Metropol Base Fort

1. The Security Industry/Market and its Impact on Metropol The security market in Canada is characterized by increasing industry demand for security. Growth in this market will attract new competitors to an already flooded industry. Because startup costs are low, new competitors enter the market easily. Increased competition threatens Metropol’s potential client-base as customers often view the security industry as homogenous. The compatibility of products and services between security companies increases the ease with which customers can switch to competing firms. Firms attempting to penetrate the market by undercutting industry prices cause the industry to be typified by low pre-tax margins. Therefore, cost control is necessary to maximize profits. Most buyers are influenced by the lowest-price offering, while some are willing to pay extra for quality and reliability. Low-price and high-quality orientation effect Metropol’s market opportunity as it is difficult to offer reliability and quality at a competitive low cost. ESD sales are projected to triple in the security market in the next three years, overshadowing security guard demand. If Metropol does not offer ESDs and hardware, it will lose a significant market share because customers prefer firms that provide comprehensive security coverage. Metropol’s market reputation will suffer for not providing current products and services. ESD sales would increase Metropol’s product portfolio and customers perceive advantages in one firm coordinating total security coverage. Lease and service contracts from ESD sales would provide Metropol with additional sources of revenue and increased customer switching costs. Realizing that ESD products can replace the presence of security guards in some situations, Metropol can

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exploit this trend – rather than fall victim to it – by entering the ESD market. The profit margin on ESDs is also larger while they incur fewer costs than security guards do. The Ontario market is significantly larger than that of western Canada. Metropol’s reputable levels of quality and reliability should attract a portion of the corporate market. Although the market is difficult to penetrate, establishing a presence will increase revenue for Metropol. Growing without a presence in this market will be difficult. The security industry is projected to become more formalized and standardized with respect to security training. Formalized standards may cause a perceived differentiation to customers seeking quality-driven firms compared to the lowest-priced firm. Metropol has the opportunity to differentiate itself and more effectively meet customer needs by yielding to this trend. Because Metropol is already further established as a trainer/educator, standardization costs will be lower than comparable firms. The crime rate in Canada is increasing and government protective services are not increasing proportionally. Metropol can increase its market share by filling the gap. Government could at anytime increase their presence in the market, thereby reducing Metropol’s potential market share and increasing indirect competition. 2. Competitive Advantages held by Market Share Leaders According to surveys, the most important attribute for security consumers is consistency and reliability. Any firm that can effectively focus on these attributes gains an advantage. A recognized and established name in the industry differentiates that firm in an almost homogenous market. These advantages lead to an increased market share for the firm.

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Organizations that utilize economies of scale lower direct costs and increase profit-margin on existing jobs. An infrastructure that is established and efficient provides an advantage in a market where recovering expenses is difficult. Possessing an experienced and productive management team allows high productivity for low input and keeps costs down. Cost control enables firms to bid lower. The hardest competitive advantages to acquire are arguably the most powerful. Affiliations with producers and distributors allow a firm to buy needed products at a discounted price, further reducing costs. Relationships with large corporate customers can provide a firm with a stable and reliable source of revenue. 3. Metropol’s Strategic Strengths and Weaknesses Metropol has significantly more strengths than weaknesses (appendix A). Strategic strengths and weaknesses within Metropol are comparatively equal. However, Metropol’s shortfalls are all strategic weaknesses while many of their strengths are tactical strengths. This inequality demonstrates that short term management of the company is exceptional, but some long term problems need to be dealt with. A majority of Metropol’s strengths stem from exploiting competitive advantages. Metropol has an established brand name that is recognized by consumers as standing for quality and reliability. This advantage differentiates Metropol from much of their competition. Metropol commands the third largest market share in Canada allowing them to utilize economies of scale. Experienced and productive employee management, proven by their leading employee efficiency ratio (appendix B), improves cost control. Pat Haney himself possesses a very developed understanding of the scope of Metropol’s abilities. This understanding allows planning that is realistic.

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Metropol’s weaknesses are created by what they fail to do. Metropol does not provide ESDs or hardware; they cannot provide customers with a full security package. Metropol has not differentiated their offerings to segments within the market. These failures homogenize the firm, sacrificing potential market share. A detriment to market share is the customers excluded by not realizing a presence in Ontario. Metropol has no clearly defined mission, and hence, no strategic direction. Although many options are available, until a direction is chosen, only tactical strategies can be carried out. 4) Identify and evaluate the strategic growth options available to Metropol: A strategic growth option available to Metropol is geographic expansion into the Ontario security market. A merger with an Ontario company lowers entrance costs as it acquires existing infrastructure. The merger can increase Metropol’s market share by assisting in penetrating the market. The merged company provides Metropol’s business with customer and producer/distributor relationships while Metropol retains its brand name and customer loyalty. Increases in economies of scale are attained by entrance into the Ontario market. Alternatively, expansion into the Ontario market could mean loss of the assimilated company’s brand loyalty and dilution of Metropol’s administrative expertise. Metropol must integrate the employees of both companies which may lead to increased distinctive competency or organizational detriment. Acquiring the assimilated company’s reputation may be positive or negative. The purchasing of a local company has many of the same characteristics of the merger method; certain pertinent issues do arise. The purchase of a local company requires a larger cash investment. Purchasing an Ontario company would allow Metropol to retain complete control over operations and incur no loss in administrative advantages.

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Bidding on contracts in the Ontario market is a passive strategy that may result in a substantial cash investment because Metropol must purchase offices to service its first customers. The merger option is the most attractive from a cost-benefit standpoint. However, these three growth options into Ontario only expand the company and are not strategies for future growth. A focused strategy defines the mission that Metropol is lacking, allowing them to create effective marketing strategies. Such focus incorporates a value-added approach to attract a large number of security-conscious clients and persuade less security-conscious organizations to spend more money on security. This method provides Metropol with a focused mission, lower costs, higher profit margins, and lower employee turnover due to above average salaries. This narrow strategy ignores some future trends in the security market such as the ESD boom. Some contracts will continue to go to the lowest price no matter what the level of service may be. However, this focus provides a better retention of current clientele. The expansion of Metropol’s product line, especially into that of the provision of ESDs, addresses future trends in the security industry. The sale of ESDs by Metropol provides customers with the complete security package, leading to differentiation. The electronic surveillance market will provide higher profits due to the larger profit margin on ESDs. Metropol’s adoption of ESDs into their product mix gives the company a plan for future expansion and allows them to make exclusive relationships with manufacturers. Growth into the security market, especially ESD sales, requires significant financial investment. ESD sales may reduce the demand for security guards.

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To facilitate growth, Metropol can diversify its service offerings into other areas. This strategy is an easy way to differentiate with little risk and low cash investment. Such differentiation of service will increase market share. Metropol’s administrative competencies will be attentive to an area not consistent with growth and may cause current clientele to misinterpret Metropol’s focus. This growth option causes Metropol to lose sight of its mission statement and in no way develops the organization within its relevant market. Metropol also has the option for growth in the consumer market where it could provide related security products. Greater exposure of name, increased product line and other sources of revenue serve as factors that may influence growth for Metropol. Metropol does not currently deal with hardware, and as such, this may be too much of a leap for them. Hardware and ESD services must be developed before Metropol can enter the consumer market. This option requires heavy cash investment and also blurs Metropol’s mission statement. 5. Recommendations Metropol needs to build two tactical and two long term strategies. The tactical strategies include refining their mission statement and introducing hardware and ESDs to their list of offerings. The strategic directions involve focusing on the customer to segment the market and eventually expanding operations to Ontario. These strategies will eliminate several market threats and takes advantage of many market opportunities. Metropol needs to define their mission: to focus on providing specific services to each customer. The effects of defining a mission include the increase of brand equity and a clearer understanding of consumer needs. Metropol also needs to introduce ESDs and

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hardware as an immediate attempt to serve individual customer needs. By expanding their product portfolio, Metropol offers complete security coverage and is prepared to take advantage of future trends. Hardware and ESDs create customer dependence by increasing switching costs due to contractual relationships. Strategically, Metropol must focus on providing “levels” of service congruous to different demands of the market. Because Metropol’s customers range from quality oriented (willing to sacrifice cost) to price oriented (willing to sacrifice quality), various options are needed to provide for each customer’s wants. Customers that are quality oriented, for example, will pay the higher price demanded by better trained guards and increased service (e.g. 24hour dispatch). Alternately, price oriented customers will gladly accept basically trained guards and basic service (e.g. 9-5 dispatch) if the cost is low. The point is to manipulate the product offerings to match the customer, not to manipulate the customer to match a single offering. When these strategies have been implemented, Metropol will be better able to satisfy its current clients, inducing customer loyalty. These strategies will also increase Metropol’s ability to attract new customers because of their want-matching system. Only at this point should Metropol devote its resources to increasing market share in an expansion to southern Ontario. When this expansion is deemed necessary, merger is the desirable option. By merging, Metropol avoids infrastructure setup costs, utilizing a competitive advantage the moment they enter the market. To grow in the security industry, an Ontario presence must be achieved.

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APPENDIX A SWOT Analysis Strengths - Third largest share of the market - Established brand name - Recognized quality & reliability - Economies of scale - Very efficient administration - Very good cost control - Efficient employee management (low employee efficiency ratio) - Differentiated level of service - Increased switching costs (from education) than competition  Assume greater customer loyalty - Able to collect accounts receivable quickly - Swift and responsive customer service - Many strategic options - Developed understanding of scope of abilities Opportunities - Market expected to grow, double security guards and triple ESDs demand - ESDs have a greater margin, possibility of obsolescence - ESDs create company loyalty - Room to grow in current market by stealing customers from weaker organizations - Insurance costs increasing (less indirect competition) - Crime growing faster than Government crime fighting - Residential market requires similar services (not security guards) and market is similar - Industry becoming more formal and standardized

Weaknesses - Does not offer security hardware (therefore no full-package offered to customers) - Not completely national - No strategic direction - Mission not clearly defined - No segmentation of market

Threats - Industry has bad reputation for quality and reliability - Low startup costs - Perceived switching costs are low - Low pretax margins - Differentiation difficult - Increased ESDs means lower security guards required - High turnover (approaches 100%/yr) - Most of market is lowest-price oriented

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APPENDIX B Employee Efficiency Ratios

The employee efficiency ratio, given by formula 1a, was designed to analyze the number of employees a firm requires to generate $1 of revenue. The lower the ratio, the more productive employees are in general. This ratio is only effective when comparing similar industries. 1a

Efficiency Ratio = # of Employees Annual Revenue

Efficiency Ratios of the top 5 market-share holders in Canada (followed by rank) Pinkertons

0.000092

2nd

Burns

0.00015

4th

Metropol Base-Fort

0.000067

1st

Wackenhut

0.00017

5th

Canadian Protection

0.00014

3rd

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