Business Essays – NCipher Management Customer

nCipher Management Customer

1 Introduction

1.1 Background

nCipher is a well recognised and respected leader in providing encryption and key management solutions to public and private enterprises and institutions world wide. nCipher help the customers – many of whom are among the world’s most security conscious organisations – to protect and secure their most sensitive information so as to achieve regulatory compliance, manage risk and stave off increasingly sophisticated attacks and threats. In so doing nCipher delivers the level of “next generation control” for data protection that is essential in the modern world. nCipher’s customers range from the world’s top three pharmaceutical companies, four out of five of the world’s largest energy companies, more than half of the world’s ten major aerospace and defence companies as well as nine out of ten of the world’s largest banks. nCipher remains focused on further enhancing the performance and ease of deployment of key Authority, based on an increasing knowledge base of customer usage patterns and deployment scenarios. In addition nCipher are working hard to extend the range of third party products and system platforms that can be managed by key Authority. nCipher believe that these and other investments will position key Authority as one of the most comprehensive general purpose key management solutions on the market.

1.2 Company’s objectives and Operations

nCipher remains concentrated on the application of cryptography to the real-world problems of identifying people and protecting their data, their business and the transactions, which occur between them. It operates and sells security products through a comprehensive network in the UK, Europe, Asia-Pacific Rim and the US. nCipher was named as a leader in the database encryption market by Forrester Research in its report entitled “The Forrester Wave: Database Encryption Solutions, Q3, 2005”. Identity Management of nCipher is the user management and provision enables clients to automate activities associated with user systems and digital identities, credentials and entitlements. Data protection suite gives security professionals the ability to secure information at the application, database, file or document level, providing defence in depth across multiple locations. Enterprise Key Management is nCipher delivers this to drive lower operational costs and increased accountability by unifying and automating this critical aspect of security management. Cryptographic hardware platforms allow organizations to go beyond software based security techniques to secure encryption and signing keys, protect sensitive application code, prove the authenticity of documents and accelerate SSL operations.

Symptoms, Problems and Issues

2005 witnessed a high increase in demand of data protection products and services. Several companies, including ChoicePoint, LexisNexis and Time Warner, announced their requirement for enhanced data protection. Due to Data Protection Act 1998 and the increasingly competitive market of on-line services, the industry of data protection will keep the emerging trend for years. As seen above, the operations of the company can serve the requirements of the market, ensuring the company’s profitability.

Mission of current nCipher

The Board believes that the prospects for the core business of the Group in high end encryption hardware remain strong and continue to provide a solid foundation for future growth. The acquisition of the NeoScale product line strengthens the position in the rapidly evolving encryption market and gives us enhanced access to the storage security market. This, together with the emerging position in enterprise key management as well as now successfully established professional services team, is expected to deliver solid growth during 2008 and provide a stable platform for achieving the longer term aims.

1.3 nCipher classify as SME

The definition of an SME used by the South West Ventures Fund is a business or company which has fewer than 250 employees and either an annual turnover not exceeding A£24 million or an annual balance sheet total not exceeding A£16 million; moreover 25% or more of the capital or the voting rights are not owned by one enterprise, or jointly by several enterprises falling outside this definition of an SME. nCipher was founded in Cambridge, UK, by Alex & Dr. Nicko van Someren. Currently average Number of Employees (exc. directors) 2007 of nCipher is 193, and currently revenue of nCipher in 2007 increased by 14.8% to 24.2 m compared with 21.1 m last year. This has been achieved despite the impact of the weaker US dollar on nCipher revenue. At constant currency rates revenues would have increased by 20%. As part of a planned succession, nCipher co-founders Alex and Dr Nicko van Someren both stepped down from the Board on 31 December 2007, having retired from their respective positions as Chief Executive Officer and Chief Technology Officer. The Board would like to pay tribute to the major contribution that both Alex and Nicko have made to the successful development of the Group over the past 11 years.

Impartment Events

On 18 November 2005, the company completed the acquisition of preference shares of Abridean (US) Inc, representing a 61.3% voting interest. It will help nCipher deliver a broader portfolio of security solutions to customers. Following the end of 2005, the company received an Offer for the entire Ordinary share capital of nCipher at 300 pence per Ordinary share from SafeNet, Inc. The Board unanimously recommended this Offer. The offer would be made in 2006. The definition of an SME used by the South West Ventures Fund is a business or company which has fewer than 250 employees and either an annual turnover not exceeding A£24 million or an annual balance sheet total not exceeding A£16 million; moreover 25% or more of the capital or the voting rights are not owned by one enterprise, or jointly by several enterprises falling outside this definition of an SME.

2 Strategies

2.1 Market environment

2007 saw many high profile organisations suffer the fall out from unintentional loss or disclosure of confidential personal data. A major US retail chain reported the largest single loss of consumer data with some 45.6m credit and debit card records stolen from its payment processing and data storage systems, and the UK government revealed the loss of 25m child benefit records by HMRC, to name but two examples. Many of these customers have long embraced the power of cryptography and encryption, which they view as a strategic technology. Driven by compliance with privacy legislation, many newly regulated markets such as traditional retail, online merchants, healthcare and education present substantial new opportunities for nCipher. During the early development of nCipher, it followed the pattern of the wheel of retailing nCipher delivered the industry's first secure cryptographic accelerator nCipher completed IPO and was listed on the London Stock Exchange. nCipher’s key management solutions now provide a unifying force to encryption policies and deliver a tangible return on investment by automating what would otherwise represent an unacceptable burden of manual processes. The inherent flexibility of nCipher’s key management architecture enables it to tightly integrate with the embedded encryption functionality found in a host of third party products. By working closely with their technology partners nCipher assure the customers that as their needs evolve and as compliance requirements mature nCipher’s key management products will help address their continuing deployment challenges. nCipher continuously invests in the evolution of its product portfolio to ensure that the highest levels of compatibility and technical standards are maintained. As previously announced, nCipher will continue to increase the investment in research and development.

2.2 Market orientation

The mission-critical role that nCipher’s products play for many of customers requires us to provide a high quality, “round the clock” global support and maintenance service. As the Group’ s product portfolio has expanded to include more complex software-oriented solutions, the opportunity has also arisen to provide a range of configuration, customisation, implementation and contract development services. In the past, nCipher has delivered professional services through a number of partnerships around the world with organisations that are specialists within their respective fields. nCipher have recently established an in-house professional services capability to supplement these external resources and to provide technical services for which nCipher is uniquely qualified. nCipher expect this part of business to continue to grow and become a valuable contributor to revenue in due course. The marketing theories will be used in this essay include: the wheel of retailing, the big middle theory, product lifecycle, retail lifecycle, targeting, segmenting and positioning, and other branding-related theories. This report will be concentrate on few main areas including: Retail change, product and retail lifecycle, positioning and other branding-related issues. It attempts to answer the following questions: What factors made Gap success, How Gap evolved from a small company to a multi-national retailing institution, and What caused Gap’s fail? With the increased globalisation affect and the improvement of people’s living standards.

The fasting changing fashion market make the cloth industry life cycle become much shorter. Products quickly enter into the decline stage after their introduction Therefore, it is suggested that companies in this highly competitive industries with relatively short product life cycle can be revitalised only by product differentiation and market segmentation, these are the main challenges that nCipher faces up to. (Value based management.net, 2007) nChipher has been criticised for its fail to keep ‘in contact’ with fashion trends and other innovative competitors, this has resulted in fail to retain or acquire customers. (Newman, 2003) nCipher is a world leader in IT security, specialising in data encryption, helping to protect critical enterprise data for customers who are among the world's most security-conscious organisations. By delivering solutions in the fields of credential management, data protection, enterprise key management and cryptographic hardware, nCipher enables businesses to control who can access sensitive data, to protect that data whether in transit or at rest, and to achieve compliance with the growing number of legaland privacy-driven regulations. As currently research (e.g., Liu 2005; Verhees and Meulenberg 2004) shown, compared with larger firms, SMEs tend to be more reluctant to adopt a marketing approach mainly because of a lack of resources and skills.

In particular, since SMEs usually lack marketing specialists and their owners managers are usually the sole decision makers, the choice to adopt a marketing approach relies on what they think marketing is and their expectancies about the consequences of the adoption of such an approach in their organizations. Probably a more comprehensive and precise way to analyse the nCipher’s current issue is by examining the “Big Middle” theory. The Big Middle theory, shows below, is defined as the market space in which the largest retailers compete in the long run, because there is where the largest number of potential customers reside. (Levy, 2005) According to this concept, a retailer exists in one of the four segments: Innovative, Low-Price, Big Middle and In-Trouble. Retailers tend to start within either Innovative or Low-Price segments. The Innovative ones target at quality-conscious market, in which they provide premium products and services, such as Dixon. The Low-Price retailers, such as PC world, target at price-conscious market, in which they provide economical and “Value-for-money” products and services.

2.3 Market segmentation

Primary reporting format – business segments The Group operates in a single reportable business segment: the development and resale of internet security products, services and technologies. Secondary reporting format – geographical segments For management purposes, the Group is currently organised into three geographical areas – Asia; Europe, Middle East and Africa; and North and South America. These geographical segments are the basis on which the Group reports its primary segment information. Goodwill has been allocated to the single business segment of the Group. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following seven years based on an estimated growth rate of 9%. The Directors consider that this rate does not exceed the average long term growth rate for the relevant markets. The Group operates in a single reportable business segment: the development and resale of internet security products, services and technologies. However, for internal management reporting purposes, revenue and cost of sales are split between products and services. Accordingly, turnover and gross profit are reported below (see analysis by type) as if the Group has two classes of business.

Below gross profit there is no split between products and services for internal reporting purposes, and accordingly no further analysis is disclosed. For management purposes, the Group is currently organised into three geographical areas – Asia; Europe, Middle East and Africa; and North and South America. These geographical segments are the basis on which the Group reports its primary segment information. The following table provides an analysis of the Group’s revenue and result by geographical region, irrespective of the origin of the goods/services. Marketing as an essential ingredient in strategic planning, indeed the 4Ps concept, as first envisaged by McCarthy (1960), was intended to serve as a “convenience description” of the total marketing activity. Marketing needs to be considered, also, from the corporate level (Assael, 1985). Frantz (1978) suggests a capsule description of the small business marketing strategy development process, namely appreciation of small businesses limitations; identification of target market(s); and development of a marketing mix. He further proposes that small firms should adopt the overall marketing orientation, use low cost marketing research methods, and utilize personal selling activities to market their products. nCipher’s business strategy remains unchanged: to exploit its strong reputation and market share in the encryption hardware market (clearly underlined by the OFT’s earlier ruling) to develop a portfolio of complete solutions for enterprise data protection requirements, encompassing management of the identity of authorised data users and protection of the sensitive data itself, whilst in transit and at rest. A report from Forrester Research, Inc2. Highlights the need for companies to make it a priority to protect data, no matter where it may reside. Business and security pressures are forcing the industry to adopt a more “data-centric” approach in which information classification and encryption become central components of IT security. The market orientation characterized by Narver and Slater (1990) consists of a customer orientation, competitor orientation, inter functional coordination, long-term horizon and profit emphasis. The key to achieving organizational goals is to be more effective than competitors in integrating marketing activities towards determining and satisfy the needs and wants of target markets.

The management team identified two long-term goals for nCipher; profitability and high growth. The marked increase in profits this year has clearly demonstrated the commitment to the first of these priorities. Achieving high growth demands that the team aggressively pursue potential opportunities, whether through organic growth or through acquisitions and joint ventures in closely aligned markets and technologies. The nCipher Board believes that good growth opportunities exist within the markets in which nCipher operates and the Board intends to work towards maximizing shareholder value in nCipher by focusing on additional growth opportunities and driving further operational improvements in the business. nCipher’s strategy remains focused on expanding from the current business of selling cryptographic key management products, towards broader solutions that protect critical enterprise data. The team believe that with this strategy nCipher is well-positioned to exploit a number of high-growth market developments within the broad IT security arena and this gives the Board confidence in the company’s future as an independent entity.

2.4 nCipher Strategy

Since its founding in 1996, nCipher has focused exclusively on enabling its customers to address the challenges associated with deploying encryption and other security technologies based on cryptography. Through nCipher extensive engagements with some of the world’s most security conscious organisations in the banking and government sectors, nCipher has established an enviable reputation and valuable core expertise. This positions the Company well to respond to a rapidly evolving market and to build on its leadership position as an enabling force within the industry. nCipher’s strategy remains unchanged. The company management team are exploiting the position as globally respected experts in the deployment and use of encryption to protect critical enterprise data. nCipher offer an increasingly broad range of solutions to control who can access sensitive data, to protect that data whether in transit or at rest, and to achieve compliance with the growing number of legal-and privacy-driven regulations. As previously announced, during the first half of 2007 nCipher have taken steps to increase investment in Research and Development still further, and the impact of this will begin to be felt in the second half of the year. Such investment is intended to enable us to develop new solutions to meet customers’ requirements for credential management and data protection, whilst continuing to evolve existing products for enterprise key management and cryptographic hardware still further. nCipher continuously invests in the evolution of its product portfolio to ensure that the highest levels of compatibility and technical standards are maintained. nCipher products undergoing validation for Common Criteria security approval nCipher’s family of industry-leading nShield HSMs has begun the process of Common Criteria evaluation. nCipher keyAuthority gains integration support for IBM System i (AS/400) Taking advantage of encryption has always been a particular challenge on platforms such as System I where there has been a reliance on manual techniques for the management of cryptographic keys.

Professional services

The mission-critical role that nCipher’s products play for many of the customers requires us to provide a high quality, ‘round the clock’, global support and maintenance service. As the Company’s product portfolio has expanded to include more complex software-oriented solutions there has been a growing opportunity to provide a range of configuration, customisation, and contract development services.

Geographic focus

On a geographic basis, nCipher are investing in carefully targeted expansion on a global scale. In North America nCipher are focused on strategic growth initiatives, including expanding the sales presence, leveraging the former NeoScale channels as well as existing partnerships and other business development opportunities. nCipher’s keyAuthority product delivers automated, scalable and highly available key management services for encryption and other cryptographic functions across the enterprise. nCipher’s enterprise key management solution addresses some of the fundamental deployment challenges that arise as organisations seek to protect sensitive information as it is stored and processed. nCipher’s keyAuthority replaces error prone manual key management processes, reducing cost, complexity and therefore risk. nCipher now consider that the global commercial opportunity directly related to the Group’s expertise and technologies is both more substantial and growing more rapidly than has previously been predicted, nCipher have, therefore, set ourselves the target to double sales over the next three years and are making significant additional investment this year to improve all aspects of business. nCipher will invest only in the right mix of products and services -those with the highest potential return on investment - and will have the sales and marketing structure and skills in place to maximise sales.

3. Strengths and Weaknesses

3.1 Strengths

3.2Weaknesses

SMEs have unique characteristics that differentiate them from conventional marketing in large organisations (e.g. Carson, 1990). These characteristics may be determined by the inherent characteristics and behaviours of entrepreneur or owner/manager; and they may be determined by the inherent size and stage of development of the enterprise. Such limitations can be summarized as: limited resources (such as finance, time, and marketing knowledge); lack of specialist expertise (owner-managers tend to be generalists rather than specialists); and limited impact in the marketplace. The stages/growth model suggests that any model of small firm marketing must take into account the stage of development of the business. (Carson, 1985; Tyebjee et al., 1983) This provides a useful framework, and also a starting point, for further analysis. However, there are two major assumptions for the stages/growth model: a necessary change in the business and marketing practices of the owner or the enterprise to enable the progression of the business from one stage to the next; and the awareness, aptitude and ability of the owner manager to deal with the different problems encountered at each of the stages. The major contribution of the management function approach is the acknowledgement of marketing as both an important function and an essential concept in small firm growth and survival. However, putting marketing solely as a business function is criticised vigorously by Baker (1985a) and King (1985). Moreover, owner-managers simplify and misconceive marketing as the 4Ps only (Carson, 1993). This may be due to the difficulties in understanding and implementing marketing (Baker and Hart, 1989). According to some researchers (King, 1985; Scase and Goffee, 1980), managers, including owner managers, do not perceive marketing as a means of solving their everyday business problem. Ames (1970) and Brooksbank et al. (1992b)

Market risk

The Group and Company’s activities expose it primarily to the financial risks of exchange rates but comments are also made below on interest rate management. The Group’s exposure, primarily based on US dollars, comes from its US based subsidiary and also an element of trading in US dollars in the Asia Pacific region. As currently research (e.g., Liu 2005; Verhees and Meulenberg 2004) shown, compared with larger firms, SMEs tend to be more reluctant to adopt a marketing approach mainly because of a lack of resources and skills. In particular, since SMEs usually lack marketing specialists and their owners managers are usually the sole decision makers, the choice to adopt a marketing approach relies on what they think marketing is and their expectancies about the consequences of the adoption of such an approach in their organizations.

4. Recommendation

Due to the limitations which are mentioned before, the network working approach can help SMEs to solve those kind problems. Networking occurs as a natural and inherent entrepreneurial activity. An SME owner-manager's personal contact network will be represented by people who can help the entrepreneur in arriving at decisions for the wellbeing of the enterprise. The network approach and various theoretical concepts related to it have sometimes been referred to as an emerging, postmodern paradigm in inter organizational exchange and industrial marketing research (cf. Cova, 1994; Johanson and Mattsson, 1994). Network theory differs considerably from traditional North-American marketing theory originally based on microeconomics and consumer marketing research. The empirical study highlighted that there is considerably more communication between the SME owner/manager and his/her competitors than is widely reported in the literature. Owner/managers may communicate with competing firms and often are quite supportive of each other. Indeed, many owner/managers claimed to know their competitors personally, and would have no hesitation in contacting them for help or advice.

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