Nowadays many IT companies view outsourcing as a key tactics to achieve significant efficiencies and cost reductions.. While companies can obtain a lot of benefits with the help of outsourcing, they also face operations-related challenges. The founders of PassAct, Inc. were aware about the fact that engineers and scientists, working for high tech-companies that necessarily practice outsourcing spent significant amount of time on creating the working models (prototypes of new products). Importantly, engineers and scientists need to ensure that prototypes are functional. One of the major challenges related to producing prototypes was procuring all the necessary electrical components. This problem was caused by two major issues. Firstly, an extensive outsourcing of manufacturing processes made it fully impossible for scientists and engineers to borrow some parts and necessary materials from the manufacturing department. Secondly, large manufacturers and distributors of electronic parts (suppliers) were not adapted to receiving and fulfilling small orders in a timely manner. The research, conducted by Rawlins and Blevins showed that the phenomenon, addressed above, represented a business opportunity. The business segment they decided to enter can be addressed as the procurement of physical components and services for non-volume production with regard to high-tech and electronics industries”. Apart from identifying a problem itself, Rawlins and Blevins singled out the dimensions of the problem that needed to be addressed by the business. They included inter alia the difficulty of the respective type of procurement, its time-consuming nature, as well as being concerned with the lack of both products and information about them.
Having summarized the problem and identified the way to solve it, the founders of PassAct decided to establish a company to simplify procurement for the non-volume aspects of manufacturing by high-tech companies.
While developing the conceptual framework of their future business, Rawlins and Blevins aimed to fill a specific gap they identified in the functioning of high-tech and electronics companies. Willing to make both required products and information about them more accessible, the founders of PassAct, Inc. decided to launch a neutral marketplace, suiting the needs of buyers and suppliers of materials and equipment, needed to elaborate working models. One of the peculiarities of the marketplace was a functioning system of virtual fulfillment that provided for suppliers’ and customers’ IT environments’ integration with the design of the online market. PassAct, Inc. managed to develop the order flow process, whereby significant role was played by internal order processing. Internal order processing included a range of operations, such as receiving and verifying the order, sending requests to different suppliers, conducting customer support, as well as using the e-commerce tools. The major benefit for the customers (including professional purchasers), using the electronic system, was an access to a comprehensive database of available electronic parts and materials, and easiness of making orders. Suppliers could also benefit from the program by ensuring an online access to their products for a broad customer base. Furthermore, many suppliers benefited from the fact that PassAct conducted a digitalizing of their paper-based catalogues. So, a web-based solution, provided by PassAct, constituted an excellent opportunity for both suppliers and customers to get connected and ensure access to electronic parts and materials. At the time of foundation and several coming years the only source of revenue for PassAct dealt with commissions it got from orders.
Different sources single out multiple success factors of an organization. For instance, the Total Success Centre singles out five major factors of business success, such as management and development of HR; strategic focus; quality operations; an availability of all required physical resources and customer relations. In this regard, it is also worth considering the notion of “critical success factor”, coined by D.R.Daniel. A critical success factor is a single factor that allows for reaching a mission of an organization (Daniel 112-113). However. Both frameworks are inappropriate for considering the success of PassAct and its failures due to the lack of opportunities for an individualized approach. Applying the SWOT analysis can help to distinguish major success and failure factors of PassAct.
Initially, a key strength of PassAct dealt with the fact that its operation aimed to fill a very specific gap at the market. Secondly, the company operated in a way that benefited multiple stakeholders, such as customers, suppliers and professional purchasers. The major weaknesses (that can be addressed as important root causes of subsequent failures of PassAct) deal with the fact that the company initially failed to elaborate a powerful revenue strategy and provide services to companies at full cost. Important opportunities for PassAct (that could be used to further increase) deal with expanding its customer and supplier base, as well as tackling volume manufacturing-related procurement. While concentrating on the procurement for non-volume manufacturing, the company did not even consider growth as a way to increase revenue. There were two major threats, whose realization contributed to the failure of PassAct. The first one dealt with the attitude to e-businesses and respective trends at stock markets. Secondly, the activities of the company stopped to be unique, as soon as suppliers introduced web-based catalogues.
The changes in PassAct business model are aimed at increasing a company’s revenue. Initially, the company tended to generate its revenue only with the help of commission payments, made by suppliers. However, there were no charges for signing up for the system (neither for customers, nor for suppliers), as well as no maintenance, training and individual customization fees. Facing a challenge of demonstrating business success and revenue growth, PassAct introduced a broad range of fees for both customers and suppliers. Thus, customers started to be charged for the use of the PassAct platform, as well as associated professional services (e.g, the integration of PassAct platform with the It environment of the customer, training services). The company also started charging suppliers for converting their catalogues into electronic form and introduced an annual maintenance fee. Interestingly, many new consumers and suppliers were surprised that the company did not charge the above fees from the very beginning of its platform’s functioning. Thus, it cannot be claimed that the fees are unfair. Introduction of the fees (accompanied by the reduction of pre-order commission payments) can surely facilitate the growth of revenue, provided that customers and suppliers do not refuse form using a service. However, the introduction of new fees and charges can be viewed as single means, necessary to improve the functioning of PassAct. PAssAct shall still elaborate on the ways to attract new suppliers and customers and consider avenues for growth (e.g, expanding to the market of volume manufacturing; expanding to serve other industries etc.) In this regard, starting to charge for all the services can be viewed as only temporary solution to the issue of differentiation, notwithstanding the development of e-catalogues by many suppliers.
Works cited
Daniel, D.R. “Management information crisis” Harvard Business Review 39 (1961): 111-121.Print.
Total Success Center. Key success factors for business, 2015. Web. 22 February 2016.
