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Monday, October 22, 2012

rise and decline of irish company

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CONTENTS

1. Introduction

. The Rise

. The Decline 4

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4. Environmental Factors 5

4.1. Economical

4.. Technological

4.. Microenvironment

5. Marketing and Management Strategies

5.1. Retrenchment

6. Conclusion 11

7. Appendices 1

7.1. Sources

7.. History of Baltimore 1-00



1.0 Introduction

Baltimore Technologies develops and markets security products and services for a wide range of e-commerce and enterprise applications. Its products include Public Key Infrastructure (PKI) systems, cryptographic toolkits, security applications and hardware cryptograph devices.

Baltimore Technologies have won numerous awards including “Best security product” and “Product of the year”. Also, previous CEO Fran Rooney was named Business Person of the Year. This was due to the recognition of his contribution to the meteoric growth of Baltimore Technologies to become a global leader in e-commerce and enterprise solutions. However, in just over a year (000-001) Baltimore Technologies has gone from being one of the largest technology companies in Europe with a valuation of circa £1 billion, to apparently fighting for survival under new, interim leadership

.0 The Rise

Dermot Desmond and Fran Rooney, both significant businesspeople, put financial backing into the fledging company in 16 and the company swiftly created a name for itself through creative promotion via leading industrial events such as the RSA Data Security Conferences. The company floated in 1 and made millions for the investors.

Quickly Baltimore tackled industry giants such as RSA, CertCo, Entrust and Verisign- despite the fact that these companies had been around for years and had well established brand value and identity. Baltimore clinched high profile deals and started acquiring companies, including a reverse takeover of British competitor Zergo.

In February 000 the company was worth £1.5bn on the London Stock exchange. This market value was significantly more than the company book value as investors had high expectations for growth in the company, supplementary to the fact that it was widely expected that Baltimore’s core business, PKI, would be the answer to the worlds e-security problems.

.0 The Decline

In the dying months of that same year, however, the economy began to crumble and the technology bubble burst along with the fortunes of Baltimore. Profit warnings in early 001 also augmented a reaction from investors. As investors began to realise that the promised profits from buyers (1st Phase internet players) were not materialising due to reluctance on the part of the IT buyers to commit to new purchases as a result of the economic uncertainty, they sold their shares. This created a snowball effect on the share price and since the company relied heavily on share investor input, which they had re-invested heavily into future projects, Baltimore finances were hurt

Analysts John Cooligan of Merrion Stockbrokers and Barry Dixon of Davy Stockbrokers agree that Baltimore may have suffered due to a shift in customer perception of the company’s security products. They felt that customers started to see the products as value added items rather than essentials and some doubted the future of PKI technology (see below).

Advisors such as Gartner, suggested that this might be due to companies embedding PKI into their applications without the help of pure-play PKI vendors such as Baltimore.

4.0 Environmental Forces

To reach the highest levels of success, a firm must be able to adapt to the changes in internal (The company, competitors, collaborators, and customers) and external environmental forces (political, economical, social and technological). While an organisation is not able to control the external forces, it is vital be aware of the changing surroundings.

Baltimore is an example of how external environmental factors can influence the fortunes of a company particularly in the Economic and Technological sectors.

4.1 Economical Forces

As can be seen from above, the economic slow down of the environment particularly in the US significantly affected buyers, which was the spark in the Baltimore decline.

The slowdown started in 000 as a result of appropriate tightening of monetary policy in the US to address rising demand pressures, and by mid-001 had become a synchronized downturn (IMF 001) across almost all major regions of the world. To an extent this was the result of common shocks, including an increase in oil prices and the bursting of the IT bubble. (The dotcom bubble had become overinflated due to ‘irrational exuberance’, with too much money chasing too few good ideas).

Equity markets fell sharply, most notably the technology intensive NASDAQ index, which fell by about 70 percent between early March (when it had soared to over 5,000 at the height of dotcom madness) and early April 001. And while macro-economists have not achieved consensus on what exactly causes a recession, probably because the causes are psychological, it is clear that a recession is generally related to a decline in confidence that makes consumers/businesses want to postpone or cancel spending (Shiller, 001). This weakening of confidence was, particularly in the IT sector, had been evident from mid-000, and economic theory dictates that you downsize rapidly once you enter a recession in order to avoid excess capacity. Did Baltimore not see the wave, or did it simply believe it could ride it while all others drowned?

Economic downturn affected all companies in the IT sector, not just Baltimore. However in addition to the ecomonic downturn, overstaffing contributed significantly to the company’s misfortune. Baltimore had made four major acquisitions in 000 (total employee headcount in May 001 was 1,400 versus 400 in January 000 and 700 in July 000!). The company’s run-rate on its revenues was more in line with a company of around 400 employees. This left Baltimore massively exposed in terms of its operating costs and cash burn.

4. Technological Forces

From a technological force perspective, Baltimore might have been guilty of ‘rushing into’ an industry that had dubious market potential. They took a risk at investing in developing and acquiring Internet security products that had large forecasted market demand but little current revenues. Further one might say that they might have put ‘all their eggs in one basket’ by investing in future projects before profits had been made on their maiden flagship PKI and despite being in the red in the FTSE 100. Fran Rooney, CEO, advising investors that “We were profitable 18 months ago and our decision was to invest in the company”.

.

In this way it can be said that they had ‘Technological Myopia’ or perhaps they placed too much confidence in a positive long-term view of the IT market. There might have been a rush on the part of the management to push the company onto the global stage before the foundations were finished being laid. Fran Rooney would later say, “We could have been a strong European player and profitable, but we decided to become a global player”.

They wanted to impress the world early through aggressive marketing and brand-building strategies and they wanted vastly to appear bigger than they were- as global companies like Oracle Corp. had done before (E.g. at one particular industry event, Baltimore brought all their staff along to give on-lookers the impression that they were a large company and they wanted vastly to appear bigger than they were. Also each member of staff used their duty-free allowance to purchase drinks for potential customers). While this all had an effective outcome initially, Baltimore possibly did not foresee that companies would, in the near future, be able to by-pass the ‘pure-play PKI vendors’ (i.e. Baltimore) and purchase their own PKI (in the same way that companies do not build their own electricity grids but use the national network). Baltimore reacted to this problem by quickly trying to diversify into other technology areas through acquisition leading to the decline.

Further they may not have guessed that buyers might not trust their product. Reports that ’digital certificates’ � a key element of the PKI system � which were supposed to be under high protection, had been leaked to impostors pretending to be from major companies did not help matters (Not the fault of Baltimore- this happened to one of Baltimores competitors- Verisign). This was unfortunate, as all of Baltimore’s products were certified by the international community as secure and trustworthy according to the most stringent government standards.

The affect on Customer behaviour

Baltimore Technologies developed and marketed security products and services to enable companies to develop trusted, secure systems for e-business, the Internet and mobile commerce. As already stated, Baltimore specialised in Public Key Infrastructure (PKI) products and services. Public Key Infrastructure (PKI) is a system of digital certification and key pair encryption that delivers strongest capabilities for services such as authentication, data confidentiality and integrity, and non-repudiation to effectively mitigate various risks involved in a digital environment. As a technology, PKI is based on the best cryptographic techniques. The PKI model advocates a systematic approach to information security by building a cohesive infrastructure and describing how people, processes, technologies, and structure will interact to conduct secure business transactions. The PKI infrastructure was held in such high regard as future applications could be added without modifying the basic structure, suggesting good prospects for return on investment in the long-term. When released originally PKI was touted as the solution to all internet security issues. This did not last for long.

Customers began asking the question “do we even need a PKI for e-commerce?” When Baltimore Technologies was at its peak if anyone opened any article on PKI in the popular or technical press they were likely to find the statement that a PKI system is desperately needed for e-commerce to flourish. This statement was seen by customers to be increasingly false. It was realised that some web sites were still happy to take their order whether they had a certificate or not. Although PKI providers were trying to convince investors that it was essential to e-commerce it was in fact the opposite that was true commercial PKI desperately needed e-commerce to flourish.

Customers also began to doubt the future of PKI as some serious flaws were uncovered. Exactly how secure PKI was came under the spotlight. It was realised that viruses and other malicious programs could attack a computer and get the access to the key stored on that particular machine. Even if it is stored in a truly attack-resistant device, it is not possible to guarantee that the trustworthy device will not sign for something that it didn’t intend on signing for.

As mentioned above PKI is heavily based on cryptographic techniques. In the cryptographic literature words and phrases such as “trusted” and “non-repudiation” were used in specific technical cases, however PKI vendors such as Baltimore Technologies latched onto these terms and used them in a broader sense to heighten the profile of PKI.

Baltimore’s competitors at the time were also getting the upper hand as they capitalised on opportunities in the market that Baltimore had failed to see. Entrust Technologies, RSA Security and DNSSec all offered services that Baltimore Technologies could not compete with due to its misinterpretation of future developments in the market. DNSSec offered a cheap alternative to internet security. They based their product on the Domain Name System. The Domain Name System, or DNS, is one of the Internets fundamental building blocks. DNSSec has been a work in progress for the last 10 years however when they released it they did not try and make it out to be any better than it was. DNSSec analysts admitted that it had faults but that as a starting point in internet security it was a solid product. This type of honesty appealed to consumers who had been disillusioned by PKI vendors such as Baltimore Technologies who had claimed their product almost indestructible.

4. Micro Environment

As can be noted from above, Baltimore seemed to react badly to changes in the microenvironment forces, particularly with regard to competitors. Fran Rooney assured investors after the first profit warning that “our competitors will suffer more than we will, since they’re very dependent on the US for their business”. Later, Baltimore lost retrenchment battles with its competitors. A technology analyst said Baltimore’s heavy fall in late 001 was due to “more aggressive” restructuring moves by US rival Entrust technologies Inc. However Baltimore did make significant cutbacks as described below.

5.0 Marketing and Management Strategies

Some of the above factors that influenced the decline of the company may not have been helped, yet it seems there are others that might have been. In any case the company may have found use in a modern ‘environmental scanning systems’ to help warn of any potential threats. An Environmental scanning system is one, which monitors and analyses a company’s marketing environment. As it is impossible to scan everything it is an important management decision to decide what to scan. It is also essential that the system provide a fast response to events that are only partially predictable due to increasing turbulence in the marketing environment. The idea of the system is to provide the essential informational input to create strategic fit between strategy, organisation and environment. It was discovered after a conversation with Mr. Peter Doyle, Vice-President of Marketing in Baltimore, that they did not have such a system in place. Whether it would have prevented the decline is uncertain.

Retrospective strategies may have consisted of either repositioning or retrenchment. In the end, the company decided to aim market and management strategies toward retrenchment.

5.1 Retrenchment

In an attempt to survive cutbacks by in the technology industry in 001, Baltimore announced that it was to halve its workforce, sell non-essential business and delist from the Nasdaq. Baltimore’s retrenchment after rapid decline in 001 comes in a time of cutbacks by technology companies both in Ireland and on a global scale. The company was forced to cut jobs to protect dwindling cash reserves. Redundancies had to be introduced by striking a balance between cutting costs while maintaining its marketing quota to maintain sales. Ultimately, by December in 001, the workforce had been reduced from 1,400 to just 470. By the second quarter in 001, costs of £14 million had been taken out of the company. In addition, Baltimore suffered major share sales by key players. Dermot Desmond was out of the loop quite early, while Fran Rooney, and the chairman, Professor Beker, were also unloading substantial amounts of stock. Baltimore’s already low share price plummeted when chief executive Fran Rooney let slip to analysts in Dublin in March 001 that the company would fail to meet sales forecasts. The shares, which at their peak touched £15, instantly lost a third of their value.

Initially investors reacted positively to the restructuring plan. Baltimore shares rose by 14 percent in London, while on the Nasdaq market, its American depository receipts increased from 5 cents to 6 cents. With its new retrenchment policies, Baltimore hoped to save $101. million per year. It was estimated that the company was spending $88 in sales and marketing for every $100 it eared, and as a result its expensive network of international sales offices was sharply reduced. Baltimore raised money by selling Content Technologies, which it had acquired in 00 for $700 million. The sale of Baltimores PKI in October 00- public key infrastructure - business for £5m transformed the former FTSE 100 component into a shell company. PKI was the technology on which Baltimore’s success was based.

Fran Rooney, the chief executive officer said different management skills were required during the retrenchment process, but insisted that he would not resign. However, in 00, Bijan Khezri, the new Chief Executive Officer, and Fran Rooneys successor commented

We have successfully revitalised and strengthened our core business, reinvigorated our employee base, invested in promising new product categories reinforced partnerships and laid the foundation for an increasingly productive operational

infrastructure. We continue to win some of the industrys most significant and high profile transactions worldwide. Today, our challenge is to grow revenues rather than to drive profitability through cost reduction. The overall market environment remains

uncertain, difficult to predict and slow-moving causing a lengthening of the sales cycle.



6.0 Conclusion

Baltimore Technolgies Ltd is an unfortunate example of how temperate marketing environments can be detrimental to a company’s fortune. The resulting forces, particularly economical and technological, would hurt the company finances and compel them into re-thinking their marketing and business strategies. Baltimore was such a success in its early years that it was an inspiration to all. The company’s aggressive, innovative, creative and courageous styles deserve admiration and respect. Ultimately Baltimore could not make enough money from PKI and decided to make heavy acquisitions in future technology with finance that they didn’t really have. They may have been over-eager in the beginning, where patience may have been a better element to their strategy or perhaps better planning may have resulted in the important environmental alarm systems being put in place. Were they merely unlucky enough to enter into an unmapped world- like the early explorers- paving the way for others to come? One thing for definate is that the company has developed world class systems and software, which businesses and governments still regard as being amongst the best available, perhaps they were just a little ahead of their time?



7.0 Appendices

7.1 Sources



1. Foundations of Marketing, David Jobber and John Fahy

. Management Information Systems, rd Edition, Gerald V. Post, David L. Anderson.

. Mr. Peter Doyle, President Marketing Department, Baltimore Technologies Ltd.

4. news.bbc.co.uk

5. The Irish Times/ Ireland.com

6. The Mystery of Economic Recessions, Robert J. Shiller

7. The New York Times/OP-ED, Sunday, February 4, 001

8. www.baltimore.com

. www.bankrupt.com

10. www.cs.wisc.edu

11. www.examiner.ie

1. www.guardian.co.uk

1. www.news.bbc.co.uk

14. www.why4u.com

7. History of Baltimore (BT) 18-00

18

· BT named ISA company if the year

· BT wins prestigious IT awards.

· Bank of Ireland chooses BT for internet banking

· BT wins large Business National Innovation Award

· BT enters US market with opening of US offices

· BT expands presence in Switzerland

· BT opens office in Netherlands

· BT expands operations into Japan.

· Irish postal authority chooses BT uniCERT.

1

· BT receives Gold award in Independent Evaluation of PKI systems

· BT, Entrust, IBM, Microsoft and RSA Security announce formation of PKI forum

· BT opens Southern European Head Quarters in Paris

· BT opens office in Hong Kong

· BT enters the wireless eSecurity market with new WAP security product.

· BT chosen by Ulster Bank to secure Anytime Internet Banking

· Opening of Spanish office

· BT at forefront of VPN and PKI interoperability.

000

· BT wins awards for Excellence in Wireless eSecurity.

· BT strengthens eSecurity leadership with acquisition of content technologies, the market leader in content security.

001

· BT announces major restructuring to accelerate path to profitability and ensure financial stability- this enabled a cost reduction programme that enabled the company to refocus on its core areas of expertise in providing trust and security for e-business. Baltimore focused on maximising return from its authorisation and public key based authentication technology. As part of the restructuring, a reduction of 0 positions was made.

· Resignation of CEO, Fran Rooney

00

· Troubled Irish security firm

· Sold 11,000 shares of Japanese subsidiary Baltimore Technologies Japan.

· Shareholding of BT reduced from 6% to 1%.

· This trans action is part of the BT ongoing restructuring plan announced last year to refocus the company on its core area of expertise.

· CEO’s main objective- “ Whilst we are committed to our global presence and brand, it is cost effectiveness, local distribution and innovative partnerships which will determine our long-term competitiveness”. (Bijan Khezri)

What’s happening now- 00

· BT (London) announces Board and Senior Management changes

· Posts notice of extraordinary General Meeting- to seek approval for the proposed disposal of BT PKI business to be TRUSTED.

· Company intends to sell residual shortly and will therefore seek to ensure that shareholder value is maximised by pursuing one of a number of options available to it





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