The results of the external analysis on macro and meso level are used as input for the analysis of the micro-environment: This internal analysis provides insights in the specific positive and negative characteristics of a company and relates these to the external influences to identify chances and threats, where the company should act on. A comprehensive tool to perform such an analysis is the Strengths, Weaknesses, Opportunities and Threats (SWOT) model.
The results of this analysis provide relevant insights about strategies that are more likely to be successful for Ordina and which are not. External factors are indicated with threats and opportunities. Internal factors with strengths and weaknesses. The degree to which the internal environment of the firm matches with the external environment is expressed by the concept of strategic fit.
Thanks to its scale, Ordina is not limited to single systems like Oracle or SAP.
Large customers prefer one point of contact for all IT-services. Ordina is able to offer this and as a result has the advantage of
being able to build long term relationships and knowing customers IT-infrastructure inside out.
Asset light balance sheet with no debt. This provides flexibility and better return on assets.
The Luxembourgish and Belgian businesses operate with healthy margins and strong growth.
Almost 40% of Ordina’s sales comes from 10 large customers (among which Rabobank, Johnson & Johnson and the Dutch government). On top of this, its relative scale to these customer contracts is still limited, providing Ordina limited leverage.
When compared to other large IT-services providers, Ordina is highly dependent on the developments in one geographical location.
Ordina is not present in one of the largest customer markets for IT-services: education.
The Dutch organization has relatively old personnel. On average they are 10 years older than in the Belgian/Luxembourgish organization. This has a negative impact on cost.
Ordina has an above industry average attrition of personnel (25%), leading to higher costs.
The IT-services segment is sensitive to GDP growth. An adverse direction of the economic growth would have an immediate negative impact on earnings.
Ordina still is for 70% dependent on business where it charges customers on an hourly basis. This business model adds to its sensitivity to economic cycles and in combination with its relatively fixed cost base is a factor of risk.
Ordina is highly dependent on (small) independent contractors. While this provides some flexibility, it also puts firm pressure on the margins.
Smaller competitors mainly work on a subscription basis, where Ordina still sticks to a traditional business model. As a result, growth of Ordina comes with a linearly growth of its personnel base.
Ordina has a large amount of 125m euro of goodwill on its balance sheet from past acquisitions. This pushes down margins on its operating capital severely.
New labor market legislation makes the use of independent contractors less attractive for customers and will be favorable for Ordina, as a solid alternative.
Ordina is well positioned in the markets that are expected to digitalize the most the coming years: Government, Health care and Finance.
As more organizations migrate to the cloud, managed service providers are a crucial link as they are the designated parties to assist these organizations with migration. On the short term this will increase demand.
Concluding, Ordina faces many opportunities in its industry, for which it is not very well positioned yet. The firm has the advantages of scale and of being a one-stop-shop as the largest local player. But its operations sigh under the weight of past acquisitions and dependence on independent contractors and an hourly based business model that’s becoming obsolete. Growth in the IT-industry is very likely as society is still in the process of digitalizing. If Ordina can defy the war for talent, the sensible way forward would be to focus on higher value markets within the IT-industry.
Ordina’s relative position within its market segment determines whether its profitability is above or below average. The fundamental basis of the desired (above average) profitability in the long run is sustainable competitive advantage, and this again depends on a company’s strategy.
According to the competitive strategies model (Porter, 1980), there are two basic types of competitive advantages a firm can exploit: ‘low cost’ and ‘differentiation’. Ordina definitely isn’t a cost leader and distinguishes itself by means of differentiation: Ordina seeks to be unique in its industry along dimensions that are valued by customers. The common target of this strategy is be rewarded for this uniqueness with a premium price.
Ordina is still in the middle of a transformation of its go-to- market strategy to five new business propositions.
This new strategy further emphasizes Ordina’s differentiation:
The current strategy of Ordina is targeted at (organic) growth, efficiency improvements and high employee engagement. To meet these targets, the company’s strategy is based on three pillars:
Specialist solutions via five business propositions: High
performance teams, Intelligent data-driven organizations, Digital acceleration, Business platforms and Security & privacy.
Growth via own employees.
Because the temp labor part of Ordina’s business is not expected to grow and is likely to become even more
competitive, the strategy to focus on (less-cyclical) higher value markets makes sense. I believe Ordina has key advantages to each group of competitors: its strong local basis when compared to new international (Indian) entrants. Its scale and career opportunities when compared to most local smaller players.
And its one-stop-shop when compared to niche players. The challenge is to deploy these strengths to the firm’s advantage and Ordina’s current strategy seems to confirm such an approach.
Before finalizing the analysis of its micro-environment, the three targets dominating Ordina’s strategy will be amplified in more detail to confirm its strategic fit with the external environment.
Koller (2015) names three drivers of revenue growth: portfolio momentum, market share performance and mergers and acquisitions. Ordina appears to play the market share game for its traditional IT-services, while it seeks to profit from portfolio momentum with its new 5 high performance segments.
Being in fast-growing markets is the largest driver of growth. The least impactful is gaining market share in existing product markets. Ordina’s transformation from a traditional IT-services provider towards its 5 new higher value business propositions is a sensible strategy in this regard.
Ordina lists the following targets in its annual report of 2018 to improve its EBITDA:
Compared to its peers, Ordina underperforms on these ratios. This indicates that indeed improvement is possible and targeting these elements seems promising, as they are within control of the firm. The historical analysis in chapter 6 will come back to these ratios in more detail.
Ordina is highly dependent on its human capital. The usage of independent contractors is expensive and doesn’t secure expertise and knowledge for Ordina and its customers. The focus is on employing personnel directly and retaining these employees by being an attractive employer. Here Ordina can distinguish itself from the smaller competitors with career options only large companies can offer.
Ordina is a traditional firm in a fast-changing environment: new technologies, new business models and new competitors. Due to these external forces and internal weaknesses, Ordina is forced to transition to an organization with a lower cost structure which targets higher margin markets. Ordina is the largest independent IT-services provider and well positioned in that sense, but past acquisitions weigh heavy on its organization and the success of current reorganizations seems to be essential.