VERIFONE INC

Verifone Inc. is the world's leading producer of credit-card validation networks and other electronic-payment systems. With revenues of $387million in 1995, it has grown 20-fold in the last ten years. They are always a step ahead of the pack, and are pros at closing deals before any competitor even gets his foot in the door.

And yet, this company of 2800 employees and close to half a billion US dollars in annual sales does not have a place to call home. Their Redwood City, California “head office” is stark and unimpressive, and houses only 180 employees. How can this be?

Well, Verifone is what we enlightened MBAs would call a “virtual” company. Personnel are scattered across 30 offices in five continents, united by their computer network and a culture of communicating via e-mail, videophones and teleconferences.

Verifone has been able to leverage this virtual structure to become the undisputed market leader in the industry. As I will illustrate below, their masterly application of the virtual company structure has allowed them to bring down costs, attract top-notch managers, excel in product development, provide great customer service and still be flexible enough to respond to market dynamics.

COST STRUCTURE

The most obvious benefit of going virtual is the tremendous savings it can generate. Verifone has no plush executive suites or ritzy office buildings. With e-mail and voice mail systems, their staff is lean. They have no need for secretaries or massive amounts of paperwork. These savings go straight to the bottom line.

HUMAN RESOURCES

Chief Executive Hakim Tyabji feels that he would probably not have many of his key executives today if he had forced them to move to the Bay Area. With the virtual structure, he has been able to source talent from any part of world and allow people to work where they felt most comfortable and, effectively, where they performed most productively. It is typical to see Verifone VPs working out of their homes or from lobbies of their favorite hotels.

PRODUCT DEVELOPMENT

They continue to set the pace in innovation and new product introductions. Their virtual structure has allowed them to develop software round-the-clock. When the sun sets on their Dallas software development center, they electronically ship unfinished projects out to Hawaii, then to Bangalore, India. Verifone never sleeps. And each day, they become 16 hours ahead of the competition.

CUSTOMER SERVICE

Verifone has been able to shorten management response time to customer requests. Customers like credit card companies using Verifone verification systems require instant response when problems arise (the system has to be mission-critical, zero down time).

To address this, everyone carries a standard “Road Warrior” laptop to dial up to the computer network. Information on customer problems is shared with employees through the company intranet or the e-mail alias system. Top executives are therefore in touch with the front lines, a task often passed on to secretaries and clerks. This way, as problems arise, decisions are implemented worldwide without delay.

FLEXIBILITY

Flexibility, the ability to respond quickly to market requirements, is probably the most important leverage point they have. While most companies of their size grow to become slow monolithic organizations, Verifone has managed to remain very fluid. And once again their virtual structure must take the credit.

Verifone serves a global base of customers whose needs are very specific. In fact, Smith Barney New York has observed that “each system they [Verifone] sell[s] is different from every other.” To address this relevant customer need, they need to be physically close to their customer. The virtual structure literally allows them to do this, and gives them innumerable advantages over competitors who opt to sit in an office halfway around the world.

These customized requirements quickly feedback to product development for immediate implementation. Verifone’s intranet plays a key role here. All the learning that a customer rep gathers about a Taiwanese customer, for instance, is instantly posted on the network, accessible to all software technicians in Dallas, Hawaii and Bangalore.

AN INTERESTING COMPANY

Verifone’s success in implementing and leveraging off their virtual structure has very rich implications:

· It shows how IT has eliminated disruptions in the linkages between different parts of the organization. In terms of a value chain, going virtual has made managing each segment (and the linkages between them) more effective:

· Their structure matches the type of product they sell. As explained earlier, the customized nature of the product requires a lot of flexibility. Moreover, the rapid advancements in communications and technology require superb product development systems. Their use of IT has facilitated both of these.

What interests me most about Verifone is the fact that they are pioneers of what may perhaps be the organization of the future. With rising customer requirements, escalating real estate costs and worsening traffic in urban areas, it should be no surprise to find ourselves working within such a structure. As such, there is a lot to learn from Verifone.