1.

The Security Industry/Market and its Impact on Metropol

The security market in Canada is characterized by increasing industry demand for

security. Growth in this market will attract new competitors to an already flooded

industry. Because startup costs are low, new competitors enter the market easily.

Increased competition threatens Metropol’s potential client-base as customers often view

the security industry as homogenous. The compatibility of products and services between

security companies increases the ease with which customers can switch to competing

firms. Firms attempting to penetrate the market by undercutting industry prices cause the

industry to be typified by low pre-tax margins. Therefore, cost control is necessary to

maximize profits. Most buyers are influenced by the lowest-price offering, while some

are willing to pay extra for quality and reliability. Low-price and high-quality orientation

effect Metropol’s market opportunity as it is difficult to offer reliability and quality at a

competitive low cost.

ESD sales are projected to triple in the security market in the next three years,

overshadowing security guard demand. If Metropol does not offer ESDs and hardware, it

will lose a significant market share because customers prefer firms that provide

comprehensive security coverage. Metropol’s market reputation will suffer for not

providing current products and services. ESD sales would increase Metropol’s product

portfolio and customers perceive advantages in one firm coordinating total security

coverage. Lease and service contracts from ESD sales would provide Metropol with

additional sources of revenue and increased customer switching costs. Realizing that ESD

products can replace the presence of security guards in some situations, Metropol can

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exploit this trend – rather than fall victim to it – by entering the ESD market. The profit

margin on ESDs is also larger while they incur fewer costs than security guards do.

The Ontario market is significantly larger than that of western Canada. Metropol’s

reputable levels of quality and reliability should attract a portion of the corporate market.

Although the market is difficult to penetrate, establishing a presence will increase

revenue for Metropol. Growing without a presence in this market will be difficult.

The security industry is projected to become more formalized and standardized

with respect to security training. Formalized standards may cause a perceived

differentiation to customers seeking quality-driven firms compared to the lowest-priced

firm. Metropol has the opportunity to differentiate itself and more effectively meet

customer needs by yielding to this trend. Because Metropol is already further established

as a trainer/educator, standardization costs will be lower than comparable firms.

The crime rate in Canada is increasing and government protective services are not

increasing proportionally. Metropol can increase its market share by filling the gap.

Government could at anytime increase their presence in the market, thereby reducing

Metropol’s potential market share and increasing indirect competition.

2. Competitive Advantages held by Market Share Leaders

According to surveys, the most important attribute for security consumers is

consistency and reliability. Any firm that can effectively focus on these attributes gains an

advantage. A recognized and established name in the industry differentiates that firm in

an almost homogenous market. These advantages lead to an increased market share for

the firm.

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 Organizations that utilize economies of scale lower direct costs and increase

profit-margin on existing jobs. An infrastructure that is established and efficient provides

an advantage in a market where recovering expenses is difficult. Possessing an

experienced and productive management team allows high productivity for low input and

keeps costs down. Cost control enables firms to bid lower.

The hardest competitive advantages to acquire are arguably the most powerful.

Affiliations with producers and distributors allow a firm to buy needed products at a

discounted price, further reducing costs. Relationships with large corporate customers can

provide a firm with a stable and reliable source of revenue.

3. Metropol’s Strategic Strengths and Weaknesses

Metropol has significantly more strengths than weaknesses (appendix A).

Strategic strengths and weaknesses within Metropol are comparatively equal. However,

Metropol’s shortfalls are all strategic weaknesses while many of their strengths are

tactical strengths. This inequality demonstrates that short term management of the

company is exceptional, but some long term problems need to be dealt with.

A majority of Metropol’s strengths stem from exploiting competitive advantages.

Metropol has an established brand name that is recognized by consumers as standing for

quality and reliability. This advantage differentiates Metropol from much of their

competition. Metropol commands the third largest market share in Canada allowing them

to utilize economies of scale. Experienced and productive employee management, proven

by their leading employee efficiency ratio (appendix B), improves cost control. Pat

Haney himself possesses a very developed understanding of the scope of Metropol’s

abilities. This understanding allows planning that is realistic.

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 Metropol’s weaknesses are created by what they fail to do. Metropol does not

provide ESDs or hardware; they cannot provide customers with a full security package.

Metropol has not differentiated their offerings to segments within the market. These

failures homogenize the firm, sacrificing potential market share. A detriment to market

share is the customers excluded by not realizing a presence in Ontario. Metropol has no

clearly defined mission, and hence, no strategic direction. Although many options are

available, until a direction is chosen, only tactical strategies can be carried out.

4) Identify and evaluate the strategic growth options available to Metropol:

A strategic growth option available to Metropol is geographic expansion into the

Ontario security market. A merger with an Ontario company lowers entrance costs as it

acquires existing infrastructure. The merger can increase Metropol’s market share by

assisting in penetrating the market. The merged company provides Metropol’s business

with customer and producer/distributor relationships while Metropol retains its brand

name and customer loyalty. Increases in economies of scale are attained by entrance into

the Ontario market. Alternatively, expansion into the Ontario market could mean loss of

the assimilated company’s brand loyalty and dilution of Metropol’s administrative

expertise. Metropol must integrate the employees of both companies which may lead to

increased distinctive competency or organizational detriment. Acquiring the assimilated

company’s reputation may be positive or negative.

The purchasing of a local company has many of the same characteristics of the

merger method; certain pertinent issues do arise. The purchase of a local company

requires a larger cash investment. Purchasing an Ontario company would allow Metropol

to retain complete control over operations and incur no loss in administrative advantages.

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Bidding on contracts in the Ontario market is a passive strategy that may result in a

substantial cash investment because Metropol must purchase offices to service its first

customers. The merger option is the most attractive from a cost-benefit standpoint.

However, these three growth options into Ontario only expand the company and are not

strategies for future growth.

A focused strategy defines the mission that Metropol is lacking, allowing them to

create effective marketing strategies. Such focus incorporates a value-added approach to

attract a large number of security-conscious clients and persuade less security-conscious

organizations to spend more money on security. This method provides Metropol with a

focused mission, lower costs, higher profit margins, and lower employee turnover due to

above average salaries. This narrow strategy ignores some future trends in the security

market such as the ESD boom. Some contracts will continue to go to the lowest price no

matter what the level of service may be. However, this focus provides a better retention

of current clientele.

The expansion of Metropol’s product line, especially into that of the provision of

ESDs, addresses future trends in the security industry. The sale of ESDs by Metropol

provides customers with the complete security package, leading to differentiation. The

electronic surveillance market will provide higher profits due to the larger profit margin

on ESDs. Metropol’s adoption of ESDs into their product mix gives the company a plan

for future expansion and allows them to make exclusive relationships with manufacturers.

Growth into the security market, especially ESD sales, requires significant financial

investment. ESD sales may reduce the demand for security guards.

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 To facilitate growth, Metropol can diversify its service offerings into other areas.

This strategy is an easy way to differentiate with little risk and low cash investment. Such

differentiation of service will increase market share. Metropol’s administrative

competencies will be attentive to an area not consistent with growth and may cause

current clientele to misinterpret Metropol’s focus. This growth option causes Metropol to

lose sight of its mission statement and in no way develops the organization within its

relevant market.

Metropol also has the option for growth in the consumer market where it could

provide related security products. Greater exposure of name, increased product line and

other sources of revenue serve as factors that may influence growth for Metropol.

Metropol does not currently deal with hardware, and as such, this may be too much of a

leap for them. Hardware and ESD services must be developed before Metropol can enter

the consumer market. This option requires heavy cash investment and also blurs

Metropol’s mission statement.

5. Recommendations

Metropol needs to build two tactical and two long term strategies. The tactical

strategies include refining their mission statement and introducing hardware and ESDs to

their list of offerings. The strategic directions involve focusing on the customer to

segment the market and eventually expanding operations to Ontario. These strategies will

eliminate several market threats and takes advantage of many market opportunities.

Metropol needs to define their mission: to focus on providing specific services to

each customer. The effects of defining a mission include the increase of brand equity and

a clearer understanding of consumer needs. Metropol also needs to introduce ESDs and

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hardware as an immediate attempt to serve individual customer needs. By expanding

their product portfolio, Metropol offers complete security coverage and is prepared to

take advantage of future trends. Hardware and ESDs create customer dependence by

increasing switching costs due to contractual relationships.

Strategically, Metropol must focus on providing “levels” of service congruous to

different demands of the market. Because Metropol’s customers range from quality

oriented (willing to sacrifice cost) to price oriented (willing to sacrifice quality), various

options are needed to provide for each customer’s wants. Customers that are quality

oriented, for example, will pay the higher price demanded by better trained guards and

increased service (e.g. 24hour dispatch). Alternately, price oriented customers will gladly

accept basically trained guards and basic service (e.g. 9-5 dispatch) if the cost is low. The

point is to manipulate the product offerings to match the customer, not to manipulate the

customer to match a single offering.

When these strategies have been implemented, Metropol will be better able to

satisfy its current clients, inducing customer loyalty. These strategies will also increase

Metropol’s ability to attract new customers because of their want-matching system. Only

at this point should Metropol devote its resources to increasing market share in an

expansion to southern Ontario. When this expansion is deemed necessary, merger is the

desirable option. By merging, Metropol avoids infrastructure setup costs, utilizing a

competitive advantage the moment they enter the market. To grow in the security

industry, an Ontario presence must be achieved.

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 APPENDIX A

SWOT Analysis

Strengths Weaknesses
- Third largest share of the market - Does not offer security hardware
- Established brand name (therefore no full-package offered to
- Recognized quality & reliability customers)
- Economies of scale - Not completely national
- Very efficient administration - No strategic direction
- Very good cost control - Mission not clearly defined
- Efficient employee management (low - No segmentation of market
employee efficiency ratio)
- Differentiated level of service
- Increased switching costs (from
education) than competition  Assume
greater customer loyalty
- Able to collect accounts receivable
quickly
- Swift and responsive customer service
- Many strategic options
- Developed understanding of scope of
abilities
Opportunities Threats
- Market expected to grow, double security - Industry has bad reputation for quality
guards and triple ESDs demand and reliability
- ESDs have a greater margin, possibility of - Low startup costs
obsolescence - Perceived switching costs are low
- ESDs create company loyalty - Low pretax margins
- Room to grow in current market by - Differentiation difficult
stealing customers from weaker - Increased ESDs means lower security
organizations guards required
- Insurance costs increasing (less indirect - High turnover (approaches 100%/yr)
competition) - Most of market is lowest-price oriented
- Crime growing faster than Government
crime fighting
- Residential market requires similar
services (not security guards) and market is
similar
- Industry becoming more formal and
standardized

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 APPENDIX B

Employee Efficiency Ratios

The employee efficiency ratio, given by formula 1a, was designed to analyze the number

of employees a firm requires to generate $1 of revenue. The lower the ratio, the more

productive employees are in general. This ratio is only effective when comparing similar

industries.

1a Efficiency Ratio = # of Employees

Annual Revenue

Efficiency Ratios of the top 5 market-share holders in Canada (followed by rank)

Pinkertons 0.000092 2nd

Burns 0.00015 4th

Metropol Base-Fort 0.000067 1st

Wackenhut 0.00017 5th

Canadian Protection 0.00014 3rd