Good point. It is undeniably true that in the “physical world” design represented by Huld (mechanics, industrial design), market salary and billing rates are typically lower than in demanding software consulting. This explains part of the difference.
From an investor’s perspective, however, the question is not merely operational, but strategic. If the situation is examined within the framework of established strategy theories, several potential risks can be identified that management must control in a heterogeneous portfolio:
1. Positioning and Competitive Advantage
At the core of strategy is choice. If Gofore shifts from premium-priced digital transformation towards a broader industrial service house, there is a risk of a “stuck in the middle” situation as described by Michael Porter. In this scenario, the company would not compete purely on cost-efficiency but might lose the pricing power gained from specialization.
2. Customer Relationship Management
In B2B marketing theories (e.g., Hutt & Speh or George S. Day), the differences in purchasing processes and so-called “buying centers” structures are emphasized. A CIO and a Head of Product Development value different qualities in a supplier. Prahalad & Hamel would speak here of core competence (core competence): is Gofore’s core competence credibly scalable to these new buyer personas without blurring the brand promise and sales focus?
3. Resource Allocation and Dynamic Capabilities
Following Christensen’s Innovator’s Dilemma, it is worth considering whether lower-margin business diverts resources away from higher value-added consulting. In the terms of Teece, Pisano & Shuen, this concerns dynamic capabilities: can two different cultures and earning logics be integrated into a value-creating whole (Stabell & Fjeldstad), or will they remain separate silos?
Financial Implications
Even if we accept lower billing as a characteristic of the industry, it has a direct impact on Gofore’s investment narrative and objectives:
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Profitability Burden: If a significant portion (e.g., 10-20%) of revenue were to operate permanently at a lower EBITA level, it would be mathematically more challenging for the group to achieve its overall 15% target without significant overperformance from its core business.
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Financing Capacity (M&A): The financial market values absolute cash flow (EBITDA). Lower productivity per FTE means weaker accumulation of EBITDA euros relative to revenue. This directly impacts the company’s debt servicing capacity and thus its investment capacity for future acquisitions.
It would therefore be essential to understand whether Gofore’s profile is permanently shifting from a “high value-added boutique firm” towards a “broad-based volume firm,” and how this might reflect in the company’s long-term valuation multiples.
Thank you for your important observation.