The company is going to have to go through some degree of pain if it is to re-establish itself as a dominant player, writes Tony O'Brien,head of business consulting at Grant Thornton.

John finds himself in a situation that I have seen in many Irish companies where sales revenues, profit and employment have grown consistently for many years, but now with the economy slowing, a series of problems seem to be emerging.

However, John has a particular set of issues to deal with. When he sits down on his holidays and analyses his problems, he should come to realise that his main problems are strategic, not tactical.

The change in the structure of the market is having an immediate negative impact on the company's revenues and profits. An approach that could be adopted at once is to reduce costs and maintain profits. This is not an attractive option to John as the case study indicates that the company has a substantial number of long-serving employees, to whom John feels he owes a great deal.

An alternative is to try to change the company to adapt to the changing market. This involves becoming a provider of back office services, rather than being a supplier of software and related services. However, this type of operation needs a much different skill set from the one that his company has at present and, in short, a move to transform the company is likely to require a changeover in staff.

If John were to consider allowing the company to reduce in size consistent with its customer base, and optimise the profits for a few years, it is almost certain that customers and staff would soon realise what is going on. In this situation, a planned wind-down is likely to turn into a very rapid descent as customers and key staff "jump ship" at the earliest opportunity.

No matter what direction John chooses, the company is going to have to go through some degree of pain if it is to change and re-establish itself as a dominant player. However, while the strategic options for the development of the company may be easy to identify, the key question is who will carry out whatever strategy is chosen.

The fact that John was going to review the situation while he was on holidays suggests that despite the growth of the company over the years, he didn't have a management team that was working with him. Succession planning in the company does not seem to have been on the agenda over the years, and only now may be coming into consideration.

John feels that he no longer has the drive to take the company forward, I question if the entrepreneurial drive exists anywhere within the company.

This narrows down John's options. If he was to consider exiting the company by way of a management buy-out, I doubt that the existing management team could raise the financial backing they need to buy out the company and John would not receive the full value of the company.

To drive the business forward, what John needs is a combination of entrepreneurship; an ability to develop a strong management team; an ability to read the emerging market and technology trends; and the drive to develop a new strategy and bring the company into its next phase. If John is honest with himself, he will come to the conclusion that his only real option is to recruit someone with those characteristics.

Bringing a new manager into a company that is facing opportunities and threats of the type described in the case study will be a very expensive exercise. While John's reaction may be to balk at the cost that such a move would involve, particularly if changes to the management team are then brought about, he should realise that he is making an investment in the future of his company, and that a successful new MD will not only turn around Personnel Systems, but will enhance the value of John's shares.

*****

John and his company are in trouble, says Philip McNamara, founder of Inspire Nation.  Not only is he unsure of his personal role in the company for the future, but things are looking grim on the software side too. John and his company are battling a huge change in the way in which human resources administration are dealt with, and it will be very hard to compete unless they radically change their business model.

It's easy to understand why companies are beginning to move services such as HR administration to outsourced companies. It lowers costs, and there are efficiencies of scale as processes are automated and data can be accessed easily online. One of the biggest companies in this field is Oracle/Peoplesoft, who cater to large and small companies.

However, there are ways in which John and his company can safeguard the future of the business. One of the first things the company needs to do is understand where the market is heading when it comes to online software for human resources. There are a host of companies offering similar services to what Personnel Systems is producing, but John has an advantage which is decades of experience and a wealth of clients. If John's company was to start a drive to change all of his software so that it would be accessible on the web, then this would be a step in the right direction.

John and his company needs to understand the nature of the market, how things are changing, and who the main players are. A visit to Silicon Valley, meeting with venture capitalists, leading software companies and online software producers would shed a lot of light on where John's company should be heading, as well as giving the team a good understanding of how they can start competing on a level playing field. This could also lead to potential partnerships with other leading players in the US.

Personnel Systems also needs to understand what kind of software the HR outsourcing firms are using. As more and more companies begin to use these types of firms, they will begin to migrate from using their own in-house systems (such as that produced by John's company) to a central back office system. The key here is to begin to create software that can be used by the big outsourcing companies. If bureau services are being used to deliver outsourced HR management, then that is another potential client for a new suite of online software that Personnel Systems should deliver.

With regard to how John should take on the challenge of the future, and who should lead the company, it would seem like a mistake to leave the company now. John needs to learn quickly how the market is changing, who is leading the change and what's going to happen over the next five years. A lot of this can be learned in Silicon Valley, where some the world's leading companies, both large and small, are located. If John and his team were to take four days away to learn about the future of the industry, this would go a long to way to filling the gaps in his knowledge about the future of technology side of the industry.

John has to stay on as managing director for the next few years to oversee the changes necessary in the company, and at the same time, he needs to choose a successor that is internet savvy, younger and who is able to adapt as the marketplace changes. When the necessary changes are made, the value of his shares should rise, and he can retire in the knowledge that his company is on the right path.

John and his management team need to understand that the shift to online software is like a tidal wave that will not stop.

Personnel Systems need to start making the changes to their suite of products now, before bigger competitors start eating into their profit margins.