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    Business Strategy - Able Corporation

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    Scenario:

    Able Corporation has just hired you for the newly created position of Director of Strategic Planning and Analysis. Able Corporation is an old and venerable American manufacturer of a full range of portable electric power tools (PEPT). The company, which was a family owned business, is being considered as a possible acquisition by Walden International, Incorporated, a foreign conglomerate which is primarily driven by short-term, quarterly financial considerations. There has been virtually no investment in Able Corporation for several years and as a result, many of the product lines are stale and outdated, the operations are inefficient and costly, and there have been net operating losses in two of the last four years. Also, the president to whom you will be directly reporting has held the position for two years, is related by blood to the previous owners, and has had some part in the development of the previous strategy.
    The company offers a full range of power tools of professional and consumer quality and serves both consumer and industrial channels. With the exception of circular saws, Able's market share is no greater than 3% in any of its product lines. The market share of circular saws is a dominant 40%, with very strong brand equity and loyalty among both professionals and consumers. The quality of the tools, except for circular saws, is considered low to moderate amongst end-users.

    Able Corporation has non-competitive, high product costs due to its two badly placed (in high labor cost, unionized areas) and obsolete manufacturing plants. These plants are so old and have been so badly maintained that some investment must be made in them just in order to remain in business at all. It has been a strategy of Able in the past to drive sales through gaining market share in order to leverage its high operating costs, but this strategy is increasingly being questioned. It is now the general consensus of Able's senior management team that in order for the corporation to survive, Able must do whatever it can to capture greater share in the two growing segments of the power tool market, consumer channels and cordless products.

    Able has had some success in the cordless business segment, and has gained a reputation as a cordless innovator with a couple of its products. Any beachheads that have been established, however, have evaporated as competitors have essentially copied the product and used their superior marketing power to displace Able at the retailers. Able has then moved on to introduce the next innovative product. This strategy of first in, abandon, and move on has been highly debated within the senior management team of Able, with a desire of some to transfer resources from research and development to the marketing and sales departments.

    Able Corporation has little information on its market share, the size of market, the dynamics that drive the market, or its relative product cost positions. No competitive analysis has been performed in years. The internal information that is available to run the business is inconsistent from one functional department to another. The monthly meetings of the senior management team have been reduced to arguments over the attainment of company metrics, with each department pointing to its own set of reports to support its positions. The friction among the senior management team is having its effect on the rest of the employees of Able Corporation. Many of the employees fear losing their jobs due to the acquisition. As a result of years of declining sales and layoffs, a culture of pessimism and failure exists. Indeed, the new owners fear that many employees in key positions will leave the company taking away their industry expertise.

    Walden's top management has come to realize that it seriously miscalculated the underlying financial health and market position of Able Corporation. In addition, Walden has no expertise of its own in the specific product markets or general operating environment of Able. The chief executive officer of Walden is very concerned with making the acquisition a success and has called a special meeting of the Strategic Officers Steering Committee (SOS-C). This is made up of key company-wide strategic experts from across all the business units of Walden. The meeting is to take place in six months and will determine the strategic direction of Able Corporation for the next five to ten years.

    Power tools consist of such products as circular saws, drills, routers, reciprocating saws, planes, and hammer drills. Approximately 80% of all power tools sold are corded, while the remaining 20% are cordless. All things being equal, a cordless tool is comparable in price to a similarly featured corded tool. The cordless segment is by far the faster growing of the two at a compound annual rate of 10% vs. 3% for corded. This is due to its perceived portability and relative ease of use. Cordless tools are locked into their performance by the state of battery technology, which limits battery life, power output, capacity, and size. As advances in technology increase battery life, capacity and output, and decrease battery size, the pace of the growth of the cordless segment increases. At present, the growth rate is expected to remain at 10%, but at any time disruptive advances in battery performance can greatly increase even this high growth rate.

    The U.S. power tool market in which Able Corporation operates is divided into professional and consumer products, consumer and industrial channels, and consumer and professional end-users. A professional tool is defined by high reliability, high durability, and enhanced features. They are built to withstand the rigors of daily use by such tradesmen as carpenters, electricians, wood-workers, and plumbers in the performance of their jobs. Professional tools cost more to manufacture, but are sold at high enough prices to realize higher margins than comparable consumer tools. A consumer tool is defined as lower reliability, lower durability and less features, and is primarily used by do-it-yourself individuals (DIY'ers) for occasional jobs around the home.

    Professional tools are sold in consumer and industrial channels, whereas consumer tools are sold exclusively in consumer channels. The industrial channel has been declining at a rate of approximately 5% per year, for the past five years. The decline has now stabilized and the forecast is for flat growth over the next five years. It currently represents 45% of the total market of all tools sold in the U.S. market. The industrial channel is characterized by distributors that provide a range of greater services and thus higher prices, and its customers consist solely of professional tradesmen. There is much fragmentation in this channel, with no distributor greater than 5% of the total channel.

    Consumer channels have been experiencing a tremendous 20% per year growth over the past five years, and are expected to grow at a 5% rate over the next five years. The growth has been caused by the emergence of the "Big Box" retailers such Wal Mart, Home Depot, and Lowes. These three dominate the market and exert extreme price pressure on all their suppliers, including those providing portable electric power tools. Because of their lower prices relative to the industrial channels, professional end users have increasingly been shopping in the consumer channels. Currently, 60% of all professional end users buy their professional tools in consumer channels, and this number is expected to increase over the next five years.

    Task:

    Deliverable Length: 1,000 - 1,200
    Details: Walden International, the proposed new parent company of Able, is a large multinational conglomerate. It is an extremely financially well-run company, with an emphasis on short-term, quarterly results. In fact, it is Walden's key value proposition to its stockholders that each quarter's sales and pretax profits will be greater than the prior year's corresponding quarter. Walden has a 35-year record of consecutive quarterly increases and absolutely every other corporate objective is subordinate to extending this streak indefinitely. Walden works very quickly re-engineering and consolidating the common functions of its acquisitions into its own administrative services. These functions include accounting, legal, engineering, and customer service. The savings that are realized through the elimination of these common services are usually passed on to the bottom line. Sometimes, if a good case can be made, those funds are reinvested in the new subsidiary.

    One of the biggest obstacles to the implementation of a successful business strategy is the clash of value systems between a parent and subsidiary. These differences often manifest themselves in conflicts between the various levels of strategy: corporate, business, functional, and operating. Below are a number of the sticking points between Able and Walden. Discuss the steps you would take to address the issues.

    How would you reconcile Able's need for building market share (long-term strategic business objective) with Walden's drive for year-to year quarterly increases in sales and pretax profit (short-term, corporate objective)?
    Walden's success metrics of head count control, inventory management, inventory turnover, and days sales outstanding can be inhibitors to growth vitally needed by Able. What would you do to moderate these functional objectives and make them work for Able?

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    Solution Preview

    The response addresses the queries posted in 1214 words with references.

    // Before addressing the issue; it is necessary to go through the scenario of Able Corporation because this would help in understanding the situation and developing ideas. So, firstly, I am providing the basic introduction to the situation//

    Introduction

    In this case it is given that by Walden International, Incorporated, Able Corporation is probably acquired. Acquisition is a preferred strategy among many of the MNCs in view of the quick access it provides to the new markets. Firms can also readily enter into a new business without the disadvantages of gestation/ setup time (Ramaswamy, & Namakumari, 2005). For successful acquisition, it is essential that the objectives and strategies of the companies should not clash. To make this acquisition successful Walden Corporation's chief executive officer is extremely anxious. A meeting is called by him. This special meeting of the Strategic Officers Steering Committee (SOS-C) is called by him to execute a successful business strategy one of the major obstacles is the clash of value systems between a parent and subsidiary.

    Conflicts can rise between the Able Corporation and Walden International, Incorporated. To make this acquisition successful, it is necessary for that the strategic vision of the partners to match. It will enable the partners develop a common road map for the venture. When the strategic visions of the partners are incompatible, the venture may run into trouble (Ramaswamy, & Namakumari, 2005). So, the foremost thing for the success of this acquisition is that the strategic vision of both the companies Able Corporation and Walden International should match. For this purpose, it is essential that Able should do some changes in its strategy.

    Strategy followed by the Able Corporation is a long term strategy. Strategy followed by the Able Corporation is not competent to achieve the required sales growth. Yet on the matter of strategy adopted by ...

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