Citadel Group Limited Managing Complexity

About the Company

Citadel Group Limited is a software and technology company that provides secure enterprise information management services across health, defence, national security and other enterprises to support them in making real time decisions. The company has five offices at different locations: Canberra, Adelaide, Sydney, Brisbane, Melbourne (Citadel Health) and Melbourne (Citadel Technology). The company was established in 2007 and it is an information technology (IT) service company. Across Australia more than 200 people are employed in the company who can access 1300+ subject matter experts through partnership.

The headquarter of the company is in Symonston, Australia. The products of the company include business critical software, digital solutions and big data & knowledge. Business critical Software includes; Laboratory Information Systems, Blood banking system, Oncology information management, Anaesthetic billing software, Digital safety platform. Digital Solutions includes; Unified communications, Persoal solutions and Big data & knowledge includes: Secure information management, Unified communications, Records management productivity, Social media monitoring, identity management (Ltd, 2019).

The customers of the company include the defence sector, national security, health and other enterprises such as universities and the government agencies are located nationally and internationally over Australia.

Top competitors of the company include GCI Companies, Annodata Limited, Nutmeg Technologies Inc, Objective Corporation Limited, SecureData, Legal Media Experts, Visual Systems Group Inc and Wateen Telecom Limited. These competitors are providing similar services to its clients and located in Alaska, May lands Avenue, US, New South Wales (Australia), and Lahore, Pakistan (Zoominfo, 2019).

According to the 2019 annual report, the market leader for medical oncology solution is citadel for the overall Australian market.

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The total revenue was $99.2m and net profit was $10.9m on 30 June, 2019. Earnings per share for citadel group limited are 16.0?. Total cost at 30 June, 2019 was $113,252 (Citadel Group, 2019).

The company is operating under perfect competition. There are many close substitutes for the company products. The performance of the competitor firms can affect the performance of Citadel Group Limited. More firms can enter in the industry and the existing firm can also exit the industry. The price of the product is dependent on the supply and the demand for the products or service and can change with the change in the price of the services of rival firms. There is perfect knowledge about the company’s product to all the individuals. There are many same service providers and so many customers. Therefore, the company is operating under perfect competition as it fulfills all the characteristics of perfect competition. Markup above the marginal cost is not possible for the company as doing this will result in reduction in the market share along with loss. The demand curve for the company’s products or services is elastic (Daniel, 2018).

Production Costs and Scale

The production of the company is based on the demand for the services or the products. The factors of production include the land which means location where the company operates; the labour which include all the human resource ( employees, managers, SMEs, and the team); capital which include money spent in starting the company (the digital systems and the fixed costs) and finally, the entrepreneurs who sets the whole business and takes the risk (Singh, n.d.).

The company has both fixed cost and the variable cost. Fixed cost is incurred on the purchase of fixed assets such as the systems, furniture and other equipment. Variable cost is the cost in the distribution of the products and the services, marketing, sales, administration, occupancy, financial costs and the cost of inputs which, vary with the demand for the products or services of the company. The tax amount may also be considered as a part of the cost for the company. According to the annual report of the Citadel by Citadel Group (2019), the company has incurred the following costs in 2019:

The cost structure of the citadel group showed the optimal size of the company which was expected to be medium scale company. According to research, the fixed cost includes the expenses on digital system, land area and other operational machines used in the operational activities are more relative to the variable costs of the company.

Macro Business Environment

Australia political system/ government system is based on liberal demographic tradition including associations, freedom of speech and religious tolerance. Australia is in top five countries on the economic freedom index; the Australian government works in an effective manner and provides safe and secure environment to the multinational businesses. Australia has rank 15 out of 190 economies for business environment which includes the ease of doing a business (ciatiation). It is a country with stable institutional frameworks along with strong banking and fianc? regulations based on a robust regulatory system. Remuneration of professional along with competitive rates for the space for office is offered by Australia. The life quality in Australia is rated as 7th highest in overall world (Australian government, 2015).

According to Trading Economics (2019), Australia’s general level of inflation rose to 1.6% in June, 2019 which is more than inflation level in January, 2019 at 1.3%. The unemployment rate in Australia has increased to 5.3% in August 2019 which is more than the previous year unemployment rate at 5.2%. It has been concluded that this unemployment rate is the highest since previous year. The number of jobless person increased by 4,100 whereas the employment in Australia increased by 34,700. Australian Reserve Bank has lowered the cash rate by 25bps which is 0.75% in September 2019 (ciatiation). This is the third rate cut by the Reserve Bank of Australia to support employment and to maintain consistent inflation in the country (Trading Economics, 2019).

According to these rates and the shrinking of the GDP-per-capita, it has been seen that Australia is in recession as the unemployment rate has increased. The impact of high inflation may be more profits to the company as it can charge high price. However, unemployment is high which means lower output following lower profits. According to news, it is seen that the business conditions in Australia are deteriorating (Pandey, 2019).

The company also provides services internationally through the exports with a market capital of AU$171.6m (Simply Wall, 2019). The goods or services provided by the company are normal goods because their demand rises with the fall in the price. The demand for the services also rises with the increase in the income of the consumers. The information’s provided by the company to the defence, health and national security sectors will benefit them. According to Pandey (2019) as the Australia is in recession and the business conditions are also not good consequently, the demand for the services provided by the company is likely falling. Hence, the gross domestic product in Australia started dropping. The demand for the services of the company is likely to fall because of lower incomes with the consumers of the services (Pettinger, 2017).

Figure 1 demonstrating the effect of recession on the demand for services provided by the company. Initially, demand curve and the supply curve are represented by D and S respectively. Because of the deteriorating business conditions and presented recession in Australia, the total income started fell. Therefore, the Australia’s overall consumers income levels started decreasing which results the shift of demand curve for the services provided by the company to the left from D to D’. The further effect is the reduction in the price level from P to P* with the reduction in the consumption of the services from Q to Q* (Fowler, 2015).

The climatic conditions in Australia are a major risk for Australia in recent year because of greater amount of uncertainty. The policy and the regulatory risk are the major issue which may affect the performance and the profits of the company. The climatic change can affect the technological use as well as can reduced the supply of services by the company. These climatic conditions are the main reasons behind the regulations and some climatic policies, followed by the companies in Australia. The climatic conditions also create an impact on the investments and the funds in the company (Henderson et al., 2018).

The impositions of climatic policies and the regulations by the government to the companies. The initial demand and the supply of services provided by the company are represented by D and S respectively. The effect of the policies is the reduction in the supply of services provided by the company to the consumers represented by leftward shift of the supply curve from S to S’. As a result, increase in price and lower in supply (Pettinger, 2017).

Problems due to lack of skilled labourThe population of skilled labor in Australia is falling and it is creating the shortages of skilled labour in the country. Since the company provides information services to virus sectors, the main input used by the company is the skilled and labour with high knowledge to provide the vest of information to its customers. However, in Australia, the number of expert or skilled labour is low. The shortages of skilled labour have two effects on the performance of the company. The first effect is the fall in the supply of the services by the company due to less amount of labour and thus fewer services provided by the company (Champ, Rosewarne, & Rittau, 2016).

The second effect is the threat of increasing cost in the future due to lack of skilled labour. It is because lower supply of skilled labour will result in increasing wages. Wage is a cost for the company and therefore, the cost will rise. In Figure 3, the supply of skilled labour and the demand for it is represented by S and D respectively. The initial wage is W and the supply is Q. The shortages of skilled labour will shift the labour supply curve to the left from S to S’. The final result will be fall in the supply of skilled labour from L to L* and the rise in the wage rate from W to W*. The higher wage will be the higher cost for the company in the future (Oseghale, Falemu, & Oseghale, 2015).

The production process of Citadel Group Limited creates both negative and positive externalities. It creates negative externalities for the rival firms because better technology and more sales of the company’s products or services in the industry can lower the market share of the other firms. The company creates positive externality because the production process of the company influences entry of more firms in the market. The company is IT service management company that provides valuable information’s to its users; the government, defence sector, health sector, other enterprises and the national security to take an effective decision making. As a result, an efficient and effective decisions lead to effective performance of the overall economy (Lin, 2014).

An efficient amount of services depends on both private marginal cost (PMC) and social marginal cost (SMC). The effect of positive production externality is illustrated in Figure 4. The citadel group is unable to provide an efficient amount of services as because it considers only its marginal cost of production. The companies supply of services is a point where its private marginal cost curve (PMC) is equal to the price (P). However, the company must provide a socially optimal amount of services which will be attained while considering the social marginal cost of providing services. When rival firms are getting benefit from the services provided by the company without paying for it thus, the social marginal cost is higher than the private marginal cost. Hence, the company must consider the social marginal costs. The socially efficient level of the services (q*) should be provided by the company is attained at the level where social marginal cost is equal to the price which is more than the initial output level q (Fianu, 2017).

Amount of Services by the Firm

The products and services provided by the Citadel group ltd increase the knowledge of their consumers thus, they can make a better decision in the future. As a consumer of the product and services produced by the group, they have an advantage to help others in making an effective decision making by sharing their thoughts. Therefore, the consumption of the goods creates positive externality as it provides benefits to the overall economy. The political stability due to more inflation and unemployment affecting the company in the short-run. Whereas, in the long-run company can grow more as it is providing services with positive externality and which helps in making good decisions thus, generating more income (Lin, 2014).

The private marginal benefit curve (PMB) and the marginal cost curve (MC) represent the positive consumption externality which is presented in the Figure 5. The figure showed that, the consumption of the services (q) is not efficient because the private marginal benefit for a consumer is equal to the marginal cost of getting the services. However, the social marginal benefit (SMB) of the consuming the services is more than the private marginal benefit. Hence, the consumption of the services should be more than the initial level q. The socially efficient amount of consumption is q* which is attained by equalizing the social marginal benefit (SMB) of consuming the services with the marginal cost of getting it (Barrington-Leigh, 2014).

Conclusion

After the research about the Australian company, it is concluded that Citadel Group Limited is an information service providing company that support health, defence, national security and other enterprises in making the best real term decisions. The company has many competitors in Australia and therefore it is operating under the perfect competition market structure. It is also concluded that the company incurs both the fixed cost and the variable cost of production of the services. From the research, it was seen that the Australian market is facing recession which is the main reason of lower demand for the services of the company. At the same time the climatic conditions in Australia are getting worse consequently, the government is imposing climatic policies and the regulations on the business. Thus, the effect of these restrictions is lowering the supply of the services by the company. The research also concludes about the negative effect of labour shortage which includes less supply and higher cost for the company. Despites, the production and the consumption of the services by the company creates positive externality. The company’s production is lower than socially efficient level and the consumption of the services is also lower than the socially optimum level.

References

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