Mcafee Security Case Study
Objectives of Organization
McAfee’s overall objective is to become the worldwide leader in intrusion prevention and risk management solutions and services. The firm’s mission is to proactively secure systems and networks from known and as yet undiscovered threats worldwide. Home users, businesses, service providers, government agencies, and their partners all trust our unmatched security expertise and have confidence in our comprehensive and proven solutions to effectively block attacks and prevent disruptions.
McAfee distributes products throughout North America, Europe, the Middle East, Africa, Japan, and Latin America. The company provides two types of products, the McAfee System Protection Solution for desktops and servers and the McAfee Network Protection Solutions for corporate networks. Customers include businesses, governments, and consumers. McAfee is considered one of the largest security providers and had a net revenue of $294 million dollars in 2004. Current cost cutting initiatives are aimed at achieving a 25% operating margin.
Identification of the Customer Scenario
Like stated above, McAfee’s customer base is very broad. It includes home users, businesses, service providers, and government agencies. Often, companies will outsource security solutions for economic reasons, which allows McAfee to sell multiple products to multiple companies through the convenience of a single provider. Customer sex, age, and income level are negligible. Consumer growth, as evidenced by exhibit 1B, has been growing at an alarming rate.
Nucleus of Control
The strategic decisions are made by the companies’ board of directors and senior executives who control 1.8% of the outstanding stock. Only George Samenuk, Chairman and CEO, was an internal member. Board members are elected to staggered three-year terms. Drawing from the case, the managerial stance seems to be reactive because in order to keep up with their competitors, McAfee has been making acquisitions and divestitures to streamline their focus. Also, McAfee’s several initiatives to improve financial statement performance and their cost-cutting initiatives imply that the management uses a reactive stance.
Functional Analysis – Top Management
All of the seven members of the board of directors, except George Semanuk, are considered independent or external members. All directors have experience in technological businesses with exception of Denis J. O’Leary, who is a private investor and previously the Executive VP of J.P. Morgan Chase Bank. The President of the company was Gene Hodges during the timeframe of the case.
Functional Analysis – Marketing
The price for McAfee’s products and services differs greatly from customer to customer. For example, someone looking to secure their home desktop might spend $69 on a subscription to McAfee’s System Protection Solution for desktops and a large business with a network and thousands of employees might spend hundreds of thousands to secure their network.
Products include Anti-virus, Anti-hacker, Anti-Spyware, Anti-spam, Anti-abuse, wireless and bundled security software. Consumers purchase a license for the products and must periodically update the software to keep it current. Their network protection solutions use two core technologies, IntruShield and Foundstone, to secure corporate networks.
McAfee’s products are placed in electronic stores and are available for web-based download. Updates are available on their website and often occur without the consumer knowing. Promotion mostly occurs on the internet; the company spent $354 million in 2004 on marketing and sales.
Functional Analysis – Finance and Accounting
Due to the company paying down a debt of $347 million in 2004 it seems that McAfee is in good financial condition. Also, the prediction of an annual 16.9% growth in the security software market will allow for further financial growth. See exhibit 2 for information on capital resources.
McAfee’s profitability seems to be very healthy with a gross profit margin of 83% and an operating profit margin of 35% (higher than the 25% margin aimed for). Their debt to worth ratio is a little high at 86%, meaning that they don’t have much leverage. McAfee’s current ratio and quick ratio are the same at 1.37 meaning that they have enough liquidity to pay off their financial obligations. See exhibit 3 for market trends.
Functional Analysis – Production/Operations MGMT
The case stated nothing about production or operations management.
Functional Analysis – Research and Development
Due to security software being a highly competitive and rapidly changing industry, McAfee must invest extensively in research and development. According to the 2004 10-K, research and development expenses consist primarily of salary, benefits, and contractors fees for the companies’ development and technical support staff, and other costs associated with the enhancements of existing products and services and development of new products and services. Research and development costs increased by $34.5 million in 2003 (See exhibit 4 for breakdown of extra expenditures).
Functional Analysis – Human Resources
The case stated nothing about human resources.
Increased marketing research planning and product research and development planning are needed to compete against larger competitors like Microsoft.
McAfee could produce free trial software cds to be given out through the mail. An advantage of this would be an increased market depth and probably more customers. Although it would directly combat Microsoft’s free software, McAfee would be taking a large financial risk producing free software.
They could also choose to delve into a smaller market segment and create a niche market. While McAfee’s sales have been decreasing, the sales of smaller companies have been increasing meaning that niche markets are profitable. An advantage would be less competition from large companies. A disadvantage would be a lower customer base.
Another alternative could be restructuring the marketing department to start a larger advertising plan. An advantage would be possibly greater market saturation. A disadvantage would be the high costs associated with a new marketing campaign.
They could also start investing large sums of capital into developing a faster update system to compete with Panda Software’s customer service techniques. An advantage would be happier customers and a disadvantage would be the higher employee head-count needed to cater to all of the consumers.
I believe offering free trial software while investing in more advanced update systems is the best combination of strategic alternatives. McAfee must combat Microsoft’s free software by creating its own. This is important because Microsoft is a huge company that could easily take over the market. The development of better update systems will afford McAfee with a competitive advantage over all of its large competitors, as well as produce a more satisfied customer base.
This plan will be implemented by using the cash and cash equivalents available to the company. Free trial software can be produced rather inexpensively by buying bulk compact discs. They can be given out through mail-offers and at electronic stores, as well as with other software.
The development of a quicker update system will be much more expensive because of the increased amount of R+D and increased employee base. This will be paid for by decreasing the amount of acquisitions made and using the money to research better techniques, as well as updates. The extra $12.9 million available from stopping acquisitions will be more than sufficient to develop a working, 24/7 customer service dept. and update website. The timeframe for this should be less than twelve months and will be critical to the survival of McAfee.