September 24th, 2014
Case Study by Academy for Chief Executives
Sometimes all a business needs to transform itself is a really good idea. And it was just such a brainwave that helped Richard Blanford, MD of Fordway and a member of Academy CEO Group 14, to re-position his technology business for a sustainable, long-term future.
Like many IT Systems Integrators, Fordway’s traditional business model was based on revenue from winning and fulfilling IT infrastructure transformation projects. This had worked well until the recession caused by the financial crisis in 2008/9 when the supply of potential projects requiring Fordway’s skills and expertise dried up.
“Our business model was selling 3rd party products with our consultancy skills on a project basis for large scale IT Infrastructure transformation projects. We worked across all industry sectors with a focus on the public sector,” Richard explains. “But when the commercial environment became really tough we found that this wasn’t going to stand the test of time.”
The key issue that the recession exposed was that Fordway had very little contractually-guaranteed recurring revenue.
“Whilst we had a good level of repeat business, budget cuts in the downturn reduced the number of companies implementing major upgrades or kicking off new projects. So the same number of suppliers were left fighting for a vast reduction in potential projects, resulting in many suppliers willing to accept unsustainable margins purely to maintain turnover. This resulted in some high profile bankruptcies among our competitors. Thankfully we chose not to do this,” Richard says.
The company’s turnover was hit, with revenue falling from £10m to £7.5 million over 2 financial years, margins squeezed and the first substantial losses in Fordway’s history. It became clear that a new approach was required to bring back a healthy stream of recurring business.
That innovation was for Fordway to build its own managed cloud platform and offer cloud computing services direct to clients, rather than acting as a re-seller and integrator of other vendors’ products.
“We sat down and worked out how we could apply what we were good at differently to build a more sustainable, profitable business. It was a major commercial decision to build this platform and required considerable investment. In addition to the financial outlay we had to recruit new people and learn new skills to ensure consistent, high quality service delivery to our clients. Moving from reselling to a products-based business also meant there were other lessons to be learned.”
The transformation started in 2010 and is still ongoing, although the majority of the transformation work is complete. In 2009, Fordway’s contractually guaranteed recurring revenue was 7% of turnover, with a further 10% coming from renewal of third party support contracts, themselves became subject to competition from increasingly desperate competitors.
In Fordway’s 2013-2014 financial year, contractually-guaranteed recurring revenue has increased to 40% of turnover, whilst the company’s overall turnover has increased 20%. Fordway’s business plan predicts the new services will reach 55% of turnover in the next financial year, with the new services offering considerably higher margins than Fordway’s ‘traditional’ business.
Fordway were ahead of the curve when they re-structured the business for a more sustainable business with strong long-term prospects. This competitive advantage in their sector has continued due to an on-going focus on continuous improvement in both delivery and capability.
“One of the keys to our success has been to very clearly define our preferred customer base and to target them ruthlessly,“ Richard adds. “We have also invested in ensuring we have all the relevant accreditations to deliver services to Central Government and other parts of the Public Sector”.
“Our head-count has nearly doubled, we have job titles that didn’t exist 18 months ago and it’s a very different company these days. We also now work more closely in partnership with our clients to help with the evolution and development of new products and services which is highly rewarding.”
Looking back over this period of change, transformation and growth for Fordway, Richard says that when things get tough, doing nothing is not an option.
“The key piece of advice I would offer is that if the business is working don’t wait for things to get better. Understand how you can apply what you are good at differently, change your game and do it fast even if this means cannibalising your existing business.”