Cumberland
Essay Preview: Cumberland
Report this essay
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 Documentums 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.
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
Technology is still in Early Adopters stage – theres 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.
Technology is still in Early Adopters stage – theres no well developed market yet
Pragmatists, the target buyers, are vertically oriented
Documentums 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
Discontinuation of Documentums 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
Couldnt 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. Buyers key decision makers vary.
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
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 Moores 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 Documentums 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 Documentums 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 companys 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