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Verifone Case Study

Summary
Verifone was founded in 1981 as a check verification company. The company experienced tremendous growth over the next 10 years and became the global leader in electronic payment solutions. During this period Verifone grew from 25 employees to 1,800 with sales approaching $300 million. Additionally, in 1996 their revenue increased to $470 million, and achieved a profit of $39 million. Verifone’s products were installed in over 100 countries and completed more than 5 million transactions per year. Hewlett Packard acquired Verifone on June 25, 1997 for $1.29 billion.

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However, the acquisition was not as productive as expected. Verifone lost its number one position in the world after four years and was failing to turn a profit. Under Hewlett-Packard, Verifone Managers were not empowered to make the changes they needed to make. H.P’s structure (The Green Sheet) was too bureaucratic and there was no flexibility and fiscal discipline.

This culture led to the exit of many of the then senior management. At Verifone Inc July 2001 Gores Technology Group acquired Verifone and got it back on track to becoming the leader in the industry and to be the only profitable company amongst its competitors. On June 18, 2002 Gores Technology Group entered into an agreement with GTCR Golder Rauner to recapitalized Verifone. In this agreement The Gores Technology Group retained an ownership interest in the company. GTCR is one of the oldest and most successful private equity firms in the country. Founded in 1980, they pioneered the strategy of identifying and partnering with outstanding executives to build leading companies. According to it’s website it has successfully invested in more than 150 companies in a wide variety of industries over the last 20 years.

According to Collin Roche, Principal (GTCR has 13 principals) at GTCR, Verifone should continue to grow as it further leverages its brand, customer service capabilities, and technology to serve the needs of merchants, transaction processors, and financial institutions. Roche has been quoted as saying “Doug Bergeron (CEO at Verifone) and his experienced management team have reinvigorated VeriFone, making the company more entrepreneurial by creating new partnership relationships with its customers and distributors. Many of these managers previously participated in bringing VeriFone from a start-up to a highly successful payment technology company. More recently, Doug and the management team re-established a strong level of profitability at the company and directed their resources to the continual upgrade of the company’s product line.”

What’s clear is that some companies are going to find it hard to keep up. The corporate graveyard will be strewn with the bodies of companies that don’t understand how to make the shift from the traditional organization to the virtual. Many of them will be the leaders of the old because leaders of the old often have the most difficulty embracing the new. VeriFone is an example a 21st century organization. It is a virtual corporation, its corporate environment provides for ultimate adaptability and flexibility. The key emphasis is on empowerment and self-control of the employees. In this new model of work, the employees are expected to make decisions and judgments based on the demands of the specific situations. Given greater responsibility of the employees, such organizations are focusing on developing the judgmental ability of such employees. VeriFone emphasizes a lot on sharing the corporate philosophy with their remote employees. This issue is related to the company’s broad vision and strategic goals, which are communicated through the shared culture and common corporate values.

VeriFone has no corporate headquarters and is at home everywhere in the world. It generates roughly one-third of its revenue and stations more than half its workforce outside the United States. This global reach creates enormous advantages over the rag-tag band of local companies against which it competes VeriFone chose corporate sites with its customers and emerging markets in mind. VeriFone calls these sites “centers of excellence”. VeriFone refers to its corporate structure as a decentralized network of locations. VeriFone has approximately 1,000 employees in 34 worldwide locations. (See figure 1 for VeriFone Worldwide Facilities) This geographic dispersion is what caused the need for VeriFone to become a “virtual organization”.

In this paper we described the evolution of Verifone’s corporate strategy from its founding in 1981 to the present. Verifone relied to a large extent on its leadership as a technological innovator. As the markets for Verifone’s products have become more mature and diverse, the company appears to be entering a new area that will likely be defined as much by marketing forces as by technology leadership. Because of this evolution, additional new competencies have become important, while some existing ones have become less important. Verifone must not only develop new competencies, but must also succeed at managing and integrating these different skill sets with their existing organization. After an analysis of the process used by Verifone to develop and implements its strategy it lead us to identify key techniques and approaches for managing in an increasingly pluralistic world.

From a strategic management point of view, Verifone’s challenges can be translated into four key aspects of the strategy-making process:
(i) Exploiting opportunities associated with the core business,
(ii) Exploiting new opportunities outside the core business,
(iii) Balancing the challenges in (i) and (ii) over time
(iv) Stimulating the generation of new opportunities.
VeriFone has 21 years of experience in the electronic payment industry and it appears to be ready for a new era, and a new generation of solutions that deliver benefits above and beyond card acceptance.

INTRODUCTION

Verifone is the leading supplier of automation payment systems used by retailers, healthcare providers and financial institutions in the United States, Europe, the Pacific Rim and other areas. The company designs, manufacturers and markets electronic solutions designed to automate the processing of payments, benefits and information transactions. Verifone initially provided simple electronic check verification systems and later expanded to provide retail credit card and check authorization, smart card technology, Internet payments solutions, client server payment processing solutions for financial institutions, and solutions to enable the home banking marketplace.

The company changed leadership often under three different management teams in short time period, existing Verifone management, HP acquisition, and Gores Technology group. Verifone went for a roller coaster ride which ranged from being a market leader in 1996 to loosing money under HP’s management and then back again to being the market leader. Additionally, Gore Technology Group turned Verifone into a profitable company once again only 100 days after the acquisition from HP. This paper would be looking in to the various aspects of the management in all these phases.

DISCUSSION

Organization Structure:

In 1997 Verifone had approximately 3000 employees in 1997, working in more than 30 facilities, including regional offices, development centers, manufacturing, and distribution centers located throughout North and South America, Europe, Asia, Africa, Australia, and the Pacific. Verifone management chose its geographic sites to ensure close contact with customers and physical proximity to emerging markets and “centers of excellence” areas known for their intellectual or capital resources.
The CEO, Mr. Hatim Tyabji, described Verifone’s corporate model as a decentralized network of locations where all locations are created equal. Many corporate functions, such as Human Resources Management and Management Information Systems, were run decentrally out of multiple global locations, rather than out of Redwood City, California, the nominal corporate headquarters for the company. Verifone was often referred to as a virtual company because of its geographic dispersion and high reliance on technology to integrate operations within the company”. (Applegate Lynda M) However, most companies that claim to be global, establish offices in different countries, that act as sales offices rather than as corporate peers. In contrast, Verifone’s 34 facilities in nine countries have significant autonomy. “The anywhere/anytime culture works only because Verifone’s 34 locations in nine countries are hooked to the company’s Digital VAXmail systems over private leased lines. Employees also exchange mail and documents over the Internet. Nearly all of Verifone’s employees are equipped with a laptop. There are no executive secretaries. Paper memos are verboten.” (Stoddard, 1997). Verifone’s use of information technology was an important element in the transformation to a global or a virtual company.

The vision of the company which was, global growth through development of innovative transaction automation products and consistent operational excellence, drives an technology vision that includes an infrastructure that fosters shared objectives, shared ideas, and 24 hour problem solving; a reporting system that identifies areas of weakness and strength; and widespread access to real time information for employees at all levels.

There are three key principles to making the technology vision work: 1)Use a single, centralized database, and provide access to all data, from all locations at all times; 2) Provide universal electronic mail and selective videoconferencing capabilities for connectivity and collaboration; and 3) Don’t buy a Ferrari when a Ford Fairlane will do.

Each Verifone employee has a notebook computer and dials into the company’s network irrespective of his location, thus it can be said that Verifone is a virtual company and this is made possible only because of the use of technology which enables its employees to stay connected to other employees in all the locations throughout the world just as in one office.

Verifone Culture:
Verifone’s founder instilled the following cornerstone values into his company’s culture, commitment to excellence, dedication to customer needs, promotion of teamwork, recognition of the individual, a global mindset, and ethical conduct. Tyabji, who assumed leadership of the company in 1986, also took deliberate steps to stress these values, so that they would remain at the heart of the company’s internal and external activities. Since its founding, Verifone’s management recognized individualism as a source of creativity. In 1987 this tradition was formalized with the publication of the philosophy document, which explicitly stated, “The people who know best how the job should be done are the ones doing it. We involve employees directly in the management of their own areas of responsibility.” (Applegate, Lynda, McFarlan, & McKenny, 1999). The employees and the managers of Verifone further reiterated this philosophy.

Verifone’s cultural zeal to identify and meet customer needs was reflected and created in numerous ways. Executives were constantly asking two questions, “Where is the customer’s pain?” and can VeriFone make money by alleviating this pain?” Facilities were placed near emerging markets and even technical employees were urged to travel to become well acquainted with clients. The driving principles in product design at Verifone were low cost, high value, high reliability, and high volume. When combined with Verifone’s IT capability, this culture of customer responsiveness often had amazing outcomes.

Another notable feature of Verifone’s day-to-day functioning was the speed of action a d decision-making. Experimentation was encouraged at every level of the organization. In spite of its culture of urgency, Verifone management wanted the company to be perceived as a human company. Hence VeriLife, an umbrella for a number of human resources programs, had been implemented to help employees and their families deal with the demands that Verifone placed on their lives.” (Stoddard, 1997).

But from 1997, under the management of H.P, it was these basic tenets of culture that had to be compromised as the corporate culture of HP was juxtaposed with these cultural characteristics of Verifone. According to the Business Journal (2002), “The two companies’ corporate cultures also had trouble meshing. H.P.’s culture of management by consensus conflicted with Verifone’s belief in moving decisively and quickly. HP had burdensome business processes that it imposed on Verifone restricting its progress. But at the same time Verifone felt lost in and ignored by the huge HP.” Further,
under Hewlett-Packard, Verifone Managers were not empowered to make the changes they needed to make. (The Green Sheet, 2001) In H.P. there was structure and bureaucracy but there was no flexibility and fiscal discipline. This culture stifled the entire organization and the management, which led to the exit of most of the then senior management.

Since 2001, under the new management of Gores Technology Group Verifone is back on track with a rapid return to entrepreneurial management and organizational structures that competes more successfully. This was sufficiently proved from the very fact that within the first 100 days under the new management the company showed signs of profit.

“Revenues for the period exceeded $100 million. Earnings from operations, excluding interest, taxes, depreciation and amortization (EBITDA) exceeded 10% for the period.”(Fahn, 2001).

Challenges:

1. Terminal makers are locked in price competition. Many merchants are content with relatively simple older machines and see little value in newer, high-tech models. Plus foreign terminal makers are moving into Verifone’s North American heartland as never before. Last summer (2001), France’s Ingenico S.A. bough IVI Checkmate Corp., the No. 1 terminal seller in the United States and Canada and is poised to challenge leaders Verifone and Hypercom. (Daly J.J, Back to the Future for Verifone)
2. Stiff Resistance: Any new product of Verifone’s will have to overcome the traditional reluctance of merchants, especially small one’s, to buy or lease new terminals if their current machines are adequately getting authorizations and capturing electronic sales drafts. (Daly J.J, Back to the Future for Verifone)
3. Internet trade: Verifone is banking on the fact that more than 90% of the trade is person to person with an electronic engine in the middle, where as its not prepared for the Internet payment application space which requires large complex application software unrelated to the Verifone’s point of sale technology. (The Green sheet)
4. Verifone has pioneered hardware and software systems to automate credit card transactions. It also offers integrated payment solutions to facilitate debit/credit and smart card payments at the merchant countertop and over the Internet, and is actively developing new consumer payment systems for the home. VeriFone has shipped more than five million electronic payment systems that are used in over 100 countries. (The Green Sheet) As the markets for Verifone’s products have become more mature and diverse, the company appears to be entering a new era that will likely be defined as much by marketing forces as by technology leadership. Verifone has scored victories with substantial shipment to businesses such as KFC, Ahold, Concord EFS, Global Payments Inc. and Pizza Hut. Because of the evolution in this business, additional new competencies have become important, while some existing ones have become less important. Verifone must not only develop new competencies, but must also succeed at managing and integrating these different skill sets with their existing organization. After an analysis of the process used by Verifone to develop and implements its strategy it lead us to identify key techniques and approaches for managing in an increasingly pluralistic world. From a strategic management point of view, Verifone’s challenges can be translated into four key aspects of the strategy-making process:
(v) Exploiting opportunities associated with the core business,
(vi) Exploiting new opportunities outside the core business,
(vii) Balancing the challenges in (i) and (ii) over time
(viii) Stimulating the generation of new opportunities.
VeriFone has 21 years of experience in the electronic payment industry and it appears to be ready for a new era, and a new generation of solutions that deliver benefits above and beyond card acceptance. Verifone is determined to reestablish its historic role as leader, innovator and largest provider of payment solutions worldwide. It is welcoming back its customers and new partners to a new era of sustained growth and development.

Future:
To be successful, what must the company do well?

Challenge assumptions: In order to accompanied with the development of the new techniques in the electronic payment systems VeriFone needs to investigate new demands from customers, they will modify customers’ needs and expectations, as well as the evolution of financial tools.

VeriFone always must be sensitive to the impact of their products, not just their success stories but their failures. Often in their failures may be a potential opportunity for which they may have perceived but moved in the wrong direction. Changes in the customers’ demands and their products will also push the company to develop new strategies, and to identify what are the critical factors for success in this industry.

There are many issues that VeriFone needs to be concern about: security, data errors, and transaction cost are main features for the future of electronic payment systems. For example, The Verifone Omni 3350 terminal provides a full set of the latest payment capabilities in a design that supports any need-now and in the future. Taking advantage of Verifone’s next-generation Verix operating system, the terminals let you securely run multiple applications, such as payment and loyalty, on one terminal. Fully integrated smart card processing supports the latest stored value card schemes. A blazing 32-bit processor, 14.4-Kbps modem and the industry’s fastest thermal printer speeds your customers through the line. And an intuitive ATM-style interface lets employees virtually train themselves, while reducing errors. (Verifone Omni 3350)

Well Involving to the industrial market: In order to compete with the trusted worldwide leader in electronic payment solution market, VeriFone needs to have excellent strategies to get closer marketing resources. They will put efforts on financial processors to get above strategies from field-level product training and sales support. This will be corresponded to the fast growing of the electronic commercial services as a part of core markets and core values.

Customers of VeriFone always desire a convenient service for electronic transactions. To get products that provide superior services in electronic business transactions, VeriFone needs to learn to be effective managers during both chaos condition and successful condition. This is the most likely key to succeed. It also helps in the decision making process.

Partners: VeriFone’s needs to commit to educating and supporting the field-level players in the payment industry. It is consider as part of response to the increasing demand for its newer more powerful solutions. They provide tremendous resources in terms of technology expertise, financial backup, relationships, management capabilities, and brand recognition. Thus, participation in one of these partnerships can determine which system dominates over the others.

Open new markets: There are no physical borders for electronic commerce, and today international shopping is a fact. As a result, electronic payment systems must enable international payments without adding significant costs or difficulties. VeriFone is thrilled to partner many different companies. This investment is an affirmation of VeriFone’s strategy and competitive position. These partners are a great long-term partner for VeriFone, its employees, customers and international distributors.”

Conclusion:

VeriFone’s has become the terminal of choice for the U.S. payment industry today. Everyday, VeriFone’s new products have been designed with more effective features, but also at a lower cost. These products are not attributable to any single person of VeriFone, but they are a product of the “whole company”, which involves all employees from general managers to the lowest level employees of the company.

As the recognized leader in e-payments world-wide, VeriFone’s solutions draw upon our unmatched technology, reliability, security, and extensive commercial application expertise to offer solutions that can easily integrate with PCs and databases. As Verifone’s continues to build upon their core competencies, they also need to keep the entrepreneurial spirit that propelled the company to an industry leader. As technologies such as wireless and broadband penetrate commercial and retail markets, Verifone must be able to adapt their business model to take advantage of these opportunities

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