Harvard Case - Proxima Servicios: Turning Subcontracting Into Supercontracting
"Proxima Servicios: Turning Subcontracting Into Supercontracting" Harvard business case study is written by Rodrigo Villalobos. It deals with the challenges in the field of Strategy. The case study is 37 page(s) long and it was first published on : Aug 30, 2021
At Fern Fort University, we recommend Proxima Servicios embrace a strategic transformation focused on business model innovation and digital transformation, leveraging its core competencies in technology and analytics to become a supercontractor in the global market. This strategy will involve a combination of vertical integration, strategic alliances, and market expansion into emerging markets, ultimately achieving sustainable competitive advantage and value creation for all stakeholders.
2. Background
Proxima Servicios is a Mexican company specializing in providing IT services to large corporations. They have a strong track record of delivering high-quality, cost-effective solutions, but face increasing competition from global players. The case highlights the company's founder, Carlos, who recognizes the need for a strategic shift to remain competitive. He is considering expanding into new markets, leveraging technology, and potentially acquiring other businesses to achieve growth.
3. Analysis of the Case Study
SWOT Analysis:
- Strengths: Strong technical expertise, established client base, cost-effective operations, entrepreneurial spirit.
- Weaknesses: Limited international presence, reliance on a single market, potential for talent acquisition challenges.
- Opportunities: Growing demand for IT services globally, advancements in technology and analytics, potential for mergers and acquisitions.
- Threats: Increasing competition from global players, economic instability in Mexico, potential for regulatory changes.
Porter's Five Forces:
- Threat of new entrants: Moderate - Barriers to entry exist due to technical expertise and client relationships, but new players can enter through partnerships or acquisitions.
- Bargaining power of buyers: High - Large corporations have significant bargaining power due to their size and ability to switch providers.
- Bargaining power of suppliers: Moderate - Proxima relies on skilled IT professionals, but the market offers a range of talent.
- Threat of substitutes: High - Alternative IT solutions exist, including cloud-based services and open-source software.
- Rivalry among existing competitors: High - The IT services market is highly competitive, with both local and global players vying for clients.
Value Chain Analysis:
Proxima's value chain includes:
- Inbound Logistics: Sourcing and managing IT resources, including hardware, software, and personnel.
- Operations: Delivering IT services, including development, implementation, and maintenance.
- Outbound Logistics: Delivering IT solutions to clients, including training and support.
- Marketing and Sales: Identifying and acquiring new clients, managing customer relationships.
- Service: Providing ongoing support and maintenance to clients.
Business Model Innovation:
Proxima can leverage its core competencies in technology and analytics to create a new business model focused on supercontracting. This involves:
- Vertical Integration: Acquiring or partnering with companies in complementary industries, such as software development or data analytics, to offer a more comprehensive suite of services.
- Strategic Alliances: Forming partnerships with global players to access new markets, technologies, and expertise.
- Market Expansion: Targeting emerging markets where demand for IT services is growing rapidly and competition is less intense.
Digital Transformation:
Proxima must embrace digital transformation to remain competitive. This includes:
- Investing in AI and Machine Learning: Automating tasks, improving efficiency, and enhancing service delivery.
- Developing a Robust Information System: Enabling real-time monitoring, data analytics, and improved decision-making.
- Leveraging Social Media and Digital Marketing: Reaching new clients, building brand awareness, and fostering customer engagement.
4. Recommendations
Phase 1: Strategic Planning and Business Model Innovation (Year 1-2)
- Develop a Strategic Plan: Define Proxima's vision, mission, and long-term goals, focusing on becoming a leading supercontractor in the global IT services market.
- Conduct Market Research: Analyze target markets, identify potential acquisition targets, and assess competitive landscape.
- Refine Business Model: Develop a new business model based on vertical integration, strategic alliances, and market expansion, leveraging technology and analytics.
- Implement Digital Transformation: Invest in AI, machine learning, and information systems to improve efficiency, service delivery, and decision-making.
- Develop a Strong Brand Identity: Invest in marketing and branding to establish Proxima as a trusted and innovative provider of IT services.
Phase 2: Expansion and Growth (Year 2-5)
- Execute Strategic Alliances: Form partnerships with global players in complementary industries to access new markets, technologies, and expertise.
- Pursue Targeted Acquisitions: Acquire companies in complementary industries to expand service offerings and enhance technical capabilities.
- Expand into Emerging Markets: Target high-growth markets in Asia, Africa, and Latin America, leveraging existing expertise and adapting to local needs.
- Develop a Global Talent Strategy: Attract and retain top IT professionals, fostering a diverse and inclusive workplace.
- Implement a Sustainable Business Model: Integrate environmental sustainability and corporate social responsibility into all business operations.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of Proxima's strengths, weaknesses, opportunities, and threats. They consider the company's core competencies in technology and analytics, the need to expand its market reach, and the importance of embracing digital transformation. The recommendations are aligned with Proxima's mission to provide high-quality, cost-effective IT solutions while fostering a sustainable and responsible business model.
6. Conclusion
By embracing a strategic transformation focused on business model innovation and digital transformation, Proxima Servicios can become a leading supercontractor in the global IT services market. The company's core competencies in technology and analytics, combined with a proactive approach to market expansion and strategic alliances, will enable it to achieve sustainable competitive advantage and create value for all stakeholders.
7. Discussion
Alternatives:
- Focusing solely on cost leadership: This strategy could lead to lower profit margins and difficulty competing with global players offering advanced technologies.
- Maintaining the current business model: This would limit growth potential and expose Proxima to increasing competition and market volatility.
Risks:
- Execution challenges: Implementing the proposed strategy requires significant resources and expertise, which could lead to delays or setbacks.
- Market volatility: Economic instability or changes in government regulations could impact Proxima's growth plans.
- Competition: Global players may aggressively pursue market share, requiring Proxima to continuously innovate and adapt.
Key Assumptions:
- Proxima's management team is committed to executing the proposed strategy.
- The company has access to sufficient financial resources to fund growth initiatives.
- The IT services market will continue to grow globally, providing ample opportunities for expansion.
8. Next Steps
Timeline:
- Year 1: Develop strategic plan, conduct market research, refine business model, implement digital transformation, and develop a strong brand identity.
- Year 2: Execute strategic alliances, pursue targeted acquisitions, and expand into emerging markets.
- Year 3-5: Continue expanding market reach, refine operations, and build a sustainable and responsible business model.
Key Milestones:
- Establish a dedicated strategic planning team: Responsible for developing and implementing the strategic plan.
- Secure funding for growth initiatives: Secure investments or loans to support acquisitions, market expansion, and digital transformation.
- Develop a comprehensive talent acquisition strategy: Attract and retain top IT professionals to support growth and innovation.
- Monitor progress and make adjustments: Regularly assess progress against key performance indicators and adjust strategy as needed.
By taking these steps, Proxima Servicios can successfully transform its business model and become a leading supercontractor in the global IT services market, achieving sustainable growth and creating value for all stakeholders.
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Case Description
Proxima Servicios is a company with a social orientation, recognized in 2017 among the 10% most sustainable B companies. It had the objective of improving the working conditions of workers with low qualifications and low salaries, through the provision of subcontracting services in the field of industrial cleaning and maintenance, by transforming the subcontracting work into supercontracting. Proxima sought to deliver a service of excellence and the development of its employees. The development of its workers focused on improving their work skills, increasing their employability, and supporting their welfare. The specific activities that were subcontracted in Chile were varied, and there were no tasks that could not be subcontracted: outsourcing of security and surveillance, cleaning and maintenance, construction and assembly, transport and/or distribution, legal services, and food was widespread. In contrast, the areas of IT, marketing, sales, and finance were outsourced by a small group of companies. From this, Eduardo considered that specifically security guards, cleaning personnel, transportation of workers, or maintenance tasks, were activities that in the last decade had ceased to be an integral part of a companies' operations. The growing trend in human resources pointed to these services being outsourced or subcontracted. In particular, Eduardo was informed that the Chilean private security market had risen to over 130,000 workers, reflecting a 211% increase in the last five years. This made him think that it could be very attractive to transfer Proxima's experience in the cleaning service to the private security market. If he remained in the cleaning service, Eduardo thought it was necessary to redefine his strategy but to maintain shared value or offer a new related service.
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