Case Study: Debriefing Report for VoIP2.biz, Inc. Debriefing Report Introduction We are all aware of the conventional Plain Old Telephone Service (POTS), but Internet Based telephony also referred to as VoIP is not only very versatile but cost effective. VoIP2.biz Inc., is Indianapolis based start up company dealing as the provider of Voice over Internet Protocol (VoIP) based telephony services. It just deals with small & midsize business markets. Lawrence R. Milkowski, who is the President & CEO of the company faces some challenges currently as the company, although doing well in much in demand VoIP services, has not yet reached the breakeven point. In effect, despite selling its services to many customers, the company is still suffering net losses. The top executive of the company Lawrence R. Milkowski (Larry) knows that there is a very difficult road ahead and he faces quite an uphill task to grow the company into a profitable concern, although he knows that VoIP services has a huge market (Brown, et.al, 2012).. To bring the fledgling company to a next level or to decide the facte of the company, Larry needs to make some options & recommendations and present them to the board of directors of the company. The meeting is scheduled for June 27, 2006, and Larry makes some options before that and the main option is to bring the company to the Phase II. This case study often relates to the events and the state-of-art technology of VoIP during the year 2006 and talks about the state of telephony during that year (Brown, et.al, 2012). Brief about the Company During 2006 the company VoIP2.biz is considered as system integrators who work with companies to assist them to switch from POTS to VoIP. During this time the company wants to become a major shareholder of the VoIP market as they consider themselves as one of the pioneers in VoIP, serving the corporate world. Truly, at least for some small or mid-sized companies they do become as their telephone company, and started earning some steady and recurring income. Larry planned to continue its growth in the Indianapolis market. They want to grow to the nearby States like Indiana, and additionally grow its presence throughout Midwest. In this background, Larry makes his first option to continue with this growth and names it as Phase II Plan (Brown, et.al, 2012).
Options Option 1: Staying with current plan (Phase II Plan) Larry wishes to present the current plan to the Board. He is enthusiastic about the success of the company from the phase I where he was able to earn decent sales. So he wants to move ahead with Phase II Plan. The highlights of this option are that the investments of 1 million dollars had provided the following achievements (Austin, Nolan & O’Donnell, 2009): a. Company completes successful installations of VoIP solution & related network infrastructures for its various customers b. Company is able to successfully test & debug related VoIP technologies c. Its ability to make changes in the VoIP related open source software d. Ability to evaluate various graphical user interfaces (GUIs) and presentation layer packages e. Achieved technical capability to provide as well as improve the platform to support the small & midsize businesses f. Has worked out the solution for distributions & reseller agreement for required network and equipment services component g. Perfected the development process for providing network, implementation of VoIP system, provide customer support, manage billing & materials. In short, company has already made huge progress and it was much ahead of others as it has already taken leadership in providing the VoIP solution. The company already has trained staff and has successful experience of handling no less than 22 initial customers, and this is not a mean achievement. So Larry wants to move ahead with the phase II Plan where he recommends growing the company and taking it to the next level (Austin, Nolan & O’Donnell, 2009). In this option a careful budgeting and capacity planning needs to be done. Browning proposed that for this option the company needs to stay with mainframe for all essential applications. They would move from isolated work carried over Sun & IBM workstations, over the Linux based mainframe. By doing this they will remove obsolete AS/400 systems. The main driver to replace AS/400 is that IBM itself recommends replacing the machine with its new eServer iSeries. Since the new mainframe will have its cost as well as the cost to migrate application and data to the new main frame, a budget of about 3 million dollar was necessary (Brown, et.al, 2012)..
As far as the capacity is concerned, to meet the long term commitment towards mainframe they require a large central mainframe and get new applications having full access for all users. The plan requires porting all AS/400 applications to the eServer iSeries. The centralized system needs to manage & support all mainframe packages. Some existing mainframe packages may need upgrades so that they can handle Fort Wayne’s current capacity requirements. The implementation period for this plan would be 5 years. Once the new system is commissioned, almost all computational works would be through the mainframe system. A very efficient LAN is required to support the various offices connected over the centralized mainframe system (Austin, Nolan & O’Donnell, 2009). Option 2: Closing down the company The company is running into losses. At present (year 2006) the company faces losses of $428,000. If there is a loss of nearly four hundred thousand dollars from an initial investment of a million dollars, for sure it is not a very good sign. The company is not even able to reach breakeven despite years of operations and if this trend continues, than the company may soon become bankrupt. In the Phase II Plan, Larry wants to raise additional investments of about 3 million dollars. What if the company faces more losses if the trend continues? Currently the company serves small and midsized companies. Their next move is to support large scale companies as well as capture big markets. The service is based on the open source VoIP and the technology has not matured enough. Although it is true that many companies are looking for VoIP solution to save costs, but, if some technical glitch develops, the projects will fail causing huge revenue loss to the company. So, one option could be to close the company at this stage, before it ends-up in bankruptcy. The budget required for phase II of the operations and the implementation plan of the Phase II may be too large to handle. The company is already struggling with a series of technical issues in handling the current level of automation. As the company is not even at the required level of profit, embarking into another capacity improvement or spending more on acquiring new IT systems may go haywire. Hence closing the company is one option as can be proposed to the Management. Option 3: Selling the company This is always an option for the company. They could sell the stakes and recover the initial investments or whatever price the company can fetch. At the moment the company is
running into losses, cash flow problems and Accounts Receivables increase. Although there is a projection that the situation will improve by 2008 onwards, but at least this position will continue for a year. For instance, the projected loss for year 2007 is about a million dollar. So this is risky for this company to continue like this as there is no other source of income for this company. If we do an in-depth analysis of this option we see by the month of September in 2002, massive four thousand staff hours were spent by Fort Wayne MIS personnel just for making PUFR operational. One may analyse that this effort amounted to around 10 % of the work load. And this was just to put PUFR in test mode. Additional investments were done by Fort Wayne MIS staff to purchase more modules to support these efforts. Now the discussions were on to even replace this PUFR in few years time. This implies that so much investment was done with not so great results. It appears that the company is increasingly dependent on IT support and is currently into losses. The losses are projected for the coming years. So, if the company sells its proceeds to other company which can sustain these losses for a year, then this may also be another feasible option (Brown, et.al, 2012).. Option 4: Slowing down rate of growth One option that Larry may present to the Board is that of slowing down the growth rate. This appears sensible as rather than targeting whole of Indianapolis and Indiana States and other huge markets in one go, it is better to first concentrate on the local market. The object should be first bring the company out of the cash crunch by providing more value based services to the customers rather than finding new customers by undertaking additional 3 million investments. The customers still are working on parallel solution with POTS and ViOP. Instead the company may convince the customers to completely switch to VoIP. Under this option, an in-depth analysis will reveal that it is best to ask for a 90-day extension to take care of the cash flow problems. Apparently, Board of Directors is not happy to see the continuous cash flow and projected cash flow problems. Cash flow is a serious financial problem which may even lead to the closure of the company due to various related issues like unable to honour payments or unable to run the operational expenses. So under this option Larry can be to get a 90 day extension to focus on the cash flow and iron out the sources of the cash flow problems first.
So by far, this appears to be the best option. This could be one option and can even be clubbed with the 90 day extension option and attempt to reduce the expenses. Additionally, Larry may also like to hire an independent Marketing Consultant or an expert in VoIP domain who has a good experience of the Internet Telephony Market. Currently all the options are being though by the President and CEO, although he may be having very busy schedule. Hiring independent consultant may throw some more insights which could be beneficial for the overall decision (Austin, Nolan & O’Donnell, 2009). References Brown, C. V., DeHayes, D. W., Hoffer, J. A., Martin, W. W., & Perkins, W. C. (2012). Managing information technology, (7th ed.). Upper Saddle River, NJ: Pearson Prenctice Hall. ISBN: 9780132146326 Austin, R. D., Nolan, R. L., & O’Donnell, S. (2009). The adventures of an IT leader. Boston, MA: Harvard Business Press. ISBN: 9781422146606