Background
VeriFone Corporation was founded in 1981 by William Melton. This company started specializing in the automation and delivery of “secure payment” and other payment-related transactions to several markets from the time it was set up. The limits for the company’s business operations were set by its mission.
The company’s mission was; “to create and lead the transaction automation industry worldwide” (Stoddard, Donnellon and Nolan 2). The founder of VeriFone Corporation was an entrepreneur who had a habit of hating structure and bureaucracy. At the time he founded the company, it started by offering simple electronic check verification systems.
A short time later, the company widened its base and started offering “low-cost, terminal systems for the retail end of credit card and check authorization” (Stoddard, Donnellon and Nolan 2). Later on, in the year 1997, the company was offering a wider range of products which included “smart card technology for merchants, internet payments solutions for merchants, banks and consumers, client/server payment processing solutions for financial institutions, and products to enable the emerging consumer home banking marketplace” (Stoddard, Donnellon and Nolan 2).
Before the year 1996 ended, the company had engaged in the distribution of over 5 million transaction automation systems that had in turn been installed in more than one hundred nations across the world. The revenue that was received by the company in 1996 was more than four hundred and seventy million dollars and the profit was over thirty nine million. This was a quite remarkable performance.
VeriFone grew rapidly starting from the early 1990s all through to the mid-1990s and during that period, the annual growth rate was in excess of 25 percent. The company has been driven by research and development. The research and development in the company has “consistently exceeded 10 percent of sales since the company’s founding” (Stoddard, Donnellon and Nolan 3).
Market Analysis
The company operated in a competitive market whereby other operators offering similar products gave it some stiff competition. Operating in such an environment requires a company to move first and to come up with the best strategies that can enable it to win the competition.
In this line, VeriFone put in place appropriate measures that enabled it to remain ahead of the competition. The company’s traditional terminal and printer products received competition from products that were offered by vendors such as Hypercom. More so, in regard to the smart card market, the company received competition from companies like Schlumberger and Diebold.
Considering the virtual world, several start-up and traditional companies existed which looked for ways to define that marketplace. This company had to counter all these. According to Stoddard, Donnellon and Nolan, basing on a research report that was released by the International Data Corp, a research firm based in Massachusetts, “the internet portion of the electronics commerce market alone was expected to reach $95 billion in the United States by the year 2000” (Stoddard, Donnellon and Nolan 3).
VeriFone’s manufacturing facilities are established close to global manufacturing excellence centers. This is what enabled it become market leaders. In the year 1998, each month, they were delivering about 122, 000 systems.
The leadership position held by this company in secure payment solutions came to be noticed by many and among these was Hewlett Packard. The Hewlett Packard Company acquired VeriFone at a cost of 1.9 billion dollars and this took place on 25th June in 1997. In the course of the entire 1990s, VeriFone “has consistently held market shares in excess of 60 percent; being four times the size of their nearest competitor” (Stoddard, Donnellon and Nolan 3).
Some players in the financial sector were stunned by the arrangement made by Hewlett Packard with VeriFone of the one-for-one swap. It is reported that one employee of VeriFone noted that, “HP purchased us for our internet products and strategy…however, today those products generate less than 10 percent of our revenue” (Stoddard, Donnellon and Nolan 3).
The analysts who understand the payment industry and familiar with VeriFone, held a belief that Hewlett Packard made a very shrewd decision to “invest in a small, entrepreneurial business organization which has global leadership in high growth markets” (Stoddard, Donnellon and Nolan 3). Considering this clearly, the move taken by HP to acquire VeriFone, a company that was performing well in the global market, would serve to help it to improve its performance.
Strategic Analysis
The company has a number of core values and they include; “commitment to excellence, dedication to customer needs, promotion of teamwork, recognition of the individual, a global mindset, and ethical conduct” (Stoddard, Donnellon and Nolan 5). These values were instilled by Melton and other founders of the organization. A larger number of these values illustrated the company’s culture in the year 1997.
Immediately after Tyabji came to office as the company’s president in 1986, he deliberately took measures to speak out these values over and over again in order for them to remain at the heart of VeriFone’s internal as well as external activities. This leader took an initiative to personally write a corporate philosophy manual and did not get tired “evangelizing” about this philosophy to the employees in the company.
He influenced the management to set up other new ways that could be used to pass over information about the corporate values and offering “guidance to the far-flung work force” (Stoddard, Donnellon and Nolan 5). Such a move is quite remarkable and an organization that undertakes this improves its performance to a high level. Embracing the company’s values by the employees and the management plays a major role towards achieving the organization’s objectives.
This company’s enthusiasm to discover the customer needs in order to satisfy them was produced and seean in a number of ways. On a constant basis, the top management was basically having two questions: “where is the customer’s pain? Can VeriFone generate some income by lessening or doing away with this pain?”(Stoddard, Donnellon and Nolan 4).
For any company to succeed, it needs to identify a need among the consumers and strive to satisfy that need and the company is in turn rewarded in the form of the profits that are realized through high demand for the product that serves to satisfy the need of the customers. The company seeks to avail the product to the customer, ensuring that this customer is well informed and obtains the product in the most convenient way possible.
VeriFone put facilities close to the markets that were coming up and the technical employees were requested to take trips to where the customers were in order to familiarize themselves with them. The principles that drove product design at VeriFone included high volume, reliability, and value and low cost.
The combination of the company’s customer responsiveness culture and its IT capacity always produced great results. This can be illustrated by pointing out one incident that took place. A new sales representative, who was operating in Greece, was given information by a large client that a company’s competitor had engaged in raising concerns about the expertise in debit cards that VeriFone had.
The sales rep sent an email to the company requesting for information concerning debit installations and any references which could assist him to make the sale. Within a period of 24 hours, he had received 16 responses and ten references. The day that followed, being now in a position to say that VeriFone had four hundred thousand installations all over the world, the sales rep closed a very big deal with the Greek bank (Stoddard, Donnellon and Nolan 4).
In the present business world, another important concept that is assisting the organizations to win a competitive advantage is knowledge management. Information has to be shared across the company and this is what had enabled VeriFone to widen its customer base and increase sales.
In the year 1997, there were three sales organizations which were geographically-based. In the U.S, VeriFone delivered its secure payment system products directly to “major retailers, petroleum companies, convenience stores, banks, and transaction processors, and indirectly to retail merchants, healthcare providers and government agencies through a variety of distribution channels” (Stoddard, Donnellon and Nolan 4).
In other regions such as Europe, Africa, the Middle East, Asia, Canada and Latin America, the selling of this company’s systems solution was done in a direct manner to the merchant service providers and it was also done directly through a network of distributors referred to as “VeriFone International Partners” (Stoddard, Donnellon and Nolan 4).
Moreover, VeriFone client/server and network management software products, as well as its systems integration services for the internet, were directly sold to the financial institutions, processors as well as to retail organizations (Stoddard, Donnellon and Nolan 4). The choice of the way to distribute and sale products depend on some factors. A successful organization is the one that chooses the right distribution channels and VeriFone has proved to be one of them.
As the significance of a company’s product increases, the company has to take appropriate measures to respond accordingly in order to continue serving customers effectively. After recognizing that the importance of software and services was increasing, the company added two more business groups.
One of them was the ‘Centum Consulting Group’ which was formed in the year 1996 in order for it to offer advisory services to the clients in regard to the electronic payment strategies and alternatives. The other one was Professional Services group which assisted in designing, building, supporting and managing electronic payment solutions for the VeriFone’s clients (Stoddard, Donnellon and Nolan 4).
Operations Management
Each and every company operating in whichever industry has to develop a particular culture that has to be adopted by the employees and the management in order for it to be successful in its operations. VeriFone developed a culture of sticking closely to its values that it set up.
Since its inception, the company’s management has identified “individualism” as being a starting point of inventiveness. The formalization of this practice was carried out in the year 1987 with, as pointed out by Stoddard, Donnellon and Nola, “the philosophy document publication which stated clearly that; the people who know best how the job should be done are the ones doing it.
We involve employees directly in the management of their own areas of responsibility”(Stoddard, Donnellon and Nolan 5). When the employee described what it was like being an employee at VeriFone, they characteristically gave out comments which served to give evidence that the company was actually dedicated to this deal.
An example is given of one employee who was asked about what he felt was special about the VeriFone Company in which the response was that; “the people, its culture of urgency and the autonomy to do your own things” (Stoddard, Donnellon and Nolan 5). When the senior vice president in charge of global marketing and software division, Lloyd, was asked to comment about the company after being there for one a half a years, his response was; “VeriFone is the biggest start-up that I have ever seen.
There are pockets of innovation everywhere” (Stoddard, Donnellon and Nolan 5). As it may be established, this company developed a culture that promoted commitment among the employees and the management towards achieving the set goals. Any organization that offers a chance to its employees to be innovative is in a better position to identifying and capitalizing on opportunities and in turn achieving high performance.
It was pointed out by one senior executive in the company that the best description that can be given to VeriFone environment is that it is an entrepreneurial one. Those executives who attain success at this company are normally those who are driven to succeed and those who obtain self-esteem from the work they do. The company has a workaholic culture (Stoddard, Donnellon and Nolan 5).
It was also pointed out by another manager in the company that those in the management positions at VeriFone are not told what they are supposed to do. “They are held accountable for their actions/performance but this is an environment where people are rewarded for taking risks and trying new things” (Stoddard, Donnellon and Nolan 5).
Allowing people in an organization to come up with and to present new ideas or being innovative and in turn rewarding them for their positive contributions encourages them to work even harder with much enthusiasm to ensure the company’s goals and objectives are achieved.
There is need to put in place some clear incentive plans. Employees who are motivated feels they are part and parcel of the team and will always work hard to ensure the team wins. Some incentive plans were put in place for the company’s employees as well as for the executives.
In the year 1995, there was introducing of a profit sharing plan. Under this plan, the company’s employees were given a payout equivalent to approximately 5 working days of base salary earnings in a situation where the company would have achieved its “target net income after taxes equal to 9% revenue” (Stoddard, Donnellon and Nolan 7). On the other hand, the incentive plan for the executives was not similar to this one.
A description was given by one of the executives that; “the profit-sharing plan encourages innovation and risk taking…..the benefits of succeeding are very great and the penalties for failing are not so great as to discourage you” (Stoddard, Donnellon and Nolan 10). For those executive having significant business unit responsibilities, the company’s plan offers bonuses on a “steeply ascending sliding scale” beginning from a minimum of 10 percent o a maximum of 100% of salary for going beyond the financial objectives for the net income as well as EVA.
It is noted that, ”there are no financial consequences for not meeting objectives, but everyone knew Tyabji noted and remembered such performance disappointments” (Stoddard, Donnellon and Nolan 7). The success of this company and subsequent market leadership can as well be attributed to such incentive plans.
Opportunities and Challenges
Globalization has caused great changes in the global market. These changes have brought in opportunities which the business organizations have capitalized on as well as challenges that organizations have been trying to overcome.
Considering the case of the industry in which VeriFone has been operating, it is realized that, following the increasing globalization; the nature of electronic payments are expanding at a very high rate, with the technologies that are coming up creating new opportunities in the markets such as; internet and consumer systems.
In the year 1996, it was pointed out by the Company’s Chairman, CEO and President, Hatim Tybji, in the letter he wrote to the shareholders that; being the world leader in electronic payment systems, VeriFone Company is in a better position of leveraging its competencies, the company’s clients and technology partner relationships, and its resources in pursuit of these opportunities.
He is quoted to have said “….just as we made ‘Slide and Go’ credit and debit card transactions fast, secure and easy, we are aiming to make ‘Click and Go’ secure internet transactions a standard payment solution” (Stoddard, Donnellon and Nolan 1).
In the year 1997, during the month of July, the VeriFone Company went through a transition. It was at this point that HP acquired it and the various internet strategic alliances “positioned VeriFone for the future” (Stoddard, Donnellon and Nolan 1). However, management challenges came in at this point following the changing nature of the company’s products. It is reported that one of the company’s employees pointed out that: “Historically VeriFone sold gray boxes. Today, we are selling client/server Java-based systems and a myriad of peripheral devices.
The skills that a sales person needs to be successful are fundamentally different”( Stoddard, Donnellon and Nolan 1). While the company’s president looked to the future, he had to make sure that the company had the suitable sales force as well as resources to develop and sale the company’s future products as well as services in the global market.
Financial Management
Every organization engages in managing and controlling its fiancés to ensure effective operation and each organization may set up its own unique plan depending on the decisions made by the management. The annual planning process in VeriFone Company commenced with the senior management setting up a three-year plan. “The financial targets for Economic Value Added (EVA), revenue and GM were then proposed for and negotiated with, each business unit” (Stoddard, Donnellon and Nolan 8).
The tracking of performance was carried out on a weekly basis by the controllers and there was sharing of this with the top 250 individuals within the company (Stoddard, Donnellon and Nolan 8). The introduction of the EVA measure had just been done recently as an executive performance measure.
This one encompassed the fixed assets measures, accounts receivable and inventory management and it constituted a half of the bonus of an executive. This half or 50 percent was on the basis of the revenues and the contribution margins.
Zaelit, the company’s senior vice president in charge of the Finance and Administration Division, characterized the company’s controls generally as “fluid and relevant” (Stoddard, Donnellon and Nolan 8). The company’s senior vice president for Global Marketing and development, Lloyd Mahaffey, pointed out that; whereas the business metrics are of great significance, on the other hand, they were not necessarily the best effectiveness measures in the market.
Lloyd Mahaffey went on to give a description of a set of marketing activities which he referred to as “constantly tuning in to the market” (Stoddard, Donnellon and Nolan 8). The accomplishment of this tuning was realized through sending e-mails, having face-to-face communication with the clients, making conference calls with the field representatives, reading information on customers, the competitors, and channels as well as information on technology.
Lloyd’s direct reports gave weekly revenue projections, the contribution margin, fresh business prospects and the targeted dates for closing.
Control measures are very important for any company. When appropriately applied, they assist in reducing costs and improving performance. Workers within the organizations are expected to meet particular set targets. The executive vice president in charge of manufacturing and distribution division, Jim Palmer, characterized his control measures in VeriFone in the following manner:
My organization is expected to meet costs and dates and exceed quality…more explicitly; manufacturing is expected to systematically reduce cost of goods sold and development is expected to release products for production when we said we would. Additionally, it is understood that managers and employers at all levels are expected to meet their commitments and improve.
When I review the performance of managers in my organization, 20% of the review is focused on how well we are meeting operating goals, and 80% is focused on what we are doing to improve. We must prevent atrophy (Stoddard, Donnellon and Nolan 8).
As it has been established, by 1997, VeriFone had an impressive performance and had a very promising future. In 1996, the company received total revenue of over $470 million and its net profit was over $39 million. This performance was higher than that that had been realized in the precious year (1995).
There was a 21 percent increase in the revenues in the year 1996 as compared to the previous year. In 1995, the revenue was about $387 million and the net profit was about $32.5 million. The net profit had also risen by about 21 percent. This was not the starting point for the company’s growth and good performance.
The company had grown rapidly starting from the early 1990s all through to the mid-1990s and during that period, the annual growth rate was in excess of 25 percent. Basing on the measures that were being taken by the company and on its past performance record, the company was set to grow even more.
Conclusion
Having an agreement that it will go on operating separately as a wholly-owned subsidiary of HP, the VeriFone Company seemed to be destined towards having continual success. In a similar manner, the strategic alliances in which the company got involved including those with such companies as Netscape and Microsoft among other technology vendors gave a suggestion that this company was well positioned.
While the company’s president, Tyabji, together with the company’s senior management team forecasted in to the future; their intention was to ensure their attention was focused to make sure that the company remained to be a leader in the payments marketplace. The organizational as well as the operational issues were in the forefront of what they had in mind.
Works Cited
Stoddard, Donna, Donnellon Anne, and Nolan Richard. “VeriFone (1997)”. Harvard Business School Review 398.30 (1999): 1- 20.