Table of Contents: Executive Summary: 2 Introduction: 2 Analysis: 3 Evaluation: 4 Recommendation: 5 Conclusion: 7 Reference List: 7 Appendix: 8 Executive Summary: This report looks at the past performance, decisions made and the consequences for DMD Compresores. An Argentine company which wants to penetrate the air compressors market starts by providing technical support and later becomes manufacturers and providers of industrial air compressors. Looking at their revenue streams, target segment and especially the crisis of 2011, this report aims to correct its business model by adopting an ‘unbundling business model’ with mixture of overall cost leadership, retrenchment and focus strategies in the short run. In the long run, growth strategy, smart investments in R&D and channelizing its core focus on service sector with strategic alliances with high HP market leaders would help DMD Compresores create sustainable value and reintroduce organic growth in its business cycle. Introduction: It is expected that the global air compressor market will reach to 37.18 billion USD by 2022 ("Air Compressor Market Size To Reach $37.18 Billion By 2022", 2016). In Argentina, where almost 90% of industrial companies use compressed air provides a huge market for air compressors. DMD Compresores S.A is an Argentine company trying to capture this market. It all began by providing technical support in compressed air until the 1990’s. Later, DMD Compresores expanded as providers and manufacturers of air compressors ranging from 15-30 HP. They also started promoting their unique variable power compressors aiming to reduce power consumption and target a new customer segment which comprised of medium-large firms requiring 50-125 HP motors. Their business flourished from 2003 to 2010. Aiming to provide a better product to penetrate and capture a new market segment, they had to face shortcomings in their technology. As a result, in 2011 the company saw rising domestic manufacturing costs and reduced cash flows. It had to adopt a ‘Retrenchment strategy’, reconsider the failing parts of the business and channel its focus towards lower-power models with recalculated service costs. In 2013 on the verge of bankruptcy, DMD Compresores must amend its business model to survive in the long run whilst being profitable. It is fair to conclude that DMD failed in terms of management and maintaining a sustainable steady growth. It tried to capture every customer segment and has clearly bitten off more than they can chew. This report aims to analyse the various strategies and the models used overtime whilst reflecting on the statistics provided for evaluation. This report also aims to create a new business model and find sustainable ways to disrupt the air compressor market and survive by creating new and sustainable value. Analysis: Starting in 2003, DMD Compresores adopted the ‘Growth strategy’ by having an organic growth in terms of departments and their respective functions. This led to DMD Compresores setting up a benchmark in the Argentine industry. It also shifted to a new facility in 2005 which shows DMD Compresores’s desire to come up with a better value proposition to exceed their customers’ expectations by achieving economies of scale. Later in 2006, the company saw value in creating and improving its brand image. Therefore, it adopted the ‘Unbundling business model’ and started looking at the ‘Customer segment’ as a separate function. DMD Compresores started participating in exhibitions, fairs and events to showcase and represent their brand to the outside business world and capture new potential customers. The most crucial year in DMD’s history was 2008. This was the turning point in their business. In 2008, DMD also unbundled ‘Product innovation’ by heavy investments in research and development and launching variable power compressors. It adopted an ‘Imitative new entry’ strategy with their product which could capitalize on proven market successes and with strong market orientation, thus providing value by yielding energy savings. However, DMD Compresores failed to ‘cross the chasm’ with their variable power compressors. It could not fully influence their customers and tackle the huge risks involved. Even if their product used less energy, DMD Compresores couldn’t compete because the market was too rigid to accept the higher price and thus competitors flourished. Looking at company statistics, compressed air accounts for 50% of individual plants’ energy consumption (p. 2). DMD Compresores saw a gap in the market and wanted to innovate and provide a better product in the market. Hence, it adopted a ‘Adaptive new entry’ strategy by offering a product which was sufficiently different from market products to create value for target customers by capitalising on current air compressors market trend. As Keeley (2013) once said when talking about product performance “This type of innovation involves both entirely new products as well as updates and line extensions that add substantial value” (p. 34), with an aim to fill in the market gap, DMD’s new product could alter the power usage and air pressure to reduce power consumption and save energy. It would help in bringing down the operating costs and boosting product performance. In this period, the company’s core focus also shifted on targeting new customer segments. It wanted to target the 30-50 HP and 100-125HP customers by adopting a ‘Differentiation strategy’ with their new product penetrating this market segment. It also adopted the ‘Long tail business model’ by starting to look at less profitable niche customers and segments which in aggregate might become profitable and add to company’s profit. By investments in R&D, it finally adopted a ‘Multi sided business model’ by creating value in the technology offered along with product. DMD wanted to introduce this technology into higher HP compressors so that it can penetrate the market with a better product than its competitors like Sullair, Kaeser and Atlas Copco. In 2010, we can see that DMD analysed its business model which was now based on strategy listings, their importance and their consequence. Questioning the management style, the company decided to thrive for a more radical shift in its corporate culture. This led to a cultural formation based on ownership, commitment and uncontrolled individual contributions. However, cultural changes had a negative impact on the executions and led to deviation from the product’s core focus. A major drawback in DMD Compresores’s business model of 2010 was that it stopped paying heed to the existing customers who were the main revenue sources. Statistics from National Statistics and Census Institute (INDEC) show that DMD had a big market as 80% of businesses in Argentina were SME’s (p. 6). By not fully focusing on them, it tried to capture the big companies. This is where DMD lost in terms of revenues and fall in customer retention and growth. The crisis of 2011 were mainly because the competitors saw better value by importing the compressors. Hence, they could stabilise/bring down their costs. DMD focused on domestic production and didn’t move with the market trend. The company should have focused on technical assistance and preventive maintenance because their value creation lied in the service and assistance sector. But inefficient management style couldn’t focus on existing customer while the company tried to capture new sales opportunities. In 2013, various initiatives were taken to revive the business. The company looked back at its old strategy which was somewhat weird. The company realised that customers don’t come for their brand, their actual value in business lies in their quality of service and the long-lasting relationships (p. 5). However, they failed to see that maintenance and assistance services served as the biggest revenue drivers. ‘Retrenchment strategy’ was adopted by disposing higher HP products and promoting specialisation by focusing on 15-30 HP segments. The company didn’t adopt the ‘Long tail business model’ in their services and assistance sector. This could have been a lifesaver for the company. Evaluation: In my analysis, I brought to light several strategies and business models adopted by DMD Compresores to grow as a business. Now, with the aid of statistics and exhibits, DMD Compresores’s business decisions and their denouement will be evaluated. Looking at Exhibit 3 from 2013, DMD’s organisation structure lacked specialisation and the concept of ‘right man for the right job’ as the General Manager was also the Marketing Manager. A good thing about the Management’s key members was the faith, trust and promotion of a holistic approach in its functions. Exhibit 5 shows that the top managers of DMD value relations. This enabled them to achieve better and a collective decision making. Talking about the financial side, from late March 2013 statistic report by DMD Compresores, we can see that 80% of their sales were from 15-30 HP compressors. However, the company heavily invested in compressors that produced 50-125 HP even though they just accounted for 20% of their sales. (p. 5) They tried adopting the ‘Long tail business model’ by trying to provide value to the high-power customer segment. The amount invested in capturing the 20% of customer segment could have been utilised for driving down the operational cost by achieving economies of scale and better efficiency in functions. Also, direct expenses account for 40% of DMD’s sales figures. (Exhibit 6) This has led to significant reduction in margins and profitability. From Exhibit 10, we can also see that after the 2011 crisis, the sales of 30HP compressors declined by 10% from 130 units to 117. Nonetheless, DMD continues to be the sales leader in 30HP customer segment by beating both domestic and imported devices. Thus, DMD has a vast customer base with high customer retention and growth rate. DMD knows how to capture this market segment effectively and should further focus on that. The biggest problem with their financials is that their direct fixed costs are almost 66.5% of the contribution margin. (Exhibit 11) DMD Compresores need to cut down on their fixed costs per unit to start earning profits. It can also be observed that the overhead expenses of DMD are consistent in terms of compressor sales and services. After making changes in the business model in 2013, projected services line showed higher sales figures than compressor sales. The income statement from 2013, (exhibit 6) shows that preventive maintenance and technical assistance contribute to very high margins (74% & 85% respectively). The services and assistance sector are potential major revenue drivers. DMD Compresores would be more successful by revisiting and focusing on its old operations. Furthermore, the variable cost to sales ratio would be lower in services compared to compressor sales showing more profitability. Projections were made that only revenue from services would enable DMD Compresores to have a break-even period. To summarize, poor management skills have adversely affected DMD’s performance. By not focusing on major revenue streams (services+ assistance and 15/30 HP customer segments), DMD Compresores took a business misstep and deployed its crucial business resources in the wrong direction. With excessive direct fixed costs of production, DMD Compresores need to adopt a set of strategies which would enable them to create value in the market by reducing costs and expanding in a rational way. Recommendation: TACTICAL PLANNING - (SHORT TERM STRATEGY) The most important aspect of any business is identifying the problem, looking at the market trends and filling the market gap with advancements in technology. DMD has successfully looked at the market trends of air compressors. It has also filled the market gap of high operating costs of consumers by technological advancements and launching their variable power compressors which use less energy. With more capable sales and representative workforce, DMD would be able to ‘cross the chasm’ and can benefit from higher prices of their variable power compressors. DMD needs to establish a low-cost base by driving down their direct fixed costs with the aid of ‘Retrenchment strategy’. By downsizing and disinvesting in higher HP compressors in the short run, DMD Compresores would be able to revive its cash flows and increase sales. DMD Compresores also need to adopt an ‘Overall cost leadership’ generic strategy. With simplified and specialised organisational structures and steady improvements to technology, DMD will make timely cost related decisions. Another recommendation would be to focus more on the services provided. DMD’s value lies in its customers valuing the relations. By providing better services across all compressors, DMD will widen this revenue stream. An ‘Unbundling business model’ with clear separate focus on product innovation, customer relations and infrastructure management will help DMD Compresores achieve better efficiency in terms of operations and management. By adopting a ‘Focus strategy’ in the short run, DMD will instil confidence in its ‘niche’ customers. Throughout the years, DMD Compresores have instituted a business where it can no longer grow with the set management style. So, DMD should promote TQM (Total Quality Management) and provide the highest level of quality to existing 15/30 HP customers so that they don’t rely on competitor products. By careful establishment of lean management, DMD Compresores should avoid excess inventory in their system and maintain a healthy inventory turnover ratio. STRATEGIC PLANNING - (LONG TERM STRATEGY) Finally, ‘Growth strategy’ can be very beneficial for DMD Compresores in the long run by looking at strategic alliances and contracts. Investments in R&D would help improve the technology. Profits from the 15/30 HP sales + services would leverage this long-term project. By collaborating with Atlas (100 HP) and Kaeser (50 HP) for complete domestic manufacture of variable power compressors for them and providing recalculated exclusive services to these compressor sales, DMD Compresores would establish a new legacy of variable power compressors and help the industry move towards a greener approach and make everyone better off. Below is a lean canvas model for DMD Compresores. Conclusion: With the above stated specific and general strategies, DMD Compresores would be able to focus on value creation and strive for sustainable growth. In the long run, filling a market gap is sustainable only when the customer finds value addition. By realising their core strength and unique value proposition of providing services, DMD Compresores would be able to redefine its business operations and increase profitability. The current business model lacks clear direction with poor financial decisions. The new unbundling business model with the strategies suggested would help DMD Compresores to become leaders of 15/30 HP compressors in the short run and a major service and assistance provider in the long run. Hence, it is safe to conclude that DMD Compresores has come a long way from starting as technical support to becoming a tech giant. The future lies in better efficient products. As Henderson (2017) said; “The service-providing sectors are projected to account for more than 90 percent of the jobs that will be added to the economy between 2012 and 2022” DMD Compresores are sitting on a goldmine. They must reinforce their value of service and strong relations which in turn will build a big brand. As John Williams (2005) said “your brand is your promise to your customer.” Reference List: Air Compressor Market Size To Reach $37.18 Billion By 2022. (2016). Grandviewresearch.com. Retrieved 15 February 2017, from http://www.grandviewresearch.com/press-release/global-air-compressor-market Frías, P. (2015) Adjusting the Business Model. ISSN: 2451-6651, Universidad de San Andrés School of Management. Henderson, R. (2017). Industry employment and output projections to 2022: Monthly Labor Review: U.S. Bureau of Labor Statistics. Bls.gov. Retrieved 19 February 2017, from https://www.bls.gov/opub/mlr/2013/article/industry-employment-and-output-projections-to-2022.htm Keeley, L. (2013). Ten types of innovation (1st ed., p. 34). Hoboken, NJ: John Wiley & Sons Inc. Williams, J. (May 2, 2005). The basic of branding. Retrieved February 18 2017, from https://www.entrepreneur.com/article/77408   Appendix: