Question

After having initially started out in 1988 as a reseller of third party software to small distribution businesses and corporate systems for retail home offices, by 1993 Datavantage grew to 16 employees and $1.5 million in sales with only $50,000 of external financing. Very few products were developed internally and, by 1993, Datavantage was slowly transforming itself into a consulting company. Despite relative success, it wasn’t exactly what Marvin envisioned to be an exciting entrepreneurial opportunity and he was ready to get out of the business. A radical change was needed in order for Marvin to consider staying and growing the company. The opportunity for change arrived in 1994 when Datavantage acquired the services division of LDI, with Chaz joining Datavantage as part of this acquisition. LDI was a reseller of products for store systems and provided a complementary foundation for Datavantage’s further development. This dramatically changed Marvin’s perception of Datavantage’s future potential. Also in 1994, the organization made a conscious decision to better control its own destiny and transition away from reselling third party software and into internally developing its own Point of Sale software products. After developing Store 21, a complete store management system based on full transaction Point of Sale (POS) applications software, Chaz and Marvin were considering the acquisition of XBR Track, a small loss prevention software company, based in Boston, Massachusetts. The opportunity for XBR Track emerged out of the need of Specialty Retailers to minimize their internal losses from theft and shrinkage. Chaz and Marvin determined that retailers in the U.S. were losing an average of 2 percent of sales due to retail theft or shrinkage each year. The losses due to shrinkage directly affect the bottom line of the retailer in the form of a pure profit loss. It was estimated that retail employees account for 55 percent to 75 percent of lost revenue because of various fraudulent transactions. Transaction fraud ranges from improper cash refunds and price overrides to employee discount abuse and fraudulent credit card activity. XBR Track was offering the retail industry a solution to the $13.2 billion loses annually due to employee theft. Chaz and Marvin find themselves in the final stages of negotiation to acquire XBR discussing many related issues regarding the acquisition and its impact on the entrepreneurial culture currently at the company. While there is no doubt about the attractiveness of the acquisition, the case brings up multiple concerns about the post-acquisition integration directly relating them to the challenge of continuing the organizational entrepreneurial culture. Specifically, the two founders are concerned with whether Datavantage will be able to successfully serve the existing customers and maintain its current level of customer support; whether XBR’s geographical location will become an issue during the integration; whether the existing sales force has enough knowledge and competency to sell XBR; and whether Datavantage will be able to effectively execute the “get into the castle” strategy intended for XBR. Above all, however, Chaz and Marvin were wondering if the potential rapid growth that XBR can provide for Datavantage can have a negative impact on the small start-up entrepreneurial culture that made the company successful.

1. What implications on the Datavantage as a growing organization will the purchase of XBR have? Is it a good fit? What are the main areas of Datavantage that can be directly affected by the XBR acquisition
2. How would you implement the integration of XBR into Datavantage’s organizational and business model structure to ensure the company’s long-term success?

Answer 1

A store has numerous transactions depending upon the sale of the product. It becomes difficult to manage manually and thus Datavantage developed an in-house complete store management system Point of Sale software. it helps the retailer or shopkeeper tremendously.

Similarly, XBR provides a facility to manage the store and inventory, to keep track of discounts and offers product-wise which in turn gives exact sale and matches the cost with sale and discount.

It is a very good decision to acquire XBR as it complements Datavantage's store management system POS.

Implications and areas that can affect Datavantage: Datavantage is a growing company and XBR will help it in expansion and establishing itself in the market however there are few implications here that Datavantage has to take care of and they are:

a) Assimilation with the existing product (b) Financial cost (c) Bundling or separate selling (d) Manpower requirement and expense (e) Management of the stores (f) Training or creating a manual for support (g) Promotion (h) Head office of XBR

But this is definitely a good fit as XBR complements POS and at this stage, Datavantage will benefit itself in creating a new market and rise to another level.

The integration of XBR with Datavantage will require the following:

a) Training of employees to be able to sell the product

(b) Whether to make it a bundled product or sell it separately. The stores need software to keep track of inventory and sale of its product where XBR will help the retailer and POS will help in the transaction thus it becomes an important strategic aspect whether the products should be sold as a bundled one or separately.

c) The head office at Boston will incur cost for running it there whereas the head office of Datavantage is somewhere else. It would be wise to keep a small office as sales or services branch instead of keeping the same big office. Datavantage will save there.

d) The cost of employees is again another aspect to think about also whether the team should be kept or released.

e) Any product needs to be promoted and since Datavantage is going to acquire XBR, it needs to think about ways to make it reach different markets.