Last months I have been thinking about how companies’ strategies can be seen in the operative every day working. As I work in the security business. There are remarkably interesting phenomena forming in the industry. As we look in the last decade there have been forming three bigger companies, two of them from old phone companies, and one by acquisition. This will remake the old industrial platform. I will try to compare these changes and make a suggestion where this will take us. At this point all of them are in the growing and developing state.

I worked in the security in the 90 and ’00's, figures that I present along the way are based on that time. As the industry was before, it was formed of these smaller companies, which were structured as one sales point and one company, revenues approx. at 0.5 to 3 M€. These companies were run mostly with good affordability. Sales structure was made from services and industrial sales. These structures did not have organizational heavy elements. If we scale this ratio down to ratio between staff and management (s/m), it was around 1:7. Employees calculated dynamic return was at 80%. At the same time sales were between 15 to 25 % of profits. This business model was formed by 60%:20% ratio to revenue from component sales compared to service sales. This was the time that there was a change for a blue ocean strategy when these companies identified with the manufacturers, this made these companies customers best change for service specific and regional service. I do not include franchising or brand sales networks here, as they still were as company level these smaller companies.

When we think of these new bigger companies, revenues at 20 to 100 M€, and these figures are presenting only the security business because some of these companies are much bigger as they operate on other industrial levels as well.

As I went through these company’s affordability, in the best manner I could separate security business from the rest. Affordability is dropped remarkably close to zero. When I was talking about the earlier proceeds, those were raw profits. This means we must take out the employee’s and companies' constant development cycle. Still, at that time there was a margin for profits. As products develop without model series today, we are talking more about versions. This means we cannot see one employee's profit-making capabilities at 100%, as it never can be, more influencing reducing element is going to be the ongoing need for individual development. Factually it is at approx. 65%. As we look at the bigger company’s staff/management ratio it is at 1:5. Blue ocean strategy is destroyed as we look at these new players. Manufacturers cannot make so exclusive contracts anymore, as the players have become more influential, and of course Finnish market regulation prevents it in bigger situations.

As we adapt these component’s we can see that total yield is redacted by these factors, 1:5, -15% s/m and product sales profits are closing to 10%. This means that these companies are going to make nothing compared to the level of affordability before, as they are going to pay more for the work they can do. There are some ideas as these companies are going to the right direction as they are not making drastic losses. I see it as making efforts to make service business more defining instead of contracting business.

Service business seems to be a good comparable, as we can see when we look outside of the security cluster. When we look for example at Kone Oyj, they have managed to make this service clientele as important as the new product sales. If someone says that they are working on special products, I will say that they are in the same definition as security. Their counter players are global, but as restricting.

I would not be so concerned about these aspects, but we are going towards economic depression again. And it would be sad to see these newly formed players to decay in that coming time. As we have seen before this point, companies cannot rely on good relations, when economical aspects are becoming more important. Everybody is going to look for the most affordable choice, so as security business cannot rely on “good friends” anymore or those well-established connections. Today there are still fewer clients that rely on trust and loyalty when we think about security as one of the basic needs. Even this aspect has changed along the way. Security has become a standard sales product, not something that can be valued separately by the customer.

So, where should we be going with these bigger companies, my thoughts are that you cannot see these companies anymore as they were. We are talking about business units and sales areas. In the strategical level, I assume that we break the traditional unit cycle hard. And as we enter more closely to the traditional market, should these companies adapt to the ways of these?

There are some ideas that we should consider and some of the companies are at this point refining towards.

Firstly, there is this blue ocean strategy, which one of these larger companies is seeing as a solution. We make a service or product that, we can rely on our sales as unique. Currently, this means mostly software engineering and development. Or maybe some traditional kind of service that others do not offer or mainly cannot offer. These are the choices for a company that does not have to look for a governing factor in their business. I have repeated this many times now, but my understanding is that it should be defining element still. What are the possibilities to achieve this, at this point, is a question about each company’s possibilities to make investments in their own R&D, as it is not possible by the manufacturers?

Secondly, if we cannot see the chance in the product repertoire, there might be a chance reforming the business on the service side, we forget these concepts of stores and contracting business. So, these organizations could make these repertory units instead, where we could adapt this idea of customer-centered teams, as I defined in my earlier article. As the regular contracting business effort is relatively short, these teams would manage new customers as they would be a strong counterpart for the service customer’s needs.

Third option could be, and I mean this is the green mile option, to create balanced and transparent business model. Based on pure facts, we counter in all the costs, even these mentioned hidden ones. By this definition, these costs are to be made aware on the transparent cross-line between collaborating companies. Then we make the service model as the only core business. We will offer reliability on a new level; we are not going to handle customers as one-time memories. The idea would be making life-cycle-based contracts. Maybe this would be the chance to create widespread service threshold to service market. Traditional industrial sales would be only the beginning for it and this threshold should be built as the new blue ocean. But as mentioned, this is the green mile choice, this kind of business is going to be extremely hard sale on its own. The idea will have to be made in a change on the customer side.

As in numbers, there are so limited options. We could reduce fixed cost or the prime costs. We go towards the blue ocean strategy with products or we make our selves more unique in the market as service providers. In the end I would like to see who is capable to make this section of industry affordable, in the same time making it transparent. This article is about towards micromanaging transformation, as at this point cannot be seen in any other way. As a structural change, the whole concept of the choices will be too heavy.

This is related to the understanding of a strategy, and how it is handled inside of the organization. The studied level of awareness to make it operational is at the mid-management level. But this idea builds up from Paula Jarzabkowki´s and Richard Whittington’s book Strategy as practice 2008, as they defined it as collaboration of all levels of operation working together. But these are ideas forming straight from point A to C, as I see it, strategic development should proceed as one-time steps. This is an assurance that development is going in the right direction. This would be remarkably interesting area of development, how to make the B step and beyond, which I would like to refer on my upcoming thesis.

I did not go through every aspect of the industry, for an example how far reaching these companies are at this point. How they are trying to include too much different areas of business in their core. This and the duality of the core business definition are going to be as important, but maybe I will approach these matters in the next article.