The eighth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY ON TURNAROUND STRATEGY, ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE

A reputed public limited company, M/s XYZ & Co. with a strong brand image and goodwill in the market, manufactures Refrigerators. Last year it decided to take over an ailing public sector enterprise, located at Hyderabad named M/s ABC & Co. which is also manufacturing branded Refrigerators. The ailing unit had accumulated losses to the tune of Rs.90 crores and was having a huge work force of 5000, with production virtually coming to a grinding halt/stand-still statue at the time of takeover.

The management of M/s XYZ & Co. prepared a turnaround strategy and adopted a multi-pronged strategy for its taken over company viz., ABC & Co. As a result, over a period of one year:

-          Wasteful expenditure got curtailed considerably

-          Production increased

-          Production range got augmented

-          Investment in HRD had been stepped up

-          Costumer and dealer interaction had improved

Each of the above steps were taken up on a ‘war-footing’.

Ø  An analysis of job and personality profiles of all personnel from ‘workmen’ to ‘managers’ was undertaken by an outside consultant. This study revealed a lot of startling things including the fact that about 400 workers with union influence, were mostly on outdoor duty, where they could not be supervised all the time.

Ø  A voluntary retirement scheme (VRS) was introduce, which helped to reduce the workforce of 4000. Those workers, not willing to be a part of the ‘new work culture’, where targets had to be met, left under VRS.

Questions:

(i)                  Do you consider the Turnaround Strategy adopted by M/s XYZ & Co. satisfactory? Give reasons.

(ii)                Discuss the nature of synergistic effects, if any, resulting from M/s XYZ’s take over of M/s ABC & Co.

(iii)               Prepare an Environmental Treat and Opportunity Profile (ETOP) and a strategic advantage profile (SAP) for evaluation of the present strategy.

(iv)              What were the key factors underlying successful implementation of the strategy? Explain

You may take suitable assumption, as may be required, in this case study.

Analysis

(i)                  Adopted multi-pronged strategy yielded different desired results like-

·         Revenue generation of the company has increased due to the increase in production.

·         Wasteful expenditure got curtailed considerably. The essence of any good ‘turnaround strategy’ is cost reduction and cutting down of redundant discretionary cost in manufacturing and man power cost.

·         Helped to boost up declining trend in performance and paved way for improved long-run efficiency of operations.

·         Augmentation of product range has helped to shot up of company’s market share.

·         The study by the consultant has yielded stupendous results to eliminate a lot of unproductive work practices.

·         The VRS introduction has helped to reduce the work force by 20%. As XYZ &Co. has been able to proclaim their seriousness about the change. Those workers of erstwhile ABC & Co. not willing to be a part of the new work culture, where targets had to be met, left under VRS.

·         By stepping up investment in HRD to train the remaining workforce has ushered in a new working system and philosophy.

·         For the purpose of developing their market, the company is now drawing program to enter into the growing export market.

(ii)                Due to the all-round multi-pronged strategy of the company-

·         Operation synergy is evident through the introduction of new product, leading to increased use of its facilities with the reduction in unit fixed cost.

·         Sales synergy through the sale of additional product range with the existing marketing infrastructure and improved customer, dealer introduction.

·         Management synergy by way of showing managerial competence to solve different problems of the erstwhile ABC & Co.

·         The combined impact of all the above has jointly contributed to positive synergy for the company.

(iii)               Environmental Threat and Opportunity Profile

Business                              (+) New forms of competition

                                            (-) New entry of Global leader and MNC

Government                          (+) Globalization

                                            (-)  Liberalization

Socioeconomic                      (-) Resource constraints

     (+) All round infrastructure development in the country including more power supply for the industry

Technological                     (+) High growth envisaged in industrial production and technological upgradation.

(iv)              Strategic Advantage Profile (SAP)

Manufacturing              (-) Ageing plant facilities, requiring gradual replacement and upgradation.

(+) Machinery with robust design and proper maintenance are available to withstand the increased production.

                                Marketing                           (+) Capable sales force

                                R&D                                 (+) Backup from XYZ & Co.

Corporate resources                 (+) Result oriented management team with positive attitude and abundant talents with initiative and zeal.

(v)                Key factors constitute the important significant factors in the success of particular business. In the instant case, some of the key factors are:

Ø  New management team of XYZ & Co. with dedication

Ø  Implementation of multi-pronged strategies in its real earnest.

                                     Ø Augmented product range.

                                                                                                       Source: Suggested Answers - December 2002 by ICAI