Sovera Enterprises, an expanding conglomerate, was founded 35 years ago by Emil Sovera. The company's policy has been to acquire businesses that show significant profit potential; if a business fails to attain projected profits, it is usually sold. Currently, the company consists of eight businesses acquired throughout the years; three of those businesses are described here.
LaBue Videodiscs produces a line of videodisc players. The sale of videodisc players has not met expectations, but LaBue's management believes that the company will succeed in being the first to develop a moderately priced videodisc recorder/player. Market research predicts that the first company to develop this product will be a star.
Ulysses Travel Agencies also showed potential, and the travel industry is growing. However, Ulysses' market share has declined for the last two years even though Sovera has contributed a lot of money to Ulysses' operations. The travel agencies located in the Midwestern and eastern sections of the country have been the biggest drain on resources.
Reddy Self-Storage was one of the first self-storage companies to open. For the last three years, Reddy has maintained a large market share while growth in the self-storage market has slowed considerably.
Ron Ebert, chairman of Sovera, prepared the agenda for the company's annual planning meeting where the present businesses were evaluated and strategies for future acquisitions were formulated. The following statements of strategy for each of the subsidiary companies discussed were formulated on the basis of the master plan:
LaBue Videodiscs. Sovera's discretionary resources are to be employed to support the growth of this business. The future officers of Sovera are to be developed here.
Ulysses Travel Agencies. An orderly disposal of the least profitable locations is the initial objective. Once the disposals are complete, an acceptable profit and growth strategy for the remaining locations will be formulated.
Reddy Self-Storage. The strategy for this company is to maintain efficient operations and maximize the generation of cash for use in the further development of Sovera's other businesses.
These strategy statements were part of the strategic plan presented to Sovera's board of directors. The directors' only debate was whether Sovera should sell the entire Ulysses organization rather than parts of it. However, the board approved all three statements as presented and circulated them to managers throughout the three units as the corporation's "new marching orders."
- Identify at least four general characteristics that differentiate the three businesses described above, and explain how these characteristics influenced the formulation of a different strategy for each business.
- Discuss the likely effects of the three strategy statements on the behavior of top management and middle management of each of the three businesses.