low vision division. Along with New Zealand division that was acquired from Securicorp, EYE-Q also bought-out the sales and marketing division of products for blindness and low vision located in the United States that was further renamed to EYE-Q – North America, Inc.
Effectiveness and profitability of EYE-Q’s business divisions operation was differentiated. In particular, those business divisions that produced medical devices for blind people or people with low vision were capable to generate enough cash in order to cover considerable R&D expenses of other divisions.
Despite cash flow problems, EYE-Q Company managed to successfully operate on the market during first two years and win several industry awards in 1990 for their products.
Company was functioning during first years of its operational activity on the New Zealand market rather successfully (Figure 1). Right after establishment of the EYE-Q as an independent company it has attempted to gain the largest niche in relatively small market of products for blind people or people with low vision. Business divisions of the company that were producing these products were major motivational factors for the engineers for establishing independent company.
However, since the acquired division was not originally highly profitable, management of the EYE-Q had to aim their attention and efforts towards solving major cash flow problem. Due to relatively high profitability of several business divisions of EYE-Q, it succeeded in covering high R&D costs of its central business of products for low vision. Yet, this means that their operational activity can produce satisfactory results only in the short run and may not bring high profits.
Hence, once the company has sustained its activity on the New Zealand market, EYE-Q needed to find alternative means and tools of solving cash flow issue. Possessing valuable asset in the form of the U.S. based sales and marketing division and distribution network EYE-Q could use the option of the U.S. expansion as a solution to its cash flow problem.
Foundation along with historical development and growth had considerable impact on the current situation of the company (Barney, 1995; Mansfield, 1985). As time passed, EYE-Q evolved in its strategic management, employees of the company advanced their skills and experience. Managers of the company learned more about its strong internal capacities as well as with time they revealed weaknesses that EYE-Q had and that needed special attention.
Right after establishment of the EYE-Q as an independent company, it has positioned itself on the market as a company producing products for blind people and people with low vision. Operating in the sphere of modern technological development, EYE-Q had to have competitive advantage on the relatively small market in New Zealand in order to change consumers’ preferences, attract their attention and increase its market share. However, at the same time, due to specific features of the business conduct and peculiarities of the industry, EYE-Q also had several internal weaknesses that it was attempting to deal with and eventually overcome during first years of its operation on the market.
Consideration of internal strengths and weaknesses is one of the crucial tools for achieving sustainable development of the small or medium size enterprise (Hill & Westbrook, 1997; Peacock, 2004). Every business deals with a number of various internal and external challenges in the course of its operation on the market. Therefore, identification of internal strengths that the company has provides strategic management process with necessary information to develop the most effective paths of the company’s development and growth (Abdullah, 2000; Beaver, 2003; Beaver & Jennings, 2000).
EYE-Q has numerous internal advantages that predetermine its success on the market of products for low vision that is mostly comprised of small and medium size companies. Compared to its competitors, EYE-Q has internal advantages in terms of effective organizational and financial management, as well as in the framework of its value structure. In particular, the company has a widespread distributional network in the United States, it has exceptionally motivated R&D team, and low labor costs. Moreover, the EYE-Q offers unique product line for its consumers and is keen on studying and satisfying consumers’ needs.
R&D team of EYE-Q is its one of the largest and most important internal advantages that it uses against its competitors. In 1991, despite being small, EYE-Q’s team of the R&D division was considered to be one of the best teams of the industry in the entire world that is experienced in the development of technologically enhanced hardware and software solutions for people that have limited vision problems. With the help of the highly skilled R&D team, EYE-Q is capable to make products that are making real inroads into the speech synthesis for reading by blind people, as well as their optics and electronic solutions for people with visual problems were world-class.
Another key internal strength identified by EYE-Q is its unique and highly demanded product line for blind people and people with low vision capacity. With the help of the highly skilled and experienced R&D team, EYE-Q is producing exclusive pipeline of amazingly potential products that combine both hardware and software competencies from sonar, through optoelectronics and speech synthesis. The combined technological competencies allow EYE-Q to combine, text, braille, and speech in applications as well as to device novel technological solutions with a higher degree of sensitivity unlike numerous competitors.
Along with highly skilled R&D team and unique product line, EYE-Q includes other internal strengths like keen interest on the satisfaction of consumers’ needs. This is especially important, since outlining of the target group as narrow as possible is valuable for the company since this allows it being aware about the demanded product line by consumers and set up effective communication with them. In addition, the company has managed to reduce its costs in terms of the share of expenses on labor. Operating on the market of the labor intensive products, it is exceptionally valuable to have low labor expenditures in the structure of company’s costs. Therefore, accomplishment of this goal enabled EYE-Q with strong internal strength unlike its biggest competitors.
Finally, the last but not least internal strength of EYE-Q is its extensively developed and long established distributional network in the United States. Having acquired the U.S. sales and marketing division in 1988, EYE-Q at the same time provided itself with an opportunity to enjoy the developed distributional network that opens one of the largest markets for developed products for blind people and people with low vision.
Yet, despite numerous and highly valuable internal strength, EYE-Q also has a few internal weaknesses that prevents the company from working at full capacity. Identification of the internal weaknesses is the first step in the strategic management. Once they are identified, it is important to develop strategies that would help the company to eliminate its weaknesses and gain competitive advantage among its competitors (Hallberg, 2001; Barney, 1991).
EYE-Q was established in the time when the stock market collapsed and real economy was deteriorating simultaneously. Therefore, company's internal weaknesses largely came as a result of the external unfavorable conditions. In particular, facing financial losses by one of the EYE-Q divisions was one of its considerable internal weaknesses. At the same time, substantial share of R&D expenditures in the costs structure of the company appeared to be another weak point for EYE-Q.
Slow pace of the EYE-Q’s Company expansion to the U.S. market is partially explained by considerable financial loses that the company encountered in the face of its U.S. division. According to some estimates, the U.S. division was running on the $20,000 loses every month. This appears to be one of the crucial internal weaknesses for the company overall, since other divisions were forced to work more effectively in order to cover its losses, and maintain the whole company on the market.
Having one quarter of all costs allotted to the R&D expenditures is highly important for the company that is operating on the market of technological advances. However, at the same time large share of R&D expenditures becomes a considerable internal risk for the company since it is complicated to raise profit high enough to be able to cover research and development expenditures.
Identification of internal strength and weaknesses is highly important in the course of strategic management for any type of business; either it is small, medium or large scale enterprise. It is essential for the company to be aware of its internal weaknesses as well as its internal strength that the company can use to overweight weak parts and, furthermore, gain competitive advantage among its rivals in the market.
EYE-Q has numerous internal strong and weak sides. Its major asset - highly experienced and skillful research team is a crucial internal strength of the company. Besides having excellent research and development team, EYE-Q with the help of the latter is able to provide consumers with demanded goods that are unique on the market. Therefore, in order to develop effective strategic management plan, executives of the EYE-Q need to utilize its major R&D advantage to overcome internal weaknesses and then gain competitive advantage on the market over its competitors.