In: Operations Management
After having initially started out in 1988 as a reseller of third party software to small distribution businesses and corporate systems for retail home offices, by 1993 Datavantage grew to 16 employees and $1.5 million in sales with only $50,000 of external financing. Very few products were developed internally and, by 1993, Datavantage was slowly transforming itself into a consulting company. Despite relative success, it wasn’t exactly what Marvin envisioned to be an exciting entrepreneurial opportunity and he was ready to get out of the business. A radical change was needed in order for Marvin to consider staying and growing the company.
The opportunity for change arrived in 1994 when Datavantage acquired the services division of LDI, with Chaz joining Datavantage as part of this acquisition. LDI was a reseller of products for store systems and provided a complementary foundation for Datavantage’s further development. This dramatically changed Marvin’s perception of Datavantage’s future potential.
Also in 1994, the organization made a conscious decision to better control its own destiny and transition away from reselling third party software and into internally developing its own Point of Sale software products. After developing Store 21, a complete store management system based on full transaction Point of Sale (POS) applications software, Chaz and Marvin were considering the acquisition of XBR Track, a small loss prevention software company, based in Boston, Massachusetts.
The opportunity for XBR Track emerged out of the need of Specialty Retailers to minimize their internal losses from theft and shrinkage. Chaz and Marvin determined that retailers in the U.S. were losing an average of 2 percent of sales due to retail theft or shrinkage each year. The losses due to shrinkage directly affect the bottom line of the retailer in the form of a pure profit loss. It was estimated that retail employees account for 55 percent to 75 percent of lost revenue because of various fraudulent transactions. Transaction fraud ranges from improper cash refunds and price overrides to employee discount abuse and fraudulent credit card activity. XBR Track was offering the retail industry a solution to the $13.2 billion loses annually due to employee theft.
Chaz and Marvin find themselves in the final stages of negotiation to acquire XBR discussing many related issues regarding the acquisition and its impact on the entrepreneurial culture currently at the company. While there is no doubt about the attractiveness of the acquisition, the case brings up multiple concerns about the post-acquisition integration directly relating them to the challenge of continuing the organizational entrepreneurial culture. Specifically, the two founders are concerned with whether Datavantage will be able to successfully serve the existing customers and maintain its current level of customer support; whether XBR’s geographical location will become an issue during the integration; whether the existing sales force has enough knowledge and competency to sell XBR; and whether Datavantage will be able to effectively execute the “get into the castle” strategy intended for XBR. Above all, however, Chaz and Marvin were wondering if the potential rapid growth that XBR can provide for Datavantage can have a negative impact on the small start-up entrepreneurial culture that made the company successful.
By purchasing XBR the company can prevent the incidences of lost revenue in the form of the theft and shrinkage. This can contribute to the 2% of total sales and by buying XBR, the company can also be benefited by controlling 55 percent to 75 percent of lost revenue because of various fraudulent transactions that include improper cash refunds and price overrides to employee discount abuse and fraudulent credit card activity. So overall this will be helpful for the organization to deal with the loss of revenues.
In my opinion, there may be some difficulties in the implementation and practicing the operation with XBR.
The main issues are related to post-acquisition integration related to the challenge of continuing the organizational entrepreneurial culture. Along with this, the expertise of the manpower is also questionable to promote such type of product. There is also a possibility of a negative impact of XBR on the small start-up entrepreneurial culture that made the company successful.
In order to implement it successfully in the organization, first of all, it is important to make some change in the internal processes and policies without changing the basic philosophy of the organization but the focus should be on accommodating the XBR in the organization, After this, I would facilitate the proper training to the manpower on how to get used to with XBR and use it efficiently. Management support is also important so I would also ensure that there is full support to XBR by Chaz and Marvin