Melody He 08/09/2011 CASE ANALYSIS QUESTIONS 1. Describe the overarching strategy and the environmental conditions that made Razorfish grow so rapidly. How do you know the strategy you describe is the one Razorfish is pursuing (site evidence from the case AND describe the core competencies that Razorfish employs to support the overall strategy)? (400 word limit) The overarching strategy that Razorfish used is acquisitions. Based on the book “In 1996, Omnicom invested in Razorfish with $3. 5 million in cash” (P556).
This acquisition helped for Razorfish’s working capital and enable to acquire new media companies. Razorfish’s began the rapid series of acquisitions thereafter. “The initial acquisitions were primarily to expand the firm’s geographic scope” (P557). The range for Razorfish’s clients were over United States and Europe. From 1998 to 2000 only two years, non-US locations were over London, Stockholm, Oslo, Helsinki, Hamburg, Amsterdam, Munich, Frankfurt, Tokyo and Milan. “Although Razorfish’s core business stayed consistent, the acquisitions profoundly changed the size of the company” (P557).
In this emerging industry environment, Razorfish has the special cutting-edge technological and earned significant revenue from blue chip clients. It was specialized by offering website design and business consulting. Razorfish focused their target markets on these two areas so they are enabled to compete against the largest consulting firms for high-level projects. Based on the example “Netflix” we talked about during class, a firm going international was quite important and it is a big step forward. In this case, there was no more capacity for Razorfish to grow in the United States.
They wanted to distribute the resources, the knowledge which the information technology firms in Europe did not have. Therefore, Razorfish invested oversea at Europe. This movement also expand the Razorfish brand awareness. However, the broad acquisitions growth strategy brought Razorfish problems with the integration. Cultural barriers between America and Europe, communication barriers while applying the strategic and the power distance while managing the oversea branches. The dilemma between global demands and localized demand was different which we learned during the class is another downside of Razorfish’s acquisitions.
Also, Razorfish has been overpaying for some of the acquisitions. 2. Describe what factors (internal firm factors and external business conditions) changed to make Razorfish’s strategic position weaken so rapidly. (100 word limit – Bullet points OK here) * Internal factors 1. CEO Jeff Dachis was overconfidence about the company. 2. Razorfish has no new development or technology that can hold against other new information technology firms. 3. The clash of corporate cultures caused a lot of employees left the company. * External factors 1.
Four major categories of competitors: traditional strategy consulting firms, recently formed internet services forms, old-line technology consulting firms and integrators. 2. Clients refused to extend additional engagements and some were unable to pay for past services. 3. Economic recession 3. Razorfish entered at the early stages of its industry’s formation. Given what you know about first mover strategy, how appropriate was the Razorfish entry and growth strategy? Was this outcome predictable? What might the company have done differently? (300 word limit)
As I discussed earlier on question one, Razorfish’s growth strategy was trying to get the geographic expands by acquisitions. Another growth strategy of Razorfish was their project engagements only last for several weeks or months. It is a lot faster than the traditional consulting firms. This will be easy to attract small scale project and get the additional projects from new or existing customers. Razorfish also used strong branding effort as their strategy. As a first mover, Razorfish had reputational advantage achieved by the minimal turnover.
Also, the cost of moving first based upon we learned from class are research and development cost, and educating consumers. Razorfish achieved both points. Not only to keep their employees has passion with their job, but also keep the company at the top level, Razorfish have infused new blood into the company. Razorfish cultivated young workers with the cutting-edge technology and design skills. Their success of attracted early clients from small high-tech companies to Fortune 500 firms. They spend a lot development for the firm and educated their customers. The outcome for Razorfish is predictable.
The risk of moving first happened that they didn’t have the knowledge to hold its position against fast followers. So many information technology companies appeared at the late 90’s along with the computer spread fast in each family. If I was in the team, I would suggest to register for Razorfish’s cutting-edge technology so no other companies can copy that in the future. The information technology consulting is knowledge-intensive industry, These assets are difficult to value and protect. While the company was growing at the beginning, they should focus more on the development inside the firm. 4.
Imagine you are working on the top management team of Razorfish and Jeff Dachis (CEO) tells you that he is committed to keeping Razorfish open as an independent operation (no acquisition) and he wants you to come up with a five year strategic plan. Provide your plan below. Why do you think this is the best plan? Be sure to describe tradeoffs, weaknesses and strengths of the plan. Describe which firm capabilities will be emphasized and developed to support this plan and which will be de-emphasized. Support you assertions with clear evidence from the case AND course concepts we have discussed in class.
Also, be sure to include an analysis of the financial justification for your strategy. (600 word limit). As the Razorfish case indicated earlier, it is firm offering sophisticated web technology, strategic consulting, information architecture, end-user interface design and customized software development. Based on the knowledge we learned from class, it is a diversified firm. However, there are some costs for diversification. It is more complex to management the company and it is hard to focus on developing which competencies.
The strategic plan I would suggest is let Razorfish focus on the web design in the future. Razorfish should cut other branches in Europe and some in United Stated just keep New York and San Francisco open. New York was the founder city and has the most fast information technology and business in the world. San Francisco is on the west coast. Geographically, this will keep the company broad expansion. Also, this will cut a lot of the cost for the company. But the first biggest problem in this decision would be against the European labor laws. This is a tough decision to make.
One solution could be give enough compensations to those labors who are going to lose the job due to the branches closing. Or sign a agreement to promise that Razorfish will hire them back once they get back on the track. Another plan will be send the technology department workers to study for the newest technology. Also, hire experienced technicians in the information technology industry for the company. That is the only way to catch up and even exceed other professional web design firms. Once the technology department gets fully developed, Razorfish has the cutting-edge capabilities.
This plan will take about two years to accomplish. Which it is also the weakness for this plan. The two years estimations includes the time for technicians study and bring back the technology to apply with the company while upgrade the knowledge at the same time. Based on the industry life cycle we learned from class, right now the information technology is still at the growing stage. There are more competitors enter this market and customers are more informed during this stage. Two years for developing the company might took too long in this emerging industry.
When the company is ready to back into the market, there might be more competitors that are hard to deal with. Debt to Equity Ratio equation is Total Liability/ Stockholders’ Equity. Debt to equity ratio for Razorfish equals to 1/169. 2= 0. 591% on 2000. It seemed like a low leverage and low risk company. Razorfish should apply for loans to rebuild the company. Banks will loan the money to them since the really low debt to equity ratio. Return on Equity equals to Net Income/ Stockholders’ Equity. Based on Razorfish financial information chart given on the book, the net income was -$148. million on 2000. ROE for Razorfish on 2000 equals to -148. 9/169. 2= -88%. This ratio obviously showed that Razorfish was performing badly on 2000. Overall, the general idea for my recommendations for future five years will be let Razorfish generate their lose back and get to the right track with the healthy financial statements. Cutting the unnecessary costs. Closing branches and laying off some labors. Focusing more on the web design than business consulting in the future and dedicate developing the company in this field.