Pacifism and business ethics make profitable bedfellows, as shown by the number of flourishing companies run by Quakers. Barclays, Lloyds, Cadburys and Jacobs owe their origins to Quaker businessmen. The IT industry also has a select club of Quaker-founded businesses: IBM is the most famous example; Birmingham computer services firm Kalamazoo is another.
Quaker principles are little more than a distant echo at Kalamazoo, which set up at the turn of the century as a printing company, but the company prides itself on its ethics. So it is a pity that this enthusiasm has failed to percolate through to all the staff: two senior managers have left the company after falsifying their sales figures in internal accounts. Kalamazoo?s founders must be turning in their graves.
Understandably, Kalamazoo is reviewing its procedures. The company has said it said it will fail to meet broker forecasts of a #1 million rise over last year?s profit, after accounting errors in its business solutions division. Profit will now hold steady at last year?s #5.88 million on sales of #66.7 million. Ironically, the business solutions division specialises in selling accounting software ? last year it turned in a profit of #1.4 The problem in the division arose when the head of the business solutions division and his senior financial manager got their forecasts wrong. Instead of admitting their mistake, the pair massaged the figures in the hope that sales would catch up. As a result, a large helping of egg has attached itself to the Kalamazoo board. The company?s share price fell by nearly a quarter after the fiasco was announced. The Financial Times really stuck the boot in. It said the profits warning ?was the latest in a series of mishaps? and ?raises questions of confidence in Kalamazoo management?. Ouch.
But at first glance, City reaction appears a little overdone. Business solutions accounts for less than 10 per cent of Kalamazoo?s turnover. The company?s key businesses ? supplying computer systems to car dealers and security printing operations ? are unaffected by the lapse in accounting standards.
The company is pursuing a sound acquisition strategy to bolster its position in the fragmented car trade IT systems market. Until recently it was the biggest player in the European market ? US-owned ADP leapfrogged into pole position by acquiring Sigit in Italy. Between them, Kalamazoo and ADP control almost 50 per cent of the European automotive dealer market.
Kalamazoo can strengthen its automotive dealer portfolio with small bolt-on acquisitions in the UK and on the continent. To really make a splash, however, it will have to take on the US, which will require a major acquisition. And that raises the question of where the money will come from.
Kalamazoo is unable to generate the sort of cash flow to fund a major acquisition on its own. Its share price has lost half its value in the past year and the City will look very suspiciously at any cash calls. But there is another option: it can always sell its computer solutions business units. The motor trade and security printing account for 70 per cent of turnover; the balance comes from Computer Solutions, comprising Kalamazoo Answer, a maintenance business, a management and training conference centre, and the now notorious business solutions.
The company?s stated aim is to build a second vertical market in the manufacturing sector. The company has a good client base through Kalamazoo Answers and through its Tetra product line. It also argues that the maintenance arm complements its motor trade business. The Beechers Conference Centre is completely left field. But it points out that Computer Solutions is profitable.
Kalamazoo?s reasons for maintaining seem muddle-headed. The company?s major growth will come from the motor trade business. And this is where it should direct its energies. It is wise to build a second arm, but why manufacturing? What Kalamazoo really understands is distribution and logistics, and supply chain management is the coming thing. By building a business in an aligned industry to the motor dealer trade, Kalamazoo will avoid niche dependency while developing sector expertise as a supplier of transport management systems.
By disposing of all non-core businesses, Kalamazoo may slowly regain the respect of the City. Stock market analysts will uprate Kalamazoo?s prospects accordingly. The company could also amass a useful war chest. But most importantly of all, someone at the top should fall on his sword. It is unbelievable that the buck stops with the two miscreants who falsified the sales figures. There was a clear failure of management
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