Network Management Systems P3 Pilot Paper

Introduction Network Management Systems (NMS) is a privately owned hi-tech business set up in a location near London in 199 ! NMS is the brainchild o" a #anadian computer engineer$ %ay &dwards! %ay is a classic hi-tech entrepreneur$ constantly searching "or ways to e'ploit technological opportunities and una"raid to take the risks associated with high technology start-ups! NMS(s "irst product was a digital error detection bo' able to )listen( to computer signals and detect "aults! *he original bo'$ designed by %ay$ was built on his kitchen table and manu"actured in a garage! %ay is a "lamboyant character and a committed entrepreneur! +n his words an entrepreneur is ,someone willing to work 1- hours a day "or themselves !!! to avoid working eight hours a day "or someone else., Structure of the business and key product areas /y 0112 NMS employed 34 "ull time employees in a new$ purpose built "actory and o""ice unit! *hese employees were a mi' o" technically 5uali"ied engineers working in research and development (%67)$ "actory sta"" manu"acturing and assembling the products and a small sales and service support team! +n 0112$ NMS had three distinct product8service areas! 9ne o" the three products NMS produced was data communication components which it sold directly to original e5uipment manu"acturers (9&Ms) that used these components in their hardware! /oth the 9&Ms and their customers were predominantly large international companies! NMS had established a good reputation "or the 5uality and per"ormance o" its components$ which were also competitively priced! :owever$ NMS had less than 1; share o" the <= market in this sector and "aced competition "rom more than twenty suppliers$ most o" who also competed internationally! >urthermore$ one o" NMS(s 9&M customers accounted "or ?1; o" its sales! *he &uropean market "or data communications e5uipment had increased "rom @ ! billion in 1999 to @-!1 billion in 0112! >orecasts "or 0113 and beyond$ predict growth "rom increased sales to currently installed networks rather than "rom the installation o" new networks! *he maturity o" the technology means that product li"ecycles are becoming shorter! Success comes "rom producing large volumes o" relatively low priced reliable components! :owever$ all new components have to be approved by the relevant government approval body in each country being supplied! Approval "or new data communication e5uipment is both costly and time consuming! NMS(s second product area was network management systems B hence the name o" the company! >ault detection systems were supplied directly to a small number o" large end users such as banks$ public utility providers and global manu"acturers! NMS recognised the uni5ue con"iguration o" each customer and so it customised its product to meet speci"ic needs and re5uirements! *hey have pioneered a ,modular building block, design$ which allows the customer to adapt standard system modules to "it their e'act networking re5uirements! NMS products "ocused on solving network management problems and the success o" its products was re"lected in the award o" the prestigious Covernment Award "or *echnology "or ,technological innovation in the prevention o" computer data communication downtime,! *his was recognition o" the e'cellence o" the %67 engineers who developed the so"tware and related hardware! +t "urther enhanced NMS(s reputation and enabled it to become a success"ul niche player in this low volume market with gross margins in e'cess o" ?1;! NMS only "aces two or three competitors in a specialist market where there is no need to gain government approval "or new products and systems! >inally$ the comple'ity o" NMS products means that technical support is a third key business area! NMS has established a reputation "or e'cellent technical support$ re"lecting %ay(s continuing concern with customer care! :owever$ it is increasingly di""icult and costly to maintain this support because the company lacks a national network! All technical support is provided "rom its head5uarters! *his contrasts with the national and international distributed service structure operated by its large$ international competitors! Emerging problems NMS(s growth has made %ay increasingly concerned about the ability o" NMS to identi"y market trends$ scan its competitive environment and create marketing strategies and plans! NMS(s market and sales planning only covers the year ahead! Larger competitors invest heavily in market research analysis and customer relationship marketing! /usiness-to-business marketing is becoming an increasingly comple'

and sophisticated activity in this sector! Accurate sales "orecasting is also a key input into production planning and scheduling! NMS manu"actures ?1; o" the components used in its products! *he rest o" the components$ including semiconductors and microprocessors$ are bought in "rom global suppliers! Serious production problems result "rom periodic component shortages$ creating signi"icant delays in manu"acturing$ assembly$ and customer deliveries! >urthermore$ the growth o" NMS has outstripped the largely manual control systems designed to support its production and sales operation! %ay is acutely aware o" his key role as "ounder and chairman o" the "irm! :e is also "inding the skills and attributes necessary "or "ounding and growing the business are not appropriate in a mature business! :e is heavily reliant on his e'trovert personality and his ability to muddle through with in"ormal$ "le'ible systems! *he limitation o" this approach is now beginning to show! :e is "inding it increasingly di""icult to cope with the day-to-day demands o" running the business while at the same time planning its "uture! >unctional departments in the shape o" sales and marketing$ technical (%67)$ manu"acturing and administration are in place but strategic planning$ such as there is$ is very much his responsibility! %ecruitment o" high calibre sta"" is also a problem B NMS(s small siDe and location means that it struggles to attract the key personnel necessary "or "uture growth! %ay "eels pressure on him to either develop the necessary skills himsel"$ or to develop the right people with the right skills! +n %ay(s words$ starting a business is like ,building your own airplane and then teaching yoursel" how to "ly,! 9ne particular skill in short supply is the "inancial capability o" dealing with growth! :is negotiations with bankers and other "inancial intermediaries have become increasingly di""icult and time consuming! *he "inancial control in"ormation re5uired to support growth and$ more recently$ to ensure survival is o"ten inade5uate! :owever$ 0112 had started well$ with NMS approached as a target "or a possible ac5uisition by a maEor data communications company! *he opportunity to realise some o" the e5uity in the business had considerable appeal! <n"ortunately$ while protracted negotiations were taking place$ a downturn in the global economy occurred! 9rders "or NMS(s products "ell and the banks and venture capitalists supporting NMS through overdra"t and long-term investment became much less sympathetic! *he "inal insult occurred when %ay was approached by a venture capitalist with a management buyout proposal put together with NMS(s "inancial director and sales manager! *he value placed on the business was a derisory F41=! %ay was angry and hurt by the siDe o" the o""er and also at the disloyalty o" his senior sta"" in seeking to buy the business! *o make matters worse the uncertainty over the "uture o" the business has led to a number o" key members o" sta"" deciding to leave the company! *he "inancial director and sales manager are still both in post$ but their "uture plans are uncertain! >inancial data "or NMS is presented in *able 1! Rays future at NMS %ay is currently considering his "uture at NMS! :e has identi"ied three main e'it options! *he "irst is to personally lead the company out o" its current problems$ which he largely attributes to global economic slowdown$ and to launch the business on the stock e'change as soon as its economic position improves! :is second option is to sell the business "or a "igure which more accurately re"lects its real value and to walk away and re"lect on his "uture! :is "inal option is to seek ac5uisition by one o" his large customers (or competitors) and so become part o" a much larger organisation! +n such circumstances he would o""er to stay on and develop NMS within the structures imposed by a parent organisation! /y nature a "ighter$ the recent uncertainties over ownership and gloomy "orecasts "or the global economy have made him seriously re"lect on his own priorities! :is hands-on approach and involvement with all aspects o" the business seems increasingly inappropriate "or handling the problems o" a hi-tech business such as NMS!

Table 1: Financial data for Network Management Systems 2004 Sales <= sales &'port sales *otal sales #ost o" sales Cross margin Expenses Administration 7istribution Marketing %67 9verheads 9perating pro"it Sales +nterest paid Net pro"it Financing Long-term liabilities Share capital and reserves Other information &mployees ; o" orders late 9rder book !e"#ired (a) (b) Assess the macro-environment o" NMS by undertaking a G&S*&L analysis! !" marks# F(111 ?$411 11 ?$-11 0$2?1 0$121 411 314 41 ?94 011 011 04 134 121 34 41 4 ?$304 2005 F(111 2$ 11 411 2$-11 $331 $1 1 2 1 9?1 21 491 0-1 4 1 101 ?11 341 214 21 3 ?$141 2006 F(111 2$9 1 241 3$4-1 ?$441 $1 1 311 9?4 31 -31 01 104 141 B04 1$111 211 34 11 $141 200 ("orecast) F(111 2$0 4 401 2$344 ?$ 01 0$? 4 224 --4 31 291 04 B011 124 B 24 1$111 434 21 2 0$411

<sing appropriate models and "inancial and 5uantitative data "rom the scenario$ provide an environmental and "inancial analysis o" NMS$ highlighting problem areas! $% marks# (+ncluding ? pro"essional marks) %ay is considering three main e'it options "rom the business as it currently e'ists! Assess each o" the three identi"ied e'it options in terms o" their ability to solve the problems highlighted in your analysis and in terms o" %ay(s "uture role in the business! !% marks# &otal ' %" marks#

(c)