Open Text Corporation SWOT and Strategic Analysis

Introduction

Open Text Corporation is an enterprise information management company that focuses on helping businesses leverage data in a secure and seamless manner. The company assists organizations in finding, scaling, and sharing business data from any connected device. This is a unique value proposition, as data is often siloed within organizations and therefore requires a concerted effort on the part of employees to locate and embed it into daily processes. With Open Text Corporation's solutions, companies are better able to utilize data while remaining device- and channel-agnostic in the process. The Open Text solution allows for a much more thorough and comprehensive ability to collaborate using shared data across various geographic regions. The company also offers highly secure solutions that can mitigate the ability of malicious actors to steal or otherwise compromise mission-critical data from global companies.

The primary value proposition of the company is to provide a seamless solution for sharing data through various devices in a sound and secure manner. This ability to share data and information securely ultimately enables employees to better collaborate among team members and staff. In addition, the company offers these solutions in a variety of formats, including cloud-based solutions, hybrid solutions, and physical on-premises solutions. Essentially, the company helps organizations better leverage data for processes deemed essential to their proper functioning and operation. Due to the broad scale and scope of its product offerings, Open Text can provide services that benefit companies across virtually any industry. For example, the company can use its solutions to increase compliance and information governance for multinational organizations. It can improve operational efficiencies, profit margins, and revenues through the automation of routine or redundant processes. It can even lower the overall costs associated with data storage and aggregation by providing a centralized, outsourced solution for multinational organizations.

Abell's Model: Customer Groups, Needs, and Competencies

Open Text's customers are multinational organizations that are heavily process-oriented or need to leverage large data sets in a meaningful manner to support decision-making. This customer base is very diverse and encompasses a large majority of international businesses. According to the company's 10-K, the total addressable market is roughly $35 billion (OpenText, 2017). Customers in the future will be heavily reliant on both data and processes to create a sustainable competitive advantage relative to peers in their industry. As a result, the potential customer base for Open Text is quite large. Likewise, the company can also expand into small and medium-sized operations with its value proposition, though it would need to be mindful of pricing so as not to dilute its larger, more sophisticated customer base. The market opportunity for small and medium-sized businesses is also substantial, estimated at roughly $47 billion. As the market is still in early stages, Open Text is well positioned to act as a first mover within this technology space.

Open Text strives to satisfy its customers by providing both convenience and security through technological solutions. The company can offer a variety of services that mitigate common pain points for businesses and organizations around the world. For one, the company can address customer needs related to operational efficiency. Through technology, Open Text can help automate many routine or redundant practices — practices that cost companies money due to human error or simple delays. The company can solve customer issues through the proper automation of tasks and procedures within the corporate environment, including back-office functions such as accounts payable and accounts receivable.

More importantly, the company can satisfy customer needs related to engagement with their own end customers. Through technology, Open Text allows corporations to engage with their respective customers in a more profound and integrated manner. This occurs as the client is better able to integrate digital experiences and content delivery directly for online consumption. Large and often older businesses require these solutions, as they are frequently unable to develop them internally (David, 2015).

In addition, customer needs are met as Open Text enables improved innovation, productivity, and time-to-market by allowing employees and customers to collaborate more effectively with shared information. These collaborations allow customers to work in a manner that is intuitive, automated, and flexible. Finally, customer needs are met through the ability to generate additional revenue streams via a seamless expansion into digital channels and international markets.

The company offers distinctive competencies in technological prowess and know-how, as well as the ability to manage data and content throughout a product life cycle. Open Text provides a repository that companies can use for mission-critical documents, enabling seamless access at a later date. The company also helps organizations better organize, classify, and access these documents to promote seamless operations across the enterprise. Additionally, the company provides email management and other technological competencies designed to help organizations manage large amounts of data across multiple applications and distribution channels.

Open Text's core competencies span business process management, customer experience management, data discovery, business networks, and analytics. Each of these core competencies carries its own unique financial profile and set of attributes.

Porter's Five Forces Analysis

The threat of potential competitors is moderate, primarily due to relatively low barriers to entry within the industry. Scale is important, as the industry is rapidly evolving. To serve large multinational businesses with international services, a provider must maintain a global infrastructure — and new entrants will find it difficult to replicate this infrastructure given the large capital investment required. Firms will also need to invest heavily in human capital and personnel capable of addressing technology concerns for international customers, creating another barrier in the form of relationship-dependent sales channels.

However, as technology evolves rapidly, it is possible for a new player to enter the market with a superior product. Backed by venture capital, new and proven concepts can scale quickly to meet incoming demand.

Economies of scale are important for this business, given its focus on technology solutions for international customers. The company must invest heavily in international infrastructure that adheres to multiple and differing legal and compliance requirements. This requires scale to execute successfully and seamlessly under different regulatory regimes in an international context, as well as personnel skilled at navigating rapidly changing economic and political environments within foreign countries.

The product offering is relatively "sticky." Once Open Text is embedded within a particular business, it is difficult for that business to switch providers without experiencing a major service interruption. As a result, customers tend to be loyal. According to the Open Text 10-K, the firm has a renewal rate of 90%. Its customer base is also growing rapidly — the 2017 10-K indicated that the company had 2,000 international clients (OpenText, 2017).

Through scale, the company does hold cost advantages relative to peers in the industry. However, these cost advantages can be eroded by the entrance of newer or more established market participants. This can occur due to rapid technological evolution and innovation. Open Text competes with multiple companies, some of which offer a single or narrow solution while others provide a range of information management solutions. The company's primary competitor is International Business Machines Corporation (IBM), with numerous other software vendors offering niche solutions in the enterprise information management (EIM) sector. These companies include Veeva Systems Inc., j2 Global Inc., Pegasystems Inc., Hyland Software Inc., and Adobe Systems Inc.

Customer switching costs are high, partly attributable to the potential disruption to service operations if a new provider is selected. Likewise, as more of a customer's employee base becomes familiar with the Open Text interface, they are more likely to resist competitor offerings due to the inefficiencies of learning a new system. In addition, Open Text has an embedded customer base to which it can cross-sell additional products and services. According to the latest 10-K, this customer base is growing at a compounded annual rate of 20% per year (OpenText, 2017).

Government regulation exerts a strong influence on the business. Nationalistic policies from both the United States and China, trade wars, and national security concerns all shape the industry. Government regulations are also constantly evolving to keep pace with technological innovation. These dynamics are particularly pertinent in China and Europe, where political tensions are driving efforts to restrict technology that may pose threats to national security.

The industry's competitive dynamic is highly innovative and rapidly evolving. Regulations across various countries and jurisdictions can be both convoluted and conflicting. For example, China requires all new technology entrants to form a Chinese joint venture to operate within the country. China also has lax intellectual property rules, which threaten the competitive landscape for Open Text as it continues its expansion efforts. Competitors with limited capital can develop solutions that rival Open Text's, and these solutions — aided by rapid technological evolution — can gain momentum and market share quickly, particularly when backed by large institutional investors.

Industry demand is relatively robust for the services offered by Open Text. Many organizations, particularly larger ones, lack the intellectual capital or know-how to properly integrate their systems. In a more competitive global environment, they are increasingly looking to leverage their data in a more robust manner. By eliminating data silos, companies can make better-informed decisions. Aspects such as artificial intelligence and data analytics are both expected to grow at nearly twice the rate of worldwide GDP growth, further fueling demand.

Costs are very high within the industry. The primary cost drivers are labor, infrastructure, and customer acquisition. These costs can be mitigated through economies of scale.

Exit barriers are high, as customers often rely on these services for mission-critical operations. Exiting would therefore be extremely costly for all parties involved.

The bargaining power of buyers is initially high, as Open Text often accepts losses to establish the customer relationship at the outset. These losses occur due to integration costs, discounts, and other incentives to encourage high adoption rates. Once Open Text becomes entrenched, it can add additional services to its initial product offering to increase profitability. However, after accepting services from Open Text, bargaining power becomes very low, as the cost of leaving the service is prohibitively high for the customer.

The bargaining power of suppliers is moderate. Most of the products and services provided to Open Text by suppliers are commoditized, meaning that many suppliers lack pricing power due to the large number of available alternatives. However, specialized products such as computer chips carry very high pricing power, as only a small number of suppliers can produce them to the specifications required for success.

There is a moderate level of substitute products, owing primarily to the high rate of innovation within the industry. Substitute products can emerge from anywhere in the world, creating significant uncertainty.