Usually, there are always some reasons why businesses make strategic choices, either due to their own ambition or failure. Therefore, let's look at some issues it was facing, before we discuss the decisions the Compsis made and why it was at such a crossroads. It is not only good to know the advantages and disadvantages of these strategic choices, but it is also helpful when we know the reasons behind these decisions.
The Issues
In 2004, its revenue fell primarily due to the Brazilian government's prolonged delay in awarding new toll road construction rights to concessionaires and also unable to win new ETV projects outside Brazil. Even though Compsis was making progress in turning its ETC software(SICAT) into a flexible product, it would be difficult to convince existing customers to upgrade.
The Crossroads
The CEO Ailton de Assis Queiroga and his fellow Compsis leaders anticipated that 2005 would be a better year since its new SICAT system would be ready when the Brazilian government was expected to award more concessions. However, if we look at the other side, the alternative is to expand its business elsewhere in Latin America or other developing ETC markets which are highly price-sensitive. Or, a mature market that is more likely to demand and pay for such as a cutting-edge product, the United States. In addtion, To widen its product suite by focusing more on other services and products such as ATMS, SMV, or SGM, it could broaden its portfolio and spread the risk. But if Compsis desire to grow, then Brazil was ultimately a limited market. Its relatively inexperienced with international and public RFP processes and small will be a big weakness.
So, which road would you prefer to choose if you are the CEO of Compsis? Remember, the resources are limited and it would be costly when you made your choice and regret it, or even try to turn back your wheel.
Understanding The Industry and The Markets
A modern toll plaza is broadly classified into three categories, manual, semi-automatic, and fully automatic. A manual toll collection booth accepted cash. A semi-automatic toll lane allowed cash collection, credit cards, coupons, and drive-through using RFID transponders. A fully automatic, unmanned toll booth only permitted vehicles that were RFID-equipped, and also linking the various lanes was a complex and integrated system of wires, detection devices, and software, both to monitor drivers and employees and to audit the receipts. Clearly, Compsis's advanced product was the third one, the fully automatic.
In Brazil, where Compsis was majorly operating in, most road operators were private concessionaires who collaborated with the government under the authorized contracts. In the US, the operators are not private since they perceive the road as a public good. Generally, globally, in this market, depending on the local competitors, there might be enough roads and contracts to uncover.
The Strategic Choices 1: Develop and Switch
In 1996, Compsis decided to expand its technology strategy into a new area, ITS(Intelligent Transportation System) particularly, the Electronic Toll Audit(SICAT), which provides integrated real-time management of all the processes of automation, accounting, and auditing of revenues at highway toll plazas. Switching its hardware business to software business. Rather than manufacture transponders, Compsis stuck to its core skills to integrate complex hardware and software systems. It was a strategic choice to switch to the low-margin business of hardware manufacturing. By 2004, the Compsis was deriving the majority of its revenue from SICAT implementation and maintenance.
The Strategic Choices 2: Outsourcing
Compsis designed its own SICAT software and then sub-contracted the hardware manufacturing to local suppliers, the sensors, high-resolution cameras, toll gates, and more. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure.
The Strategic Choices 3: Flexibility and Benefit The Partners
In the fall of 2001, Compsis began to upgrade its SICAT software even better. For a large toll road project in New Delhi, Compsis used early Java tolls to develop SICAT India, which introduced business intelligence tools to ease the operator’s tasks. Compsis designed its new SICAT, the SICAT XP, to be Web-based and flexible enough to be sold in modules, a more powerful, flexible, and user-friendly product.
The Strategic Choices 4: Expand for Survival
Compsis decided not to rely solely on its Brazilian SICAT business since its CEO Ailton and its board of directors strongly believe that any technology-based company in Brazil would be vulnerable if it were to depend solely on a single product line. Therefore, the company started to invest significantly in new product lines. Oftentimes, it is a necessary step for most businesses. For example, the energy giant Exxon Mobil and traditional auto manufacturers now have to transfer their business into the clean energy industry and electric vehicle business. In this case, Compsis was trying to broaden both its product lines and its geographical ranges.
The Strategic Choices 5: Alliance and International Expansion(Australia)
In 1999, Compsis collaborated with a technology firm, Philips, to implement its advanced SICAT systems for a toll plaza in Australia. Philips handled the hardware, the local operating contracts, and Compsis set up the software. It was quite a successful international expansion. In contrast to the work with Philips, in Brazil, Compsis had not formed commercial partnerships, even though it has strong relationships as a supplier to highway construction and maintenance companies.
The Strategic Choices 6: The Developing Country, India
In India, Compsis was not doing so well as it was in Australia. Not only the local contractors were unable to do the job smoothly, but also it was a very price-sensitive market. The same strategy Compsis adopted in Australia was not going so well while expanding to a developing country like India due to the economic situation and the culture. Moreover, it was a costly decision. Compsis have run out of the total budget for its engineering segment and even did not see any profit.
The Strategic Choices 7: The Latin American
According to the research that Compsis conducted, the Latin American market was projected to be small but growing rapidly. Countries such as Bolivia and Peru would like to purchase relatively simple and cheap solutions which are easy to implement. By partnership with the local commercial partners to win those projects, Compsis was able to obtain the growth.
The Strategic Choices 7: The United States
Putting its eyes on the United States was a reasonable thought because it was a huge ETC market, even larger than the sum of all the Spanish-speaking Latin American countries. In addition, it was a mature and growing steadily market that was dominated by several providers. Moreover, the major customers in this market are the Transit Agencies such as the Department of Transportation, which were line agencies of the federal or the state government. Those agencies may issue bonds to fund their expenditure on public construction. However, to enter this market, Compsis has to understand the RFPs processes(the open Requests for Proposals), a competitive, well-regulated bidding process with clear guidelines and procedures. Those procedures are considered mostly on the ability, quality, past performance on similar tasks, technical proposal, and cost of the project. Clearly, Compsis is pretty good at these evaluation criteria. However, in light of the size and complexity of the market, the Compsis directors knew that it would be no trivial matter to find and obtain ETC projects in the United States. Despite its strong quality reputation among industry competitors, as a market entrant Compsis would be virtually unknown among the transportation agency and authority buyers in the U.S. Moreover, to enter the U.S., Compsis was considering a broad range of approaches, including opening its own sales office in the U.S., partnering with a U.S. firm, pursuing a preferred vendor status with a construction company, or selling through a value-added reseller.
In conslusion, resources are so precious in the business world. We all desire to have a infinity symbol in our bank account but it is so hard to get all the things we want. Rather than rely on day dream, make a real plan to achieve each of them is a more achievable idea. In this case, Compsis could not win all the market it wanted by one single solution. Therefore, putting more budgets on the highest yield project is a rational choice. However, these kind of choices sometimes mean missing the best opportunity to expand and grow. As 2004 drew to a close, Ailton knew that Compsis had several months of operating cash in the bank. Perhaps the best option was to wait out the current drought, expecting that the Brazilian government’s funding for toll concessions would rebound as predicted.
References
Compsis at a Crossroads, a case study by Lehrich, M. J., Paredes, P. J., & Ravikumar, R
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