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Cumberland

Essay by   •  April 12, 2011  •  1,142 Words (5 Pages)  •  1,311 Views

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Executive Summary

Having a successful, innovative product, but experiencing financial pressure, Documentum, Inc. has to choose between continuing its horizontal strategy for market penetration and a new, vertical strategy. In addition, Documentum has to decide on a pending offer from a big potential customer. We recommend that Documentum switches to vertical strategy, targeting the Pharmaceutical market segment. In addition Documentum should reject the Marsh & McLennan offer.

Analysis

When analyzing Documentum's options, we consider the psychographics of the target buyers, as well as the experience with the first two customers, Boeing and Syntex (see Appendix).

Alternative 1: Horizontal Strategy

Following this strategy, Documentum would offer a platform (toolkit) to as many market segments as possible, assuming that the market has matured for the new product. Documentum would leverage its current organizational structure. The buyers' key decision makers would be the IT professionals.

Pros

* Does not deviate from the strategy that was pitched to the VCs

* Huge target market (not restricted by the market segments boundaries)

* Marketing, sales, and R&D currently structured for horizontal strategy

* Good product architecture (toolkit), suitable for targeting IT personnel

* Less sales expenses, compared to the vertical strategy

Cons

* Technology is still in Early Adopters stage - there's no well developed market yet

* Buying decisions are made by IT professionals, not by business process managers

* Lower profit margins, compared to the vertical strategy

Alternative 2: Vertical Strategy

Following this strategy, Documentum would try to become a market leader in only one or two market segments, by offering whole, segment-specific solutions. The goal is to establish a solid base among the "early majority" customer group. The buyers' key decision makers would be the line-of-business managers.

Pros

* Technology is still in Early Adopters stage - there's no well developed market yet

* Pragmatists, the target buyers, are vertically oriented

* Documentum's product, as a discontinuous innovation, is more appealing to end users (vertical market) than to technologists (horizontal market), because it fixes broken, mission-critical processes

* Business process managers make the buying decisions, not the IT professionals

* Good product architecture, suitable for marketing segment customizations

Cons

* Discontinuation of Documentum's current strategy that was pitched to the VCs

* Deviation from the strategy that was pitched to the VCs

* Marketing, sales, and R&D need re-structuring for vertical strategy

* Couldn't find a second buyer in the Aircraft Maintenance Documentation segment

* Requires some customizations between market segments

Alternative 3: Accept the offer from Marsh & McLennan

Following this strategy, Documentum would continue its pursuit for Early Adopters, under the pressure for quick economic growth. The goal is to secure cash for further product & market development. Buyer's key decision makers vary.

Pros

* Fast cash ($300K) with possibility to develop to $1M

* Respectful customer (hence, a good reference)

* A gateway to financial segment

* Insurance segment is among the top 5 segment alternatives

Cons

* Requires company-specific customizations - will consume resources for one-time solution (company-specific changes not applicable to entire segment)

* Insurance segment is not the best segment alternative, considering the critical success factors and the market penetration factors (Table 1)

Recommendations

We recommend that Documentum:

* adopts a vertical strategy

* targets the Pharmaceutical market segment

* does not accept the Marsh & McLennan proposal

In terms of Moore's High-Tech Marketing Model, Documentum is in the Early Adopters segment of the Technology Adoption Life Cycle. With two successful early adopters, Boeing and Syntex, Documentum has established its credibility and had developed a product that is suitable for attacking the Early Majority.

Among the considered market segments, the Pharmaceutical NDA scores the highest both in the critical success factors and in the market penetration factors (Table 1). In this segment the target buyers are well funded and have very compelling reason to adopt Documentum's product - every day delay causes a loss of $1M in opportunity costs. In this segment Documentum does not have real competition, has a success story (Syntex), and has a proven whole solution.

The Marsh & McLennan proposal is not attractive enough. It offers quick cash that, at the Documentum's current cash burn rate of $1M per quarter, will last for about a month only. In exchange, Documentum would have to pay too high price - it has to enter a market that does not have the highest scenario rating (Table 1), and it has to customize the existing product. Our experience with start-ups shows that the customization process practically never ends. This wastes company's scarce resources and the company loses momentum. The lost momentum would prevent Documentum from making the leap into the Early Majority segment. Documentum should focus its efforts on being a market-driven company, not a sales-driven one.

Risks

* Possibility that none of the manufacturers in the target segment plans to retool operations - a case that Documentum faced

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