Business project
Project
You
were asked to explain the current strategies and offer a recommended strategy for an organization of your choosing. This Project will build on the individual project by focusing on the “strategy formulation” chapters. All answers should be based on the company you used for your individual project. Therefore, you should be familiar with the organization’s SWOT, history, etc. as you answer the questions below. Many of these can be answered with the “History” section of your company’s MarketLine (remember, you can find marketline using the library database.). Otherwise, google is OK (you can also look at annual reports):
1. Chapter 6 states, “In addition to competitive moves, companies can benefit from cooperating with one another” (p. 189). The book lists four types of cooperative moves: joint venture, strategic alliance, colocation, and co-opetition. Find a recent (the more recent the better but a 20 year old joint venture is better than none) cooperative move between your company and another company (you can use google. For example, company and joint venture. Additionally, most Marketline reports for public traded companies have a history section with most of the major strategic moves by the company). Describe the cooperative move (type and with what company), what the companies hoped to achieve, and whether you think it was a good strategic move/why. If your company hasn’t engaged in a cooperative move then use Amazon, Netflix, or Costco (e.g.,
). Remember, *only* those four types of cooperative moves. For these purposes, a merger will not count.
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Describe the cooperative move |
what the companies hoped to achieve (think synergy) |
whether you think it was a good strategic move and why |
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2. Chapter 7 is about competing in international markets. The book describes at least 3 reasons for competing in international markets (access to new customers, lowering costs, and diversification of business risk). The book then notes three risks associated with new markets (political risk, economic risk, and cultural risk). Once those have been considered, the company then chooses their international market entry option (exporting, wholly owned subsidiary, franchising, licensing, joint venture/strategic alliance). Like question 2, identify one international strategic move your company has made over the past few years. Describe the international strategic action (including the mode of entry), applicable reasons for the strategic move in that country (it could be all 3), the most salient risks associated with the international market (educated opinion based on the country), and whether you think it was a good strategic move/why.
If your company is 100% domestic, use Amazon, Costco, or Netflix.
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Describe the international strategic action (including mode of entry) |
applicable reasons (access to new customers, lowering costs, and diversification of business risk) |
Most salient risks (Political, economic, or cultural) |
3. The book defines horizontal integration as “pursuing a concentration strategy by acquiring or merging with a rival”. Identify one horizontal integration (i.e., try to search company name and merger and/or acquisition) your chosen company has been involved in over the past few years. The book mentions a few reasons why a company might engage in horizontal integration (e.g., access to new distribution channels, market share, acquiring a strategic resource, reduce rivals, and economies of scale). Describe the horizontal integration your company engaged in, why do you think they decided to do this strategy, and whether you think it was a good strategic move/why.
If your company hasn’t been part of a horizontal integration, use Amazon, Costco, or Netflix.
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Describe the horizontal integration move |
Why do you think your company decided to do a horizontal integration with this specific company |
whether you think it was a good strategic move and why |
4. The book defines vertical integration as “when a company gets involved with new portions of the value chain”. Identify one vertical integration (it can be forward or backward) your chosen company has been involved in over the past few years. Describe the vertical integration your company engaged in, why do you think they decided to do this strategy, and whether you think it was a good strategic move/why.
If your company hasn’t been part of a vertical integration, use Amazon, Costco, or Netflix.
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Describe the vertical integration move (including whether it was backward or forward) |
Why do you think your company decided to do this specific type of vertical integration (forward or backward) and why they decided to integrate with this specific company |
5. Due to your successful recommendation from the individual project, the organization wants you to make a final recommendation. For this recommendation, the organization states that they are specifically wanting to acquire another company (of relatively equal or smaller size). They do not know, however, whether they want to do a horizontal or vertical integrations strategy. Furthermore, they are unsure about which company. Thus, they ask you to choose an integration strategy that would be helpful for the organization, a target company, why you recommend the specific integration strategy, and why you recommend the specific target company.
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Describe the integration move horizontal, backward, or forward) and with what company |
Why do you recommend that your organization adopt this kind of strategy (horizontal, backward, or forward integration)? |
Why do you recommend that your organization integrate with this specific target company? |
How would you know it was successful? (i.e., what measures would you use… you don’t have to have specific targets. A general -increase market share kind of answer would be OK.) (e.g., You may want to check out this article |
BELOW IS EXTRA RESOURCES. THERE ARE ONLY 5 QUESTIONS. THIS IS TO HELP THINK ABOUT WHY A COMPANY WOULD ACQUIRE ANOTHER COMPANY AND WHAT WOULD MAKE IT SUCCESSFUL:
Reasons For Acquisitions (
https://www.portfoliopartnership.com/how-to-measure-acquisition-success/
)
1. Increase market share, leading to higher levels of sales, increased margins through efficiencies and an increased capacity to service your customers better. In extreme examples, often called a roll up e.g. in the insurance world HUB have grown from 11 brokerages in 1998, to over 400 today.
2. To build out your technology capability quicker than you could do it yourself including capturing outstanding talent quickly to ensure you capture the market opportunity in front of you. e’g. Google’s acquisition of YouTube in 2006 for $1.65 billion.
3. Increase your return on equity by deploying your capital more efficiently than it could be deployed anywhere else (Note management’s job is not to spend the budget but to efficiently deploy capital). e.g. Berkshire’s acquisition of Burlington Northern for $26.3 billion in 2009.
4. Build a stronger overseas base to service your customer base and therefore get closer to those regional customers. e.g. WPP the world’s largest ad agency acquired ADK of Japan in 2008.
Measuring Success
So your objectives should drive you to audit whether success was achieved. By the way parking measuring the success of the deal for a moment, it’s worth noting a first phase of measuring success – measuring your process using immediate post-mortems. Heimeriks, Koen H., Stephen Gates & Maurizo Zollo. “The Secrets of Successful Acquisitions.” WSJ Sept 2008 – concluded that post-mortems are a key ingredient to building acquisition expertise. As they said, and I’m paraphrasing, be careful not to confuse experience with knowledge. The number of deals you complete is less important than what you learn from each deal. Building M&A capability is about conducting in-depth post-mortems and always be learning.
Now coming back to measuring success based on your objectives, let’s review what you could measure.
1. Increase market share: Important to independently validate market share gains by measuring the delta pre and post the deal. In addition regarding efficiency gains, I would take the second full year of ownership of the target to compute gains achieved match expectations.
2. To build out your technology capability quicker than you could do it yourself: Again what sales figures have accrued because of the new technology capability and at what margin and does that reflect a good pre-tax return on capital deployed. I’d also want to conduct comprehensive customer surveys pre and post the deal to measure whether the customer base noticed(at least in the B2B space)!
3. Increase your return on equity by deploying your capital more efficiently: One simple measure I like is to take the pre-tax profit of the target for the second full year of ownership divided by the acquisition costs plus one off post-acquisition integration costs. If an earn-out is involved, calculate the ROI% at the end of the earn-out based on total payments made.
4. Build a stronger overseas base to service your customer base: Similar to 2. above, track the incremental sales from that region and margins that have accrued compared to the capital deployed to achieve it. Measure the happiness of customers you had in the region pre and post the deal.
There are many more reasons for doing deals including pure defensive plays to maintain a competitive position, to change your business model, to diversify into a brand new segment (not just add on technology). The key is to buy what you want to buy not necessarily what’s up for sale. Strategy first. Acquisitions second. Then audit your success and build an M&A capability that keeps score and learns from each deal.
The Portfolio Partnerships offers operational acquisition support as one of our two core services. Check out our new
brochure
.
Measuring M&A success — corporate best practice from:
https://app.croneri.co.uk/strategic-briefings/defining-mergers-and-acquisition-success-caveats-and-best-practices?product=132
If research evidence highlights the complexity of measuring M&A performance, what can we can learn from corporate experience as regards tracking M&A success? In this section, we provide an overview of corporate best practices to this end:
1. Success metrics to fit the deal’s strategic rationale. A first key to success is knowing what to buy and for what reason. As a result, defining M&A success revolves largely around understanding the strategic rationale for the transaction, and then identifying metrics to measure progress. Depending on the timing, industry, and context of the transaction, strategic rationales will differ. We provide one way of categorising M&A types below; as each transaction type is different, it follows that measuring performance in each deal type follows a divergent logic:
a. A geographic merger is essentially a “land grab”, enlarging the purchasing firm’s customer base with a new set of customers. As the aim is to increase sales, in these deals one of the main metrics is increased sales revenue. Depending on the purchasing firm’s organisational set-up, increased sales can result in increased profits. In order to set up the right metrics to measure the success of this deal type, a question to look at is: “is the customer-facing organisation run on a revenue or profit basis?”
b. In purchasing a new technology or a new product, one aim is to increase sales of the new technology by ensuring its access to the purchasing firm’s sales channels. In this deal type, sales may ramp up much more slowly than in a geographic merger. Still, this is a growth-oriented deal, aimed at rapid revenue increase. An additional aim in a technology transaction is combining both firms’ technological know-how, eg in joint research and development projects. A viable success metric reflects the speed at which jointly developed products come to market.
c. In purchasing customers, the logic is in many ways similar to the geographic merger with the difference that, in this case, the firms’ customer bases reside in the same geographical area. There are two options for this deal type:
· The purchasing and target firms’ customer bases are overlapping. The aim is to increase sales. The challenge is to avoid losing customers that are sourcing from both firms, and to ensure that the overall customer base is properly served. What service levels and product quality will be sought? The success metric fitting this deal type is monitoring revenue and profit as well as product quality, service levels, product returns, and customer complaints. The latter metrics provide early warning signs as regards meeting sales targets.
· The merger enables the purchasing firm to enter a new sector. Success metrics to use are sales, revenue, and/or profit. Numbers of customer contacts can be used to predict future sales levels. As the aim in the deal is not only to learn about the new markets, but also to start cross-selling products between the firm’s current and new markets, also new product development (NPD), or ideas for NPD can be tracked.
d. In the classic overlap merger, the aim is both to cut costs and to generate revenue. This dual target makes this deal type the most difficult of all. To ensure success, the purchasing firm needs to be well aware of the strategy guiding its action. As regards metrics:
· To deliver on cost cutting, both firms need to be analysed from an efficiency perspective. The aim is thereafter to monitor the cost cutting exercise as minutely as possible. Also, the amount of money invested in the change or efficiency projects themselves is tracked. Third, the increase in profit and progress on hitting set P&L targets need to be monitored. Possible double counting of synergy savings should be avoided.
· To deliver on the growth side of this merger, as in the above deal types, sales, revenue, profit, and increases in margin will be monitored. Also innovation levels, ie NPD, potentially leading to a larger product range and thus increased sales, need to be tracked.
e. In a reverse takeover, the same metrics as in the other deal types apply. The key issue in this deal type revolves around management control, as the purchasing firm is effectively taking over, yet the target is larger in size. This leads to considerations around which side is in control, what changes will be sought, and how these improvements will be delivered. Success measurement will depend on the targets set and the roles of the parties involved in the transaction.
f. In service sector deals, any of the above deal types can apply, as the purchase revolves around a service rather than a product company. Thus, the same metrics as above will be pursued. However, additional indicators of progress will be relevant. Thus, when purchasing, eg a consultancy firm, indicators such as absenteeism (ie early warning signal of high stress levels, poor productivity, or employees looking for alternative jobs) and retention levels will prove useful in predicting future sales, as any loss in (senior) talent is likely to result in lost customer contacts.
Though the list of six deal types portrays the diversity of M&A deals, in practice many deals combine several of these ‘ideal’ deal types. This explains why the performance tracking of an individual transaction or of it parts, can be a challenging exercise.
2. Defining achievable metrics. In order to measure M&A performance and to ultimately report success, performance metrics need to be defined in a way that makes them measurable and achievable. Depending on the strategic rationale guiding the deal, the question is — what are measureable and achievable metrics that allow tracking progress? Further, what metrics can be clearly communicated to both internal and external company audiences?
3. Selecting the time frame. In measuring M&A performance and defining M&A success, a relevant issue is selecting the appropriate time frame against which progress and performance can be tracked. Depending on the strategic rationale guiding the deal, the degrees of integration sought following the transaction, the size of the involved firms, the speed at which integration is initiated, and the quality of integration management, results can be expected sooner or later. For example:
· in small-sized deals with little integration, business goes on as usual; hence timing of “success” is not an issue
· in medium-to-large sized deals involving significant integration, results can be expected in the months to years post-deal, depending on the set targets and the speed of integration.
Whilst 30/60/90/300 day integration plans are commonly used, ultimately the timing of synergy realisation depends largely on the set targets. How difficult are they to achieve? How much change do they require? How well is the target supported in this endeavour? Experience shows that, whilst a slow start might alleviate employee concerns, it does not necessarily guarantee better results in the long run.