Case study

Examples of where it goes wrong..

The best way to illustrate the importance of strategic management in business is to show what happens when the strategic management process is allowed to slip.

High growth company
Here is an case study drawn from the writer’s own client experience: A previously successful business in the photographic display market went into receivership through the failure of its parent company. It was bought back by the management team and, driven in a single-minded way by a balanced team, recovered from receivership and rapidly achieved its goal of UK dominance in its field, generating significant cash and profits.

Its ambitious operations director pushed his way into the CEO seat and set a new goal: to try to consolidate the fragmented market in the US. After a highly cautious post-receivership approach to financing, he was persuaded by bankers to borrow to fund very rapid expansion by acquisition, and soon reached revenues of c£150m. In the process, he took his eye off the cash position and the borrowing risk. His strategy lagged behind his goal and he overstretched his management resources. Trading went flat as he ran into recession, he ran out of cash and the banks called his loans in. The banks refused to accept his work-out plan and forced the break-up of the company, taking a big write-down in the process.

However, the now ex-CEO bought back a couple of the group companies, set a more limited goal with a strategy to match and by refocusing in his earlier manner, soon generated a new business which was more profitable than his previous one.

Taking a large company into new markets
There are lots of well-known examples where large organizations have failed to keep revalidating their corporate goals and updating their strategies accordingly. These include the attempt to transform the UK’s GEC, a long-standing, successful and cash-generating engineering group into an electronic group under the Marconi banner, by an acquisition program funded by GEC’s amassed cash pile of over £1.5bn. In a few short years it had all gone. The goal was probably infeasible and the importance of strategic management (in its absence) illustrated by the management pursuing the discredited goal until all the money had gone.

On the other hand, famously, Apple was transformed in fifteen years under the leadership of Steve Jobs from a nearly bust supplier of personal computers to the most valuable company in the world. As everyone knows, he achieved this by a single-minded consumer focus as he introduced a succession of market-winning products.

Clearly Apple’s strategy was tightly linked to his changing goals as the new products came on stream, and the manufacturing and distribution resources were in place to support the extraordinary sales growth. Similarly, their premium pricing strategy was linked to an outstanding degree of consumer satisfaction with the products which enabled it to be successful.

Not many businesses change goals and are able to create a successful strategy to achieve the new goal. One of the (ultimately) successful companies to do this was IBM, which, after a dalliance with PCs in the 1980s, revised its goals under Lou Gerstner and built a large and profitable software and services business. The importance of strategic management in IBM was evidenced by its ability to revise its earlier goal and through a new strategy, maintain a focus on building the new businesses to serve its new customers.

Date: 2015-02-16; view: 1255