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timer Asked: May 2nd, 2020

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SMB Case – Rock Solid Industrial Parts, Inc.

(Information for: Case Analysis, Presentation and Briefing)

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SMB Case – Rock Solid Industrial Parts, Inc. (Information for: Case Analysis, Presentation and Briefing) The Opportunity You work for a family owned industrial parts distribution business (Rock Solid Industrial Parts, Inc.) located in San Jose, California that is expanding very rapidly. Currently at about 36 employees, the business is expected to grow to over 70 employees within 3 years and cover the entire west coast and mountain states. Current sales of $33 Million/year are expected to more than double to $72 Million in that timeframe. Your background and education (MIS from SJSU) has made you the go-to-person for all technology related issues in the company. As the only individual in the company with a technical background, the Owner/CEO of the company, Philip Hurd, has come to you for advice on what IT/IS systems the company should be thinking about implementing to enable continued profitable revenue growth by improving the efficiency and effectiveness of the business over all. You know the company is in the process of hiring a Senior Director of IT, Janice Drake, who is a relative newcomer to the industry and may not be onboard before the presentation is due. This is your big opportunity to show what you can do to help drive continued growth as well as insure the solutions you pick today will continue to scale with the business over the next decade. A great job will look good on your resume. Background In the late 1930’s Philip Hurd’s grandfather, Hugh Hurd, started an industrial parts distribution company in Sunnyvale California close to the Joshua Hendy Iron Works. Upon returning from the Pacific after WWII, Hugh’s son Jack took over the business and moved it to its current location in South San Jose. Throughout their high school years his sons Philip and Tim worked in various roles within the company gaining extensive working knowledge of the industry. In 1970 Jack retired leaving the business to Philip and Tim. Today, Philip (61 years old) and his brother Tim (59 years old), CEO and COO respectively, run the company. Their high school buddy Don McCloud (60 years old) is the CFO. David Simpson has been with the company for over 25 years moving up the ranks to VP of Sales. The four C-level executives are steadfast golf buddies, playing almost every Sunday at the Silver Creek Valley Country Club. Tom Smith, Regional Sales Manager for the pacific states is married to Tim’s daughter Becky. When David retires, he will most likely become the VP of Sales. Philip’s son, Phil Jr, is planning on leaving his finance job at Northrup Grumman to join the business as CFO when Don McCloud retires in 5 years. Having worked outside the family business for many years, Phil Jr. sees the potential for growth and is the main strategic architect for growing the business. He has counseled his father on what technologies might be needed to expand the business. Being in finance at Grumman, driving profitable revenue growth is his primary objective. He operation is heavily supported by IT/IS so he knows the potential benefits of technology use in a business. When his father retires in 10 years he will likely become CEO. 1|Page The Strategic Plan The strategic plan is to grow the company from current sales of $33 Million/year to $72 Million in three years by aggressively expanding into southern California and the Mountain states. Jim Donner, a 27 year veteran employee and rising sales star, has been chosen to lead the effort in the Mountain States. A mixed model of direct and independent sales representatives supported by inside sales has worked well for the company over many years so the intent is to continue the model. The company has no sales offices – The Sales Reps all work from home or an office of their own choosing. Southern California will have a small satellite office in LA or San Diego and the new Mountain States Region will have a regional office in Denver. Current Staffing 3 Year Expansion Plan Headquarters Office San Jose Southern California LA or San Diego Mountain States Denver C- Level Executives 4 0 0 Operations 5 0 0 Finance Accounting & 4 1 (Doubles as Office Manager) 1 (Doubles as Office Manager) HR 1 0 0 Marketing 1 0 0 Admin 3 0 0 Sales Field Sales 10 + 1 RSM Inside Sales 4 Apps Engineers 2 Field Sales 10 Inside Sales 4 Apps Engineers 2 Field Sales 10 + 1 RSM Inside Sales 4 Apps Engineers 2 IT 1 Technician (addition of 1 0 senior manager and 2 staff planned) 0 In this type of business, long term relationships are very important. Sales reps tend to bring their best customers with them as they move from distributor to distributor. Rock Solid is intending to leverage this fact to grow very quickly by sticking to an experienced independent sales representative model with only a few direct sales people for large critical key accounts. 2|Page Sales Staffing Table Year 1 Year 2 Year 3 Revenue $40 Million $55 Million $72 million Sales Headcount 17 35 50 Accounting/Office Mgr 2 2 2 The company plans to use technology to minimize operating overhead as they grow and to keep the organization as flat as possible by improving the efficiency and effectiveness of the organization. The Organization The Headquarters’ organizational structure and operational functions are very typical of an old line industrial distributor. (Blue = Existing Organization Green = New Positions being added) Philip Hurd CEO David Simpson VP Sales & Marketing Marketing Tom Smith Jim Donner Regional Sales Mgr Pacific States Regional Sales Mgr Mountain States Don McCloud Tim Hurd CFO COO Finance & Accounting Shipping and Receiving Inside Sales Inside Sales Janice Drake Senior Director of IT Inventory Management Outside Sales & Field Applications Outside Sales & Field Applications Human Resources Facilities Advised by Phil Jr., Philip Sr. is driving the change. Having read about the benefits of CRM automation, David, acknowledges the need for better technology as the sales force grows in number and territory reach. Don McCloud, CFO, has serious reservations about changing anything. His tight control of the financials has kept the company very profitable even during the “great recession” of 2007/2009. Everyone in the company is making good money. His view: “Why change what isn’t broke?” Don is not technical (he gets his technical information from the Geek Squad) and doesn’t appreciate importance of technology’s role in helping companies scale. Tim Hurd, COO, is on the sidelines with a wait and see attitude. As an executive team, they have all agreed to give the Strategic Growth Plan a shot and on the advice of Phil Jr. they have hired Janice Drake as Senior Director of IT from a small technology company in San Jose to manage the new IT/IS implementation. You will most likely report to her with a promotion if things go well. They are even thinking about remodeling the office space to make it look more modern and inviting. 3|Page The company is not very technologically oriented. Today, most everything is being done with desktop computers, paper forms, Excel and Quicken. The company has only a rudimentary online presence and an antiquated Plain Old Telephone System (POTS). Most of the workers are conservative, older (average age 55) and have been with the company for more than 25 years. They are comfortable with computers but do not Facebook or TXT. Many do not even have smartphones. In short – they are not very technically savvy and will likely be very resistant to change. The current field sales operation is very local. Even though most of the sales people work from home, they come into the office every Monday morning for a weekly sales update meeting (issues, resolutions, sales forecasting) that sometimes includes training by key vendors. During a brief conversation with David (VP of Sales and Marketing) you discovered vendors often require both a white board on which to draw diagrams and a projector for PowerPoint slides during training meetings. Provisions must be made to continue these meetings to include sales people who are in remote locations or working from home. The Warehouse Operations is automated to the degree that they use barcode scanners, however, there is no automated inventory control and no LAN in the building except in the front office. Everything is handled with Excel spreadsheets that are PDF’d and emailed weekly to the sales reps. Inventory management is becoming an issue. Today there are 100K SKUs in inventory and growing as they expand into new repair service areas. A small room is located in the building at the comm utility point of presence. A high-speed commercial grade fiber internet termination is available but un-used. AT&T consumer DSL plus consumer grade switches are currently supporting the company’s connection to the internet. An old PC is being used as both an FTP and a print server. The desktop PCs are old and running Windows 7 – some are still using CRT monitors. The PCs are running various older versions of MS Office and QuickBooks is being used for the accounting software. HR is completely paper based with payroll outsourced to ADP. SMB Overview Over the past decade, the small business market has become a popular and increasingly contested market for technology companies. While there are many definitions of what constitutes an SMB, the most common are based on the number of employees. Generally, businesses with fewer than 100 employees are classified as small and those with between 100 and 250 are classified as medium. The opportunity in 4|Page the SMB market is significant; however, the large number of small businesses and the low IT spend per business makes it a difficult market to penetrate. For example, according to Compass research, there are 2.4 million businesses with fewer than 1,000 employees in the US and 2.3 million of those have fewer than 100 employees. Small businesses constitute the majority of businesses worldwide and they are growing at a faster rate than large enterprises. According to IDC, worldwide SMB IT spending continues to grow beyond the halftrillion-dollar threshold at roughly 2 percentage points over the rate of GDP. SMB IT spending will be approaching $700 billion in 2019. In a recent market research study conducted by Compass, small business owners identified their most important IT needs as: attracting new customers, serving existing customers better, increasing employee productivity, lowering operating expenses, and improving collaboration among workers. Now, more than ever, hardware and software technology companies are focusing on providing SMBs the products they need to meet these challenges. Technology Infrastructure Overview As a business’s networking needs expand, the need for managed switches increases. Managed switches are essential for larger networks and those with voice or video traffic (video conferencing) which needs to be prioritized above data traffic to ensure high quality feeds. Another important feature on managed switches is Power over Ethernet (PoE) used to supply power to devices such as wireless access points or IP phones so that these devices can be installed in locations that lack easy access to a power outlet. Routers are used to connect to the internet and to send traffic between Local Area Networks (LANs). Routers connect physically separate networks such as office floors, different office locations or VLANs (Virtual LANs) into one seamless network to the end users. Routers also provide additional security and protect against denial of service attacks and other security threats. Designing the right network architecture requires a degree of technical expertise that most SMBs do not have in-house. As a result, the majority of managed and unmanaged switches are sold through Value Added Resellers (VARs) who perform a network assessment to understand the business’ needs and then design the architecture, install the network and often remotely manage the network for the SMB. More advanced infrastructure technologies include security, Unified Communications, and wireless technologies: Security – Most vendors today build security features into every product it sells. In addition, many vendors also sell a number of other security products such as spam blockers, firewalls, and identity management software. Unified Communications – Unified Communications, or UC, is a broad category that refers to applications that combine voice, data, and video over the same network. Cisco is the worldwide leader in Unified Communications followed closely by Microsoft. Historically, PBX (public branch exchanges) were used as the network to carry voice traffic. However, with UC, voice traffic can be converted into packets and passed over an IP network and reassembled on the other end. 5|Page Combining voice and data networks generally saves businesses money because they only must maintain one network and allows for new productivity features such as accessing voice mail on the desktop as an example. Installing UC begins with a network assessment and often requires an upgrade to the existing network infrastructure to ensure that the network can support high quality voice traffic. Nearly all SMBs work with a VAR to conduct the network assessment and deploy the UC solution. One of the barriers to adoption of UC has been the upfront capital cost, which many SMBs are not willing to undertake even though UC will save money over time through lower telecom and network maintenance costs. UC adoption has accelerated in the Enterprise market over the past few years, but SMBs are only just beginning to adopt this technology. The most popular UC products for SMBs are IP telephony solutions, such as Cisco’s Smart Business Communication System that combines a network foundation with security, wireless, and voice applications all in one system. Wireless – Wireless networks consist of Wireless LAN controllers and access points (APs). Similar to UC, wireless networks have been widely adopted among large enterprises, but SMB adoption is much lower. Wireless products range in complexity from simple standalone access points that are easily installed and require little or no setup to more complex networks consisting of multiple APs integrated into a seamless m anaged network. In an industrial setting, AP specifications, placement and antenna design become more critical to maintain speed and connectivity than in a consumer application, particularly in buildings with metallic structure interference/multipath reflections. A standard consumer AP will not perform well in this environment. To help solve this problem, APs with MIMO and beam forming technologies use multipath reflections to gain significant signal strength and improve reliability. Improved reliability translates to a greater coverage area for a given data rate. As the complexity of the network increases, many SMBs will enlist the services of a Va lu e Ad de d R ese ll er ( VAR) to help them optimize the locations of the APs to avoid dead spots and improve connection speeds throughout their office. As a result, wireless products are sold through a variety of channels including retail, online resellers, and VARs. Wireless is high growth segment for SMB. Your Task Your task is to understand the issues involved and to apply new/modern IT/IS solutions to marketing, sales (independent mobile workers supported by an inside sales desk), inventory management and accounting to support the Strategic Growth plan. To keep overhead expense growth to a minimum the entire business must become more effective and efficient as it expands. Your budget is $250K to $750K. What do you recommend doing – Automate, Informate or Transform? How are you going to implement the chosen technologies considering that the workforce is old and not tech savvy? Knowing up to 80% of all IT/IS initiatives fail, what are you going to do to make sure you are the 20% that succeed? Consider all areas of the business system to include Technology (hardware, software and data), Process, People and Structure. Use the Enhanced Levitt Diamond Model as a guide to inform the elements of your solution. 6|Page ...
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