Cquay Technologies Corp. Case Study

¶ … CQUAY Technologies Corp. CASE STUDY ANALYSIS: CQUAY TECHNOLOGIES COR In the past few decades, globalization has sparked a revolution in information and communication technology, resulting in an information age that boasts the arrival of new levels of global interconnectedness. This increasing growth in technology has revolutionized communication and has changed the ways companies do business. The Internet has created the world of e-business, where companies use Internet-enabled technologies to exchange goods, services or information and to deliver value to customers in entirely new ways.

As a result, location technology and related services have emerged in the past few years as a significant factor for businesses and has simultaneously gathered a great amount of interest. Companies such as CQUAY Technologies Corporation have set the industry standard for business models, revenue models, and core competencies, all the while simultaneously establishing a competitive advantage. This paper will provide a case study analysis of CQUAY Technologies Corporation, including a strategic profile of the company, an analysis of the general environment, an industry analysis and competitor analysis.

It will also examine the company's critical success factors, conduct an internal analysis and a SWOT analysis. Finally, it will conclude with a problem statement and related recommendations for the future of the company. Strategic Profile CQUAY Technologies Corporation, a privately held Canadian company with offices in both Canada and the United States, was founded as a result of a joint operation to develop a technology platform to manage address and mapping information.

CQUAY's predecessor company was the first company to demonstrate an online geo-coding and map portrayal service (Ivey Management Services, 2004). CQUAY emerged in 2002, offering commercial products and services in Canada and the United States and became a leading supplier of location technology and related services. CQUAY's product was a patented location intelligence engine called Common Ground, that enabled it professionals and application vendors to easily and cost-effectively incorporate address validation, location-based data integration and map visualization tools into enterprise applications, web solutions, corporate data warehouses or wireless applications.

The Common Ground product was marketed to enterprise customers, software developers and systems integrators (Ivey Management Services, 2004). The Common Ground platform came bundled with high-quality map and address data for a "customer specified" geographic area of interest. The Common Ground system was loaded with Location Data for a customer's geographic area of interest and installed within their it infrastructure, serving as a platform supporting a rich suite of Common Ground Location Services that are callable, via published Application Programming Interfaces (APIs), from other systems (CQUAY, 2004).

The APIs were used by it professionals to add new features that enable customers to improve address data quality across all systems, organize, integrate and find information based on location, understand geographic relationships inherent in existing data, and gain business insights through the "lens" of location context.

The Location Data was provided on a subscription model, subject to annual subscription fees that vary based on the extent of geographic coverage and number of locations/USLs that matter to the customer, and was available for a single city or town, a state/province or for all of Canada or USA (CQUAY, 2004).

Designed for an emerging, multibillion dollar segment of the spatial information management market, CQUAY operated a facility called the Location Data Factory that took map and address information from a number of data suppliers, integrating it into a Master Location Database.

The data available under Location Data Subscription for use within Common Ground included USLs for valid addressable locations (ADLs) in Canada and the U.S., street names and address manage data for major cities and towns, detailed street geometry, covering most road classifications, and mayor hydrological features such as major rivers and lakes (CQUAY, 2004). Also included in the subscription was census subdivision boundaries, Canada post boundaries and FSA centroid points, and USPS Zip and Zip+4 boundaries.

From a financial aspect, CQUAY was a little weak in some areas, a result of the industry at the time the company was founded. CQUAY'S predecessor company had intended to grow using private capital until it was large enough to undertake an initial public offering; however at that time, the capital markets were depressed (Ivey Management Services, 2004). In 2003, the CEO of CQUAY decided that a positive cash flow could be generated only means of adding additional capital.

From an analysis of the company's financial statements, it appears that the company invested enormous amounts of funds in research and development as compared to other areas. Although the operating expenses brought down company revenues a lot, the company still was able to generate comparable revenues. In 2004, the revenue was as follows: software license: $312,000; professional services: $586,139; data subscription: $62,563; and maintenance: $48,263. In the 2005 estimate, revenues for the software license increased a little to $350,000, the revenue for professional services decreased around $86,000, and revenues for data subscription and maintenance nearly doubled.

The financials for revenue for 2007 and 2008 predictions constantly grew, and the prediction for 2008 closes out with software license revenue at $14,350,000; professional services at $2,870,000; data subscription revenues at $4,620,000 and finally maintenance revenue at $3,477,500. Although these numbers are impressive, they are reduced dramatically by the increasing costs allocated to research and development. For example, in 2004 the company spent $108,987 on research and development, and $175,000 is estimated for research and development in 2005.

The predicted costs of research and development consistently increase dramatically in the following years, closing out in 2008 with a predicted $1,519,050, more than the combined 2008 revenue for professional services, data subscription and maintenance together. Thus, the company's problem statement and following sections of the paper will focus on lowering some costs with the goal of increasing CQUAY's total revenue. However, a strategic profile of the company indicates that it stands in a position of competitive advantage in the location technology and services industry.

Industry and SWOT Analysis At the time that CQUAY was formed, the industry for location technology and services was already booming as a result of the problems faced by it personnel and companies. The global Geographic Information Systems market size was approximately $57 billion, including software, map data, related hardware and consulting services (Ivey Management Services, 2004). The definition of a SWOT analysis can be best described as an analysis that examines a company's strengths, weaknesses, opportunities and threats to draw general conclusions regarding the company's overall situation.

The company can then use these conclusions to better match their strategy to their resource strengths and market opportunities, correct the important weaknesses, and defend against external threats. The first step of a SWOT analysis is to identify company resource strengths and competitive capabilities. Next, the company's resource weaknesses and competitive deficiencies must be identified. These results are then used to determine where the attractiveness of the company's situation ranks, as well as the attractive and unattractive aspects of the company's situation.

The next step is to identify the company's market opportunities, and to identify external threats to the company's future well-being. All of these steps are then used to improve the company's existing strategy. The company's strengths and capabilities are usually used as the cornerstones for strategy. The market opportunities that are best suited to company strengths and capabilities are pursued. Weaknesses and deficiencies are corrected, and the company's strengths are used to lessen the impact of major external threats.

Assessing whether the company's prices and costs are competitive in comparison with competitors are analyzed using such methods as a value chain analysis and benchmarking. Other methods are also used to study the competitor's products and methods of conducting business that can be compared to the current company under examination. A value chain analysis consists of examining all activities done in regard to supply chain management, operations, distribution, sales and marketing, delivering, service and supporting the product or service, such as research and development and human resources management.

A company's value chain usually consists of primary activities, where most or the value for customers is created; and support activities, which facilitate the performance of the primary activities. A value chain analysis consists of an examination of the combined cost of all activities from the purchase of raw materials to the price paid by the consumer for the finished product.

A value chain analysis also compares a company's costs to those of a competitor, using such factors as the internal operations, strategy, approaches used for strategy execution, and the underlying economics involved. The end result of a value chain analysis is that it highlights which internal activities are a cost advantage or cost disadvantage for the company. After identifying important value chain activities, cost data is broken down into different activities, such as employees payroll, supplies, purchase orders processing, and dispute resolution.

Benchmarking consists of conducting a cross-company comparison of how certain activities are performed in connection with the costs associated with those activities. The benefits of benchmarking are that it can be used to examine what method other companies are using to keep their costs down, and to use this information to improve the company's cost competitiveness. Benchmarking should not include sensitive data or negative advertising using sensitive data to put down the other company.

Confidential information must not be shared without the proper confidentiality contract in place, and confidential information should not be illegally obtained from competitors. After internal cost disadvantages are found, steps should be made to correct them by revamping the value chain system, moving high cost activities to lower cost areas, implementing cost-saving technology, or simplifying some aspects of the product design.

Competitive advantage can be worked into the value chain by utilizing employee knowledge more effectively, coordinating related activities, and building dominating expertise that is essential to customer satisfaction or market success. Competitive strength against competitors must be assessed to determine the overall competitive position of the company, and a new strategy must be based on the company's current position. This strategy should include every issue listed in the industry and competitive analysis.

The first step in conducting a SWOT analysis for CQUAY is to identify the resource strengths and competitive capabilities. One of the strengths was that the Common Ground technology was a new product that many different kinds of companies needed, regardless of the nature of their business. The uses of the technology were not limited to a specific industry. For example, the telecom industry used the technology to determine available network capabilities for a particular service address.

Wireless telecom carriers used the technology to determine tax zones and tariffs for telephone calls and services; utility companies used it to ensure valid addresses and postal service formats on bills. Additionally, oil and gas companies used location technology to retrieve public and private data regarding geographic interest, and the marketing industry used it to link demographic, census and lifestyle data to customer service records.

Finally, the financial services industry used addresses as a key to create a single view of a customer and even the real estate industry used location technology to buy, sell and rent homes based on location (Ivey Management Services, 2004). In other words, CQUAY's product was marketable across the board to the it departments of all companies in all sectors of business.

The competitive capability of the Common Ground system was good too, because although there were other products on the market, CQUAY had competitive advantage, because the technology included aspects that other products did not. For example, traditional GIS and mapping software focused on engineering users, and was unsuccessful at moving into Web mapping and emerging location-enabled spatially enabled business support systems. CQUAY established competitive advantage by focusing on the spatial information management market and its extension into mobilized applications.

In addition, the Common Ground product was compatible with many data quality tools used by companies, such as First Logic and QAS. Thus, these companies did not have to replace an entire system, because of the compatibility were able to save costs. The number of companies using data quality tools was very high - 5,000 to 7,000, that were able to benefit from location technology. The license to these companies to use the Common Ground product was also very high, at an average price of $250,000 per customer (Ivey Management Services, 2004).

Therefore, CQUAY was in a very nice position from a competitive advantage standpoint. Next, the company's resource weaknesses and competitive deficiencies must be identified. These results are then used to determine where the attractiveness of the company's situation ranks, as well as the attractive and unattractive aspects of the company's situation. One of the resource weaknesses of the Common Ground technology was that the operational costs of the technology were very high. For example, in 2004, the total operating expenses of CQUAY was $330,309.

This figure included $203,697 for general fees and administration, $17,625 for sales and marketing, and $108,987 for research and development. In 2005 alone the amount for sales and marketing jumped from $17,625 to $165,000, about 9 times the cost of the year before. Research and development expenses also rose from $108,987 in 2004 to $175,000 in 2005. In the predictions of the years to come, the operating expenses continue to jump at extremely high rates. Additionally, revenue appears to drop as well, likely caused by the inflated operating expenses. Increasing operating costs is a very strong resource weakness of CQUAY.

The next step is to identify the company's market opportunities, and to identify external threats to the company's future well-being. All of these steps are then used to improve the company's existing strategy. In 2003, the company attempted to correct weaknesses and deficiencies through a strategy that would prepare the company for its eventual sale. At that time it was agreed that the current market and economic conditions constrained the possible valuation and the likelihood of a near-term acquisition outcome, so instead the company should implement a new strategy.

The new strategy consisted of an examination of its value chain, which consisted of looking at all of the costs associated with CQUAY's location technology, such as management, operations, distribution, sales and marketing, customers and services, and research and development. Their financial projections were examined from start to finish of the manufacture and end sale of the location services license. Operating expenses were examined, as well as the cost of revenue such as the cost of services and the data royalties.

The new strategy of the company included keeping operational costs to a minimum, minimizing future research and development, securing lead customers, creating a reoccurring revenue stream, and maintaining the company structure so as to compliment a future merger or acquisition. Competitor Analysis value chain analysis also compares a company's costs to those of a competitor, using such factors as the internal operations, strategy, approaches used for strategy execution, and the underlying economics involved.

CQUAY had several competitors, as the location services field was booming at the time the company was founded. One such competitor is NAVTEQ, which also manufactures similar products to CQUAY. One of its products, the PTV Naviguide, provides a range of Internet design, web-site development and systems support services. This product provides a safe, scalable system environment for Toyota's travel portal, including useful services for motorists. NAVTEQ's products also greatly assist the end-customers business.

For example, NAVTEQ helped WF Electrical centralize its 21-branch London operation, which involved distributing 25,000 product lines to electricians and builders on site and in store. Within three months the system, with its street-level routing capability, were in live use within the M25, planning daily deliveries from the central distribution centre at Dagenham (NAVTEQ, 2007).

In the WF Electrical case, not only are vehicles and driver time being managed more efficiently, but Street Level Routing ensures that the right deliveries are being made to the right place at the right time which has improved customer service. Finally, the benefits reported by WF Electrical consist of mainly more efficient use of driver time and improved customer service. Another highly competitive product manufactured by NAVTEQ is through a partnership with GeoConcept SA, a company that designs, develops and markets PC-based map programming software and systems.

This high performance, user-friendly products target the rapidly growing geographical information systems market, and include companies in the utilities, financial, industry manufacturing, government, telecom, retail, and emergency services industry sectors. In this regard, NAVTEQ is an equal competitor that offers a location services product in many of the same industry sectors as CQUAY does. A main important competitive advantage that NAVTEQ has over CQUAY is that the company sells in many different countries, whereas CQUAY only sells in the United States and Canada.

NAVTEQ's market reach stretches to Belgium, India, Italy, Japan, Saudi Arabia, Spain, Switzerland and the United Kingdom. A competitive benefit of CQUAY is that they operate and manufacture in one of the largest countries, the U.S., whereas NAVTEQ does not do any business in the U.S.

The research in this area indicates that NAVTEQ'S success over the last 10 years comes from its partnership with other companies, and its commitment to the three main aims of the company: a policy of continued technological innovation, the desire to make geographical information systems accessible to all (excellent price-performance, user-friendly interface and Internet-enabled), and the will to increase map legibility so as to maximize their value (NAVTEQ, 2007). Their products have attracted prestigious clients and are now available in several languages, unlike CQUAY's Common Ground, which is only available in English.

Furrthermore, NAVTEQ has already sold more than 50.000 licenses, and 69% of the equity is held by the founders and well-known investors including Innovacom 2 and La Financiere de Brienne and Galileo (NAVTEQ, 2007). In coming up with their new strategy in 2003, CQUAY did not conduct a full blown analysis of their competitors, other than to take a look at some of the other similar models and the license price that was paid.

A good idea would be for the partners to examine how these companies were making money off of their products, which were not appealing to the eyes, but sold at a much higher retail price. They would be well-advised to examine how much they are paying for shipping and manufacturing, and see whether not they could drive down their costs in both of these areas.

Internal Analysis and Analysis of General Environment The SWOT analysis reveals several things regarding the case study organization CQUAY regarding their ability to deal with internal issues as well as their ability to address the external environment. In the past few decades, businesses and government organizations had created a massive and rapidly growing amount of information in databases, Web pages and files; inaccurate or outdated information was negatively affecting operational efficiency, customer satisfaction and business decision making (Ivey Management Services, 2004).

An area most related to data control for these companies was information related to address information. The problems involving address information were mainly due to the lack of a standard format for storing address information, the existence of several incompatible formats of this information, and spelling and transdisposition errors. Other problems that set the tone of the environment was the fact that the address information was constantly changing as a result of new construction, boundary changes and other changes such as street name and zoning changes.

Thus, it organizations were presented with the challenge of linking this address information in a format that would support the company's businesses processes. As a result, competition among companies that manufactured and provided location and address technologies dramatically increased. Their ability to deal with internal issues was good, because they were able to come up with a better product to improve the existing state of affairs regarding location technology and related services. However, their ability to deal with external issues needed some assistance and work.

For example, they were unable to drive down the high costs associated with the operating margin and expenses, and as a result lost profits. They were also unable to maintain a steady net income; their net income fluctuated greatly in the predicted future financials statement. Especially since the management planned to sell the company in a few years, this is a weakness that must be corrected. They were not able to deal with external issues in the manner in which they did not conduct their own competitor analysis.

This analysis was too minimal to be of any definitive end result; for example, they did not examine how much other similar companies were paying for the cost of services or for data royalties. Critical Success Factors In the past few years, competition among various business industries has dramatically increased, resulting in a scramble by companies to develop and implement numerous process improvement initiatives to remain competitive.

CQUAY's market opportunities are also strong, as its future depends on the moves and choices that the company makes in planning various mergers or acquisitions, research studies and new designs. CQUAY has displayed several success factors, such as its ability to enter partnerships with key companies in order to facilitate sales of its products. One of the critical success factors implemented by CQUAY took place in 2004 when the company announced its partnership with the Coronado Group, based in Bethesda, Maryland as a sales agent for its products and services.

This was a critical success factor for the company because the companies would be collaborating on pursuing opportunities within the U.S. federal market. The partnership would allow for more sales of CQUAY's products and services via the use of a specialist in that area, rather than attempting to unsuccessfully sell the product themselves. The Coronado Group Ltd.

is specialized systems integration and professional services firm focused on helping its clients recognize and exploit the value of technology, bringing key technologies together to deliver solutions in a practical and usable form. By blending key technologies with business applications, the Coronado Group delivers business and product solutions that provide its clients with a clear competitive advantage while creating value in computing (Zank, 2004).

On the partnership, the Coronado Group commented that they saw some great opportunities for federal agencies to realize a considerable return on an investment in Common Ground, to extend the geographic information systems they have already deployed. The Coronado Group additionally states that the Common Ground system manages address data quality and enables geographic search across distributed databases, which geographic information systems do not address.

Another important success factor in the area of partnerships for CQUAY involves their strategic alliance formed in 2005 with Environics Analytics, a new member of the Environics Group of companies. This partnership was focused on enhancing the features and capabilities of Common Ground to support market segmentation, site evaluation modeling and marketing analytics. The companies sought to index and integrate proprietary.