SMB Case – Rock Solid Industrial Parts, Inc.
(The Case Detail for: Case Analysis, Presentation and Briefing)

The Case

Your Situation

You work for a family owned industrial parts distribution business (Rock Solid Industrial Parts, Inc.) located in San Jose, California. Your uncle, David Simpson, got you a summer job last year working at RSIP as an IT Support Tech. They liked you enough to hire you right after graduation. The hours are good and the pay is outstanding allowing you to pay off your student loan quicker than most of your friends. You are currently the only IT person at the company.

Your background and education (MIS from SJSU) have made you the go-to-person for all technology related issues in the company. As the only individual in the company with some technical background, the Owner/CEO of the company, Philip Hurd, has come to you for advice on what IT/IS systems the company should be thinking about implementing to enable continued profitable revenue growth by improving the efficiency and effectiveness of the business overall. He understands it will be difficult to scale the business without implementing some process changes supported by technology. You know the company is in the process of hiring a Senior Director of IT, Janice Drake, who is a relative newcomer to the industry and may not be onboard before the business analysis is due.

The Opportunity

The Executives have agreed on a 3-year strategic plan to grow the business by expanding into other territories covering the entire west coast and mountain states. Current sales of $33 Million/year are expected to more than double to $72 Million in that timeframe. Currently at about 36 employees, they expect to increase their staff to over 70 employees to support sales growth. This is your big opportunity to show what you can do to help drive the strategic growth plan as well as ensure the solutions you pick today will continue to scale with the business over the next decade. A successful implementation might get you a raise and will definitely look good on your resume.

Background

In the late 1930’s Philip Hurd’s grandfather, Hugh Hurd, started an industrial parts distribution company in Sunnyvale California close to the Joshua Hendy Iron Works. Upon returning from the Pacific after WWII, Hugh’s son Jack took over the business and moved it to its current location in South San Jose. Throughout their high school years his sons Philip and Tim worked in various roles within the company gaining extensive working knowledge of the industry. In 1970 Jack retired leaving the business to Philip and Tim.

Today, Philip (61 years old) and his brother Tim (59 years old), CEO and COO respectively, run the company. Their high school buddy Don McCloud (60 years old) is the CFO. David Simpson has been with the company for over 25 years moving up the ranks to VP of Sales. The four C-level executives are steadfast golf buddies, playing almost every Sunday at the Silver Creek Valley Country Club. Tom Smith, Regional Sales Manager for the Pacific states is married to Tim’s daughter Becky. When David retires, he will most likely become the VP of Sales. Philip’s son, Phil Jr, is planning on leaving his finance job at Northrup Grumman to join the business as CFO when Don McCloud retires in 5 years.

Having worked outside the family business for many years, Phil Jr. sees the potential for growth and is the main strategic architect for growing the business. He has counseled his father on what technologies might be needed to expand the business. Being in finance at Grumman, driving profitable revenue growth is his primary objective. The operation is heavily supported by IT/IS so he knows the potential benefits of technology use in a business. When his father retires in 7 years, he will likely become CEO.

The Strategic Plan Details

The strategic plan is to grow the company from current sales of $33 Million/year to $72 Million in three years by aggressively expanding into southern California and the Mountain states. Jim Donner, a 27-year veteran employee and rising sales star, has been chosen to lead the effort in the Mountain States. A mixed model of direct and independent sales representatives supported by inside sales has worked well for the company over many years, so the intent is to continue the model. The Field Sales Reps generally work from home or an office of their own choosing. Southern California will have a small satellite office in LA or San Diego and the new Mountain States Region will have a regional office in Denver.

In this type of business, long term personal relationships are very important. Sales reps tend to bring their best customers with them as they move from distributor to distributor. Rock Solid is intending to leverage this fact to grow very quickly by sticking to an experienced independent sales representative model with only a few direct salespeople for large critical key accounts.

The company plans to use technology to minimize operating overhead as they grow and to keep the organization as flat as possible by improving the efficiency and effectiveness of the organization.

The Organization

The Headquarters’ organizational structure and operational functions are very typical of an old-line industrial distributor. (Blue = Existing Organization   Green = New Positions being added)

Advised by Phil Jr., Philip Sr. is driving the change. Having read about the benefits of CRM automation, David, acknowledges the need for better technology as the sales force grows in number and territory reach. Don McCloud, CFO, has serious reservations about changing anything. His tight control of the financials has kept the company very profitable even during the “great recession” of 2007/2009. Everyone in the company is making good money. His view: “Why change what isn’t broke?” Don is not technical (he is an Apple user and gets his technical information from the Geek Squad). He doesn’t appreciate the importance of technology’s role in helping companies scale. Tim Hurd, COO, is on the sidelines with a wait and see attitude. As an executive team, they have all agreed to give the Strategic Growth Plan a shot and on the advice of Phil Jr. they have hired Janice Drake as Senior Director of IT from a small technology company in San Jose to manage the new IT/IS implementation. You will report to her with a promotion if things go well. They are even thinking about remodeling the office space to make it look more modern and inviting.

The company is not very technologically oriented. Today, most everything is being done with older desktop computers, paper forms, Excel and Quicken. The company has only a rudimentary online presence and an antiquated Plain Old Telephone System (POTS). Most of the workers are conservative, older (average age 55) and have been with the company for more than 25 years. They are comfortable with computers but do not generally Facebook or TXT. Many do not even have smartphones. In short – they are not very technically savvy and will likely be very resistant to change.

The current field sales operation is very local. Even though the salespeople are on the road most of the time, they generally work from home when needed. They come into the office every Monday morning for a weekly sales update meeting (issues, resolutions, sales forecasting) that sometimes includes training by key product vendors. During a brief conversation with David (VP of Sales and Marketing) you discovered vendors often require both a white board on which to draw diagrams and a projector for PowerPoint slides during training meetings. Provisions must be made to continue these meetings to include salespeople who are in remote locations or working from home.

The Warehouse Operations is automated to the degree that they use barcode scanners, however, there is no automated inventory control and no LAN in the building except in the front office. Everything is handled with Excel spreadsheets that are PDF’d and emailed weekly to the sales reps. Inventory management is becoming an issue. Today there are 100K SKUs in inventory and growing as they expand into new maintenance and repair operation (MRO) service areas.

The comm utility point of presence is in a small room toward the front right of the building. AT&T consumer DSL plus consumer grade switches are currently supporting the company’s connection to the internet A high-speed commercial grade fiber internet termination is available but un-used. There is no cable connection. An old PC is being used as both an FTP and a print server. The desktop PCs are old and running Windows 7 – some still use CRT monitors. The PCs are running various older versions of MS Office and QuickBooks is being used for the accounting software. HR is completely paper based with payroll outsourced to ADP.

Your Task

Your task is to understand the issues involved and to apply new/modern IT/IS solutions to marketing, sales (independent mobile workers supported by an inside sales desk), inventory & warehouse management and accounting to support the Strategic Growth plan. To keep overhead expense growth to a minimum the entire business must become more effective and efficient as it expands. Your budget is $250K to $750K. What do you recommend doing? How are you going to implement the chosen technologies considering that the workforce is old and not tech savvy? Knowing up to 80% of all IT/IS initiatives fail, what are you going to do to make sure you are the 20% that succeed?

OMG – This isn’t Business Process Redesign or a Digital Transformation – This is a Digital Revolution!

Within about a month you must analyze the situation and develop solution recommendations in a written format. After a review by the executives, you and your team will be expected to make a presentation to the staff and answer tough questions about your recommendations. As is often common, you can also expect there will be follow-up briefings with various executives on key points.

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Specific Questions/Topics to be Considered in your Written Case and Presentation.

There are several questions that you must consider in your analysis. Note: At some point early in your analysis, you should consider which digital transformation design choice the company should use: automate, informate, transform (re-engineer) or paradigm shift? Look for best-in-class examples to inform and support your choice.

In your analysis, please answer the following questions in the order given based upon your digital transformation design choice. Avoid questions – restate the questions as a 4 to 5-word header as a statement (not a question):

1. Areas to Consider: Cover the four main areas* in the exact following order:
   1. Process (Put your quantified benefits here)
   2. Technology (Software, Hardware, Data, Supporting Infrastructure) [Note: A case specific infrastructure diagram is absolutely]
   3. People
   4. Structure
2. High-level Budget for the implementation (presented in a table). Cite your sources.
3. Timeline for the Implementation.
4. What will the most difficult implementation task be?
5. What are the top 3 risks of your IT/IS digital transformation strategy recommendation? How will you mitigate them? Do your research to discover what the experts say about digital transformation/business process redesign success/failure. And, remember, if you highlight a Risk you must always propose a Solution to mitigate the Risk.

*Note: Please use as the section main head “Areas to Consider” and use “Process”, “Structure”, etc. as sub headers. Do the same for the Technology subcategories.

Some Helpful Information

SMB Overview

Over the past decade, the small business market has become a popular and increasingly contested market for technology companies. While there are many definitions of what constitutes an SMB, the most common are based on the number of employees. Generally, businesses with fewer than 100 employees are classified as small and those with between 100 and 250 are classified as medium.  The opportunity in the SMB market is significant; however, the large number of small businesses and the low IT spend per business makes it a difficult market to penetrate. For example, according to Compass research, there are 2.4 million businesses with fewer than 1,000 employees in the US and 2.3 million of those have fewer than 100 employees.

Small businesses constitute the majority of businesses worldwide and they are growing at a faster rate than large enterprises. According to IDC, worldwide SMB IT spending grew beyond the half-trillion-dollar threshold at roughly 2 percentage points over the rate of GDP. SMB IT spending approached $700 billion in 2019. In a recent market research study conducted by Compass, small business owners identified their most important IT needs as: attracting new customers, serving existing customers better, increasing employee productivity, lowering operating expenses, and improving collaboration among workers. Now, more than ever, hardware and software technology companies are focusing on providing SMBs the products they need to meet thesechallenges.

All businesses, regardless of size, are organized into functional structures. In smaller businesses, individuals may take on multiple roles. For example, in a start-up, the CEO, CTO and Director of HR may be the same person, or a CFO may also do all the accounting as well mange the financials. Functional groups may report to different C-Level Executives depending on a wide variety of factors. For example, IT/IS may report to the CEO, CFO or COO. If the IT/IS department is big enough, it may be headed up by a CIO. In large enterprises, the roles and titles are generally very well defined. Regardless, the various business tasks must be accomplished, and, in a modern digitally savvy business, IT/IS generally supports these tasks.

HQ Operations

Headquarters (commonly referred to as HQ) is the location where most, if not all, of the important functions of an organization are coordinated such as corporate management (C-level executives), strategic planning, corporate communications, tax, legal, business development and M&A, marketing, sales, engineering, research and development, finance, human resources, information technology, corporate security, logistics and procurement.

Warehouse Operations

A warehouse is a building for storing goods. They are usually large plain spaces with metal racks or shelving to organize the goods for easy inventory storage and picking for shipment. The warehouse often has loading docks to load and unload goods from trucks. Larger operations may have cranes and forklifts for moving goods, which are usually placed on pallet racks. In very large operations, very sophisticated robotics may be used (think Amazon). To improve efficiency, most modern warehouses will have inventory management system (IMS) automation software with barcode scanners or RFID for tracking goods through receiving, storing and shipping. These automated systems are often tied directly to accounting and CRM systems to allow to further automation of supporting processes as well as to allow salespeople better access to sailable inventory.

Sales (Field Sales or ‘the field’)

B2B salespeople sell products and services to other  businesses (not consumers as in B2C). B2B salespeople often sell to professional buyers who are trained to get the best possible deal, they also often sell to teams of decision makers, all of whom must be convinced that this product is the best solution for their needs. Today, successful salespeople are experts in their customers’ businesses and function more as consultants – strong personal relationships are very important.

B2B sales come in two general types. The first type is selling products that meet a business’s needs, like office supplies or computer equipment. The second type of B2B sales is selling components that the business will then use to manufacture its own products. Sales operations can be very complex and organized in several ways.

Salespeople can be:

• Direct – Directly employed and compensated by the company
• Representative (Rep.) – Independent (not an employee) of the company they are ‘representing’. Usually paid on a commission plan of some type. Generally, representatives may sell other non-competing, synergistic products as part of their product portfolio. In special cases, a representative might be considered “captive” in that they only sell one company’s products/services.

The tools salespeople use today are more complex including CRM systems for tracking opportunities as well as websites and social media for generating leads and communicating information to potential buyers and specifiers. As a result, salespeople need a variety of supporting hardware (some combination of Laptops, tablets, smart phones, even smart watches) and software (the most common being MS Office, email, TXT messaging, pdf readers, video conferencing, CRM, and Malware protection) as well as supporting technology infrastructure (WiFI, Cellular data and VPN connections) to do their jobs effectively. Salespeople are often mobile (traveling by car, rail, plane) to visit customers requiring consistent, always available, secure communications capability.

Distribution

A Distributor is an independent company that act as supply chain intermediary. They buy products in bulk from various manufacturers, stock (warehouse) them and then sell/supply them to businesses that then use the products in manufacturing, maintenance/repair operations or retail operations. Distributors may have direct and/or representative salespeople.

Technology Infrastructure Overview

Technology infrastructure generally refers to the enterprise’s entire collection of hardware, software, networks, data centers, facilities and related equipment used to develop, test, operate, monitor, manage and/or support information technology services. Infrastructure does not refer to the hardware (e.g. Laptops, tablets, smartphones….) and software (e.g. MS Office, Adobe, Skype, Google….) employed by individual users to perform tasks using electronic technology.

Note: As the complexity of the infrastructure requirement grows so does the complexity of its design and implementation. Most SMBs do not have the required knowledge or skills so they generally use Value-Added Resellers (VAR) to help. A VAR takes software, hardware and/or infrastructure technology and implements it for a customer. The VAR is not the manufacturer of the equipment, but is expected to have a thorough knowledge of the products to properly customize, install, test, and sometimes maintain them for the customer.

As a business’s networking needs expand, the need for managed switches increases. A switch works in the data link layer, connects nodes of the same subnet together and forwards packets to the correct port by analyzing the MAC address. Managed switches are essential for larger networks and those with voice or video traffic (video conferencing) which needs to be prioritized above data traffic to ensure high quality feeds. Another important feature on managed switches is Power over Ethernet (PoE) used to supply power to devices such as wireless access points or IP phones so that these devices can be installed in locations that lack easy access to a power outlet. Power over Ethernet is injected onto the cable at typically 48 volts DC. This voltage allows efficient power transfer along the cable, while still being low enough to be regarded as safe. One of the additional benefits of PoE is that it does not require a certified electrician to install unlike a 110V power outlet thus potentially reducing instillation costs. The furthest distance a PoE switch can transmit simple data over Ethernet is 100 meters (the Ethernet standard). A PoE Ethernet Extender, however, can lengthen that span up to 4000 feet.

Routers work in the network layer are used to connect to the internet and to send traffic between Local Area Networks (LANs). A router analyses the IP addresses and routes a packet to the correct destination through the proper gateway. Hence, routers are used for interconnecting networks rather than connecting nodes in a subnet like a switch. Routers connect physically separate networks into one seamless network to the end users. Routers also provide additional security and protect against denial of service attacks and other security threats.

Wireless – Wireless networks consist of Wireless LAN controllers and access points (APs). Wireless products range in complexity from simple standalone access points that are easily installed and require little or no setup to more complex networks consisting of multiple APs integrated into a seamless managed network.

In an industrial setting, AP specifications, placement and antenna design become more critical to maintain speed and connectivity than in a consumer application, particularly in buildings with metallic structure interference/multipath reflections. Warehouse and manufacturing spaces can be even more problematic because of both signal blocking structures and electrical interference issues. A standard consumer AP will not perform well in these types of environments. To help solve this problem, APs with MIMO and beam forming technologies use multipath reflections to gain significant signal strength, avoid dead spots and improve reliability. Improved reliability translates to a greater coverage area for a given data rate.

More advanced infrastructure technologies include security, Unified Communications, and wireless technologies:

Security – Most vendors today build security features into every product it sells. In addition, many vendors also sell other security products such as spam blockers, firewalls, and identity management software. With the growing prevalence of BYOD (Bring Your Own Device) systems to address threats that lie within the perimeter of the firewall are required.

Unified Communications – Unified Communications, or UC, is a broad category that refers to applications that combine voice, data, and video over the same network. Combining voice and data networks generally saves businesses money because they only must maintain one network and allow for new productivity features such as accessing voice mail on the desktop.

Historically, PBX (public branch exchanges) were used as the network to carry voice traffic. However, with UC, voice traffic can be converted into packets and passed over an IP network and reassembled on the other end. The most popular UC products for SMBs are IP telephony solutions, such as Cisco’s Smart Business Communication System that combines a network foundation with security, wireless, and voice applications all in one system. Cisco is the worldwide leader in Unified Communications followed closely by Microsoft.

Installing UC begins with a network assessment and often requires an upgrade to the existing network infrastructure to ensure that the network can support high quality voice traffic. Nearly all SMBs work with a VAR to conduct the network assessment and deploy the UC solution. One of the barriers to adoption of UC has been the upfront capital cost, which many SMBs are not willing to undertake even though UC will save money over time through lower telecom and network maintenance costs.