1. Factors distinguishing Comarch from its competitors
Comarch is a global IT challenger established in 1993 by Professor Janusz Filipiak as a university spin-off. In 1999 Comarch placed an Initial Public Offer at the Warsaw Stock Exchange. After twenty three years from inception the Company employs more than 5,000 people worldwide. Comarch is big enough to implement large contracts and at the same time has an appropriate size to be efficient and agile in sales, R&D and delivery.
Majority of shares is owned by Janusz and Elzbieta Filipiak. The private control allows for definition and execution of annual strategies adapted to changing global business environment.
Comarch headquarters are located in Krakow, which is now well recognized as a global IT center. Comarch has R&D sites in all largest cities in Poland and some in Germany and France.
The strategy pillars underlying the Company’s long term management are as follow:
• Development of the Company based on R&D and development of its own products
• Definition of annual strategies
• Diversification of Comarch’s offer with respect to products, industries, and regions
• Stress on efficient delivery
• Profound and sustained investment in human resources
• Conservative finance management
• Truly mean and lean organization with four levels of management, simple reporting hierarchies and delegation of responsibility to production and business unit managers, clear definition of management process
Some of them may be found in other companies, but the exclusive feature of Comarch is their strict execution over last twenty years. In the following part they are described a little more detailed, leaning on graphs and data, to show that the long term strategies really worked. The data are composed based on stock exchange reports. To be comparable over time financial data are given in Polish currency PLN. The Polish PLN now fluctuates about 4.3 for Euro and 4.0 for USD.
Since Comarch inception the average annual growth rate as regards basic parameters, including revenues, balance sheet total, and employment has always been well above 30%.
The financial results for 2015 are particularly good, Comarch expects satisfactory financial results for 2016. They are a consequence of many years of sound strategic management.
1.1. Comarch is based on the development, sales, and implementation of its own IT products
Since inception Comarch has always been based on strong R&D and development of its own products. At the moment Comarch product portfolio comprises above one hundred product lines for a broad spectrum of industries.
Several Comarch products are included in the Gartner Magic Quadrant. They comprise Comarch Business Support System nad Comarch Operations Support System, which are deployed by a large number of European and global telecommunication operators. The Comarch EDI was included in the Gartner Magic Quadrant.
Several other products were covered in Gartner and Forrester reports.
As a result of sustained investment, Comarch revenues from sales of proprietary software grew with CAGR of 29% over the last eighteen years.
Comarch does not resell a lot of third party products. In 2015 sales of own licences (and services needed for their implementation), the Comarch added value, accounted for 83% of total Comarch sales. The following graph shows the share of added value in total Comarch sales.
At the beginning, Comarch was selling third party HW and SW products solely in order to deliver the turn key solutions. In the past, the cost of HW were high, so the percentage of Comarch added value was lower. Due to the fact that the prices of HW and SW were permanently decreasing, the share of third party products in Comarch sales also decreased.
It should be noted once again that the strategy of basing the Comarch’s development on its own products has not changed over the time.
1.2. Definition of annual strategies
Every year Comarch redefines itself taking into account the changing business environment, industrial trends and internal challenges.
The 10% of the top Comarch managers work every year, starting in January till mid February, to summarize the results of the previous year and define the annual strategy. The work is summarized at the Comarch Annual Strategy Meeting.
The result of the aforementioned joint effort is the agenda for the Management Board and Comarch divisions.
Among other things annual strategies indicate directions of the Company’s development including opening new business lines. In 2007 it was e-Health and in 2014 the Internet of Things along with the construction of hardware factory.
Road maps and business plans are approved for the development of IT products for specific geographies and industrial verticals.
1.3. Diversification of Comarch’s offer with respect to products, industries and regions
The greatest care is always taken that Comarch’s sales are diversified across various industries and geographical regions.
The diversification of Comarch’s offer is important to ensure the stable growth. For instance, during the financial crisis in 2009 the sudden drop of contracting by banks and financial institutions was compensated by orders from telecommunication sector.
1.4. Stress on efficient delivery
With its rich product portfolio Comarch could possibly be run as a software house. However, it is really difficult to prepare standard, out of the box application software product for large corporations. Each corporate client requires software customization and then, during exploitation phases, expects development of specific additional functions and modules.
Therefore, Comarch products are developed as frameworks and sets of interacting modules. That enables fast and efficient customization. However, it requires strong interaction of developers and implementation people during delivery phase.
To ensure smooth and efficient delivery Comarch resigns from using integrators for implementation of its products at customer premises. It develops own implemenation resources and project management procedures.
At present, customers again appreciate having one vendor which takes end-to-end responsibility for successful delivery of IT solutions and full IT stack.
Such approach becomes even more relevant, because nowadays Comarch delivers most of its solutions through full outsourcing or managed services, or SaaS, or cloud computing paradigms. For that purpose, Comarch also develops the global network of own Data Centers.
1.5. Sustained investment in human resources
Comarch started operating from scratch in 1993 with Professor Janusz Filipiak and group of four students. At the moment Comarch Group employs more than 5,000 profesionals.
Development of human resources over last ten years is shown below.
Comarch mainly employs candidates from what we call primary job market, which means students and university graduates.
Every year the well known Comarch summer internship program is run. Computer science students after the 3rd and 4th year of study come to spend three months of their summer holidays in Comarch. They are organized in small groups, with each group having a mentor from the Company. They get brand new equipment with the connection to Comarch intranet and a stipend.
In Poland, the program attracts 1,500 IT students out of which three hundred are selected to participate. The annual total cost of the program is well above one million Euro.
The program has a high reputation in Poland and is the main source of human capital for Comarch (nearly seventy percent of program partcipants decide to work part time for Comarch after the internship).
Running such program is possible due to a large pool of IT talents in Poland.
In 2015 Comarch increased a number of employees by over eight hundred people, both in Poland and abroad.
The average age of the Comarch employees is 31.
The attrition rate fluctuates at the level of 11%.
Salaries of most IT specialists in Poland are at the Western European level. Salaries of six hundred people employed outside of Poland are the same as average salaries in their resident countries.
1.6. Conservative finance management
Comarch has always had a surplus of cash. The credit was never used to finance working capital.
Mortgage credits are taken to finance development of office space and data center infrastructure. Even taking the mortgage credit into account Comarch has significantly more cash than debt.
More information about Comarch finance management is given in the following section.
1.7. Lean and mean organization
Comarch has truly mean and lean organization. With over 5,000 employees Comarch has only three levels of management:
- Business Unit,
- Profit and Loss Center.
Reporting hierarchies are very simpleand do not overlap.
Responsibility and trust are fully delegated to heads of organizational units.
Management processes are clearly defined.
Bonuses are strictly based on the individual measurable performance.
Only current employees of Comarch are promoted to higher positions.
All management procedures are kept simple.
2. Medium and longterm goals of the Comarch Group
The very basic objective of Comarch majority shareholders defined by Janusz Filipiak is the balanced growth.
The growth is achieved mainly by sustained organic development of Company’s assets, people, products, technology, market reach and other.
The organic growth is supported by minor acquisitions (to get new innovative products, increase market scope, enter new business models).
The Company is not orientated towards quarterly or annual profit maximization.
Annual budgets assume predefined level of EBITDA. If during a year there is a chance to make more money, the surplus is used to speed up the R&D processes and expand Comarch’s offer. It does not mean that assumed EBITDA levels are low. The graph below shows the increase of EBITDA over last 18 years with a significant growth in 2014 and 2015.
This strategy helps to keep Comarch’s offer attractive, the result being a permanent steady increase of sales over the last 20 years. It never happened that sales were down year to year.
Listing at the Warsaw Stock Exchange and the necessity to meet profit expactations of minority shareholders helps not to overinvest and keep the balance between long term strategies defined by majority shareholders and capital market expectations.
As a rule Comarch is not paying dividends – accumulated capital is used to fuel R&D and increase the scope of Comarch’s offer.
This strategy is clearly communicated to minority shareholders and finally has been accepted. This is caused by the fact that the Company’s value has been growing permanently since the first IPO in 1999.
3. Ability to react to recent market changes
In spite of what some people define as recession, in recent years Comarch has continued steady investment in:
• Sales network
• R&D capacity
• Delivery potential
3.1. Extension of sales network
Comarch started its business in Poland. First international subsidiaries were opened in the year 2000 in Germany and the USA. From 2000 till 2010 Comarch mainly developed its presence in Europe with the focus on the German market. Since 2010 we go truly global. In the last couple of years the expansion of global business centers has been intensified. Recent developments are as follows:
• New Comarch subsidiaries in Italy, Malaysia, the USA, Sweden and Argentina were established in 2015,
• New Comarch subsidiaries in Peru, Colombia, Saudi Arabia are being established in H1 2016,
• Investment of eight million US dollars in 42.5% of shares in Thanks Again LLC (Atlanta, Georgia, the USA) – an operator of loyalty platforms at the USA airports.
Investment in opening new branches outside of Europe resulted in significant growth of sales on international markets.
3.2. Increase of R&D effort
Comarch maintains high expenditures on R&D. They were enhanced in 2015. The graph below shows money spent on the development of new products. Additional significant investments are put into new releases of existing products.
Recently, the greatest effort has been made to develop truly innovative products in the areas of shared precision mobile marketing, IoT (to deliver end-to-end solutions), and e-Health (devices and software for telemedicine).