In the modern era of globalization and a significant gap between developed and developing countries the majority of IT companies consider outsourcing as a key way to increase the efficiency of their functioning and save costs (Mclvor 2). The size of the global market of outsourced IT services currently constitutes $88.9billion, and continues to grow (Statista 1). A trend to outsourcing leads to the fact that manufacturing departments of large IT companies are currently located beyond the USA.
Consequently, electronic parts and related materials, needed in order to create functioning electronic devices have not been available in the U.S. offices of IT manufacturers for already a long time. At the same time, engineers and scientists, working for new product development departments, frequently continuously faced a challenge of creating so-called prototypes, namely the functioning models of devices. While it became impossible for a new product developer to just visit a manufacturing department of the company and borrow necessary electronic parts and materials there, parts needed to be specifically ordered. In this regard, it is important to mention that large manufacturers were not always adapted to receiving and fulfilling relatively small orders in a timely manner.
Being aware about the challenge of procuring details for the creation of prototypes, Rawlins and Blevins started to ask themselves whether it can constitute a business opportunity (namely, an opportunity to generate income by providing a solution to a specific issue) (De Bono 3-4). Thus, they conducted a study to reveal the size and prospects of a business segment that can be addressed as the procurement of electronic parts and service for non-volume production with respect to the new product development within high-tech and electronics industries.
Apart from identifying the challenge, faced by above industries as a whole, Rawlins and Blevins also identified specific characteristics of the problem, allowing for viewing it a business opportunity.
Thus, they found that the procurement of parts and materials for non-volume production was difficult and time-consuming due to the lack of information about the products. This problem was tightly related to the fact that the majority of suppliers failed to digitize their catalogues and make them available via the Internet.
When developing the concept of their future business, Rawlins and Blevins aimed to meet a highly specific challenge, faced by scientists and developers within high-tech and electronics industries. Aiming to ensure the availability and accessibility of electronic components and full information about them, the entrepreneurs decided to launch a “neutral marketplace”, suitable for addressing the needs of both suppliers and buyers.
The basic design of the marketplace was as follows. Customers viewed digitized catalogues of electronic parts and materials, available from a range of suppliers, and made an order. Then, PassAct conducted a verification of an order (including an approval of the customers’ head of procurement department) and automatically divided it into a range of orders, directed to several suppliers. Finally, PassAct conducted a check of order fulfillment. Customers could choose the frequency of receiving invoices from PassAct (e.g., on the daily basis, once in two weeks)
Providing for the smooth functioning of the above system required implementing of a broad range of support measures. First of all, it took PassAct significant amount of time and efforts to get suppliers attracted to the system and digitize their paper catalogues. While many of suppliers already possessed information about their products in an electronic format, PassAct had to ensure the uniformity of data presentation across a broad range of formats. Secondly, PassAct had to identify and attract customers, as well as customize their IT environments for the use of PassAct platform and conduct training sessions, aiming to teach customers how to use PassAct.
The system of virtual order fulfillment, elaborated by PassAct, and customer support helped both suppliers and customers to save time and efforts, associated with conducting procurement. According to the initial business model, adopted by Rawlins and Blevins, the only source of PassAct revenue was the pre-order commission payments, made by suppliers. PassAct did not charge either suppliers or customers with subscription, maintenance and training-related fees.
The owners of business and management are definitely in need of the way to determine and possibly quantify a success or failure of a business. Many authors single out specific business success factors that can be used as benchmarks to conduct an assessment of the business. For instance, Nielsen&Media determine five major business success factors, such as employees’ attitudes, leading to change and progress, the use of technology, financial success, abilities to expand globally, as well as marketing consistency (Nielsen&Media 1). In turn, Root&Media identify three most important cornerstones for business success, such as being capable of retaining customers, successful product development and a proper management of a company’s cash flow (Root&Media 1).
A failure of an organization deals with a situation, whereby an organization is forced to stop its business activities due to the fact that it is unable to generate the amount of revenue, sufficient for covering an organization’s expenses. The factors, leading to a failure of an organization, can be highly divergent. Among them Ballowe singles out a company’s inability to understand its market and customers; functioning within a non-profitable industry; a failure to ensure quality communication of products, being sold; inadequate financing, as well as a failure to react to changes in a range of domains, such as competition, technology etc (Ballowe 1). The lack of planning, customer strategy and overdependence on single customer also negatively affect the business.
Initially, the success of PassAct stemmed from the fact that it managed to fill a very specific market gap, conducted a proper marketing of its services and, most importantly, utilized new technologies to provide innovative services. However, the company faced some of the above failure-related factors in a long run.
As the company tackled only non-volume manufacturing, it can be claimed that it chose a rather unprofitable segment. It also faced the lack of financing, stemming from the overall trend of diminished trust to e-businesses. Furthermore, the number of subscribed customers and suppliers remained limited, and PassAct was too dependent on them. Thus, it was extremely hard for it to reach to suppliers’ launching their own digitized catalogues and customers’ using PassAct only as an addition to them.
The changes, introduced into the PassAct business model are aimed at increasing a company’s revenue. The major driver for changes can be attributed to the overall trend of investors’ lacking trust to electronic businesses and a failure in revenue, caused by the fact that many suppliers launched their own e-catalogues and PassAct started to be used as an addition to them.
Initially, the only source of the company’s revenue was constituted by the pre-order commission payments, made by suppliers. At the same time, the company provided a broad range of services without charging either customers or suppliers (e.g., signing up for the PassAct platform, maintenance, training and individualized customization to a company’s IT environment. Facing an important challenge of showing business success and revenue growth to the company’s investors, PassAct introduced a broad range of fees and charges, targeting both suppliers and customers. For instance, customers were to pay for the use of PassAct e-platform itself and a range of associated services, including an initial integration of the platform into the company’s IT environment, conducting training sessions for employees and a system’s maintenance. While reducing pre-order commission payments by suppliers by one-third, PassAct introduced subscription fees and also started charging suppliers for services related to digitizing the data.
The introduction of a broad system of fees and charges can be considered fair, because both customers and suppliers receive benefits, when using the services that were initially provided by PassAct for free. Thus, many new customers and suppliers were surprised by the fact that PassAct did not charge for the above services before.
Launching new fees and charges can evidently increase the company’s revenue, provided that it will not become an impetus for suppliers’ introduction of their own e-catalogues and customers’ fully switching to them. However, this step does not allow attracting a larger number of suppliers and customers into the system to reduce the company’s overdependence on existing ones. Furthermore, the changes in the business model do not include steps, necessary for combating the competition, stemming from suppliers’ e-catalogues. Finally, the growth of revenue shall not be associated with the market expansion, required for sustaining competitive advantage.Therefore, the revenue growth model can be seen as only a small part of a solution, needed for PassAct to overcome the challenges it faces.
Works cited
Ballowe, T. “Ten common causes of business failure”, OnStrategy, 2015. Web. 23 February 2016
De Bono, Edward. A handbook of business opportunity search. London: Penguin Books, 1991. Print.
Mclvor, Ronan. The outsourcing process: strategies for evaluation and management, Cambridge: Cambridge University Press, 2005.Print.
Nielsen, L., Media, D. “Key business success factors”. Chron, n.d. Web. 23 February 2016
Root, G.N., Media, D.”Three key success factors in business area”. ”. Chron, n.d. Web. 23 February 2016
The Statistics Portal “Facts and statistics about the information technology outsourcing industry” Statista, 2015. Web. 23 February 2016
