Mergers, Acquisitions, Divestitures, and Closures: Records and Information Management - Case Study Example

Corporate Strategy Introduction Globalization of markets has opened immense opportunities for business enterprises to expand operations and operate on a wider scale for increased profits and revenues. While new markets present vast opportunities for organizations, the complexity lies in understanding the foreign market trends, consumer behavior and parameters that determine the extent to which marketing is feasible. In the global marketplace, the need to survive and succeed leads to fierce competition which in turn brings about a change in the way business is conducted by encouraging innovative business models, operating practices and processes. The constant need to venture into new markets and the pressure to judiciously utilize resources drives businesses to shape their corporate strategies and business objectives accordingly. The marketplace drives corporate decision making with regard to mergers, acquisitions, spinoffs, reorganizations and closures. There could be a number of different factors that prompt businesses to enter into new markets and locations, expand operations and enter into new business relationships. These factors include fast paced changes in tools and technologies, shift in consumer behavior or encountering uncontrollable factors, such as natural calamities and wars. In this era of globalization, mergers and acquisitions is one of the widely used modes of business growth and expansion for several companies. A significant reason for this is that the similarity in competencies among companies competing in the same marketplace promotes the betterment of financial performance, enhance competitive advantage, take advantage of innovative business opportunities and make an entry into newer markets and locations. However, mergers and acquisitions do not assure the organization of growth, development and success. The fact remains that a merger or acquisition can yield positive results for the acquiring company only if it is able to successfully manage the acquired business and transform it to ensure that it is line with the long-term organizational objectives (Haspeslagh and Jemison, 1991). A key element in the merger/acquisition process is the selection of the correct business that will be acquired. This process of selection is critical to the success of the acquisition, and requires deliberation, discussion and effective decision making. The main reason why organizations enter into new partnerships is to take maximum advantage of opportunities, such as entry into new markets and geographical locations, better access to cutting edge technologies, leveraging economic and financial risks, cost reduction, optimum utilization of scarce resources, decreased levels of competition and enhancing competitive advantage. However, it must be noted that entering into strategic alliances alone does not guarantee success and profitability for organizations. There are various factors that could result in such strategic partnerships failing to succeed, including differences in organizational environment and culture, contrast in approaches to devising business targets and objectives, operational and managerial functioning, communication and collaboration (Connell, 2009). It can be summarized that various determinants, such as the selection of the right partners to enter into strategic business relationships, formulating effective corporate objectives, identifying and ironing out differences in organizational culture and work environment and nurturing the inter-company relationship has a critical impact on the outcome of strategic alliances and partnerships. The process of selecting potential partners for alliances needs to take into consideration the similarities in the long-term visions, goals and targets of the two companies, potential for sharing the resources and the opportunity for optimum utilization, corporate culture and environment, corporate philosophy, skills and competencies (Beamish and Lupton, 2009). Mergers, acquisitions, divestment strategy – Microsoft Microsoft Corporation was incorporated in 1975. It is one of Americas largest multinational companies and has a top position in the market space for software, services and Internet technologies for personal computers and servers. Microsoft is a leader in the design and manufacture of a variety of software products, such as desktop and network operating systems, advertising and personal communications services, computer and mobile interactive entertainment, online searching portal and channels, desktop business applications and office applications for users. Microsoft products and services are sold in more than 80 countries, available in over 45 languages and are compatible with most PC platforms (Microsoft, 2011). In 2011, Microsoft acquired Internet phone service, Skype from Silver Lake Partners at a cost of $9.08 billion. This was the companys largest ever acquisition in its history. For the first half of 2011, this acquisition accounted for more than 20% of all acquisition costs put together for the industry as a whole. Skype, headquartered in Luxemburg, was founded in 2003. Skype provides free software that enables voice communication over the Internet between computers and charged internet calls to landlines and mobiles. It has approximately 650 million global users (BBC, 2011). The critical advantage accruing to Microsoft as a result of the Skype acquisition is reduced investment in acquiring and establishing IP telephony services. It also gains the competitive advantages that come with acquiring innovative products and services in the ever changing IT marketplace. This has helped Microsoft seamlessly introduce video and voice real-time communication service in its popular products, including theX-Box console, Outlook and Lync. This infusion of innovative IP telephony services in its products will serve Microsoft well when it competes with major competitors like Google that have similar offerings and competences and vie for a share in the same market. According to available figures from Microsoft annual report for the fiscal year 2010, the company reported an increase in its non-gaming revenue to US$ 35 million on account of the increased sales of Windows Embedded application devices (Microsoft, 2011). Based on this, it can be forecast that the introduction of Skype features in Microsoft products and services will lead to an increase in the demand and sale of its products. Microsoft made its first acquisition in 1987. Since then, it has acquired an average of six companies per year. Microsoft Corporation acquired more than 10 companiesa year between 2005 and 2008. In 2006, it made the highest number of acquisition in its history totaling 18 companies in all, which included Onfolio, Lionhead Studios, Massive Incorporated, ProClarity, Winternals Software and Colloquis. Over the years, Microsoft has purchased five companies worth over one billion dollars. These include Skype in the year 2011, aQuantive in the year 2007, and Fast Search & Transfer in the year 2008 (BBC, 2011). It can be concluded that Microsoft has been relatively conservative in its approach in formulating and implementing its acquisition strategy. It has mainly focused on acquiring relatively smaller companies not taking into account the failed attempt to acquire Yahoo. Over the years, Microsoft has transformed itself from the position of a fast growing company into a mature and responsible organization. It has registered double digit revenue growth in many of its businesses. It can be said that Microsoft could have made better use of the opportunities that it was presented with through non-linear acquisitions, which would have facilitated it to fully leverage its scale and financial resources. It can be argued that Microsoft held back and adopted a conservative acquisition strategy as it was constantly fighting against anti-trust claims. Microsoft has invested a lot of time, money and energy in protecting Windows, which may sustain it over a long period of time in the future. In the process, it may have failed to acknowledge that innovative ideas and concepts can also be brought into the organization through external means (Young, 2011). Mergers, acquisitions, divestment strategy – Amazon Amazon.com Inc. is an American e-commerce company headquartered in Seattle, Washington. It is listed on the NASDAQ stock exchange under the symbol AMZN. Amazon was founded by Jeff Bezos in 1994. He holds the positions of president, CEO and chairman of the board of directors of Amazon.com. Upon inception, the companys primary business was that of an online book retailer. From that position it has now expanded as a leader in e- retailing of used and new DVDs, CDs, computer software, video games, consumer electronics, clothing apparel, home and garden accessories, furniture, toys, sport equipment and other products such as food and health and beauty products (Amazon.com’s Website, 2012). In addition, its subsidiary, Amazon Service Inc. specializes in technologic and service solutions, such as website development and maintenance, website management, in store and telephone ordering services and online customer services (Amazon.com Investor Relations, 2012). Amazons key competitors are E-Bay, whose core business is e-auctions and retail sales, Barnes and Noble that specializes in books sales and other products, and CDnow, which is an online music retailer. Starting from 1998, Amazon.com has adopted an aggressive expansion policy which has been well supported by the vast financial resources it could accumulate as a direct result of its huge market capitalization. This strong financial position enabled Amazon.com to purchase a number of small and medium Internet companies, which helped it to create a strong technological foundation and build a broad customer base for long-term expansion and growth. Growth of businesses in the US has been characterized by the introduction of new, exciting and innovative products and services that overtake the typical sales of books, videos and music. This is in sync with the company’s vision of providing a platform where consumers can virtually research, find and buy anything they desire using Internet as the medium of their transactions. Even though in terms of sales, Amazon.com ranks at the top, the level of profitability is not as high as investors would like it to be (Rainer & Turban, 2008). Profit margins have reduced and operating profit margin is at 4.9 %. This is below Wal-Mart whose margin is 5.1 % (Rainer & Turban, 2008). Online retail shopping for all kinds of goods and services is increasingly becoming one of the preferred methods of transacting for customers that gives them the ease of shopping from the comforts of their home. Even though this increases the playing field for companies, it also brings in higher levels of competition. Therefore, companies like Amazon are competing in the technology world. The strategic implications highlight that the company is not moving away from its core competency sector, that is a leading retailer online, but venturing to new grounds in search of increased profits and market shares. The expansion of its IT services and storage technologies has helped in creating a market niche that caters to technical and logistics needs of businesses today. Over the past few years, Amazon has put in considerable effort in expanding its huge network of distribution and packaging warehouses. It has championed cost reduction efforts in order to balance out its huge financial spend. With an eye on the future market space, Amazon chief executive Jeff Bezos has invested in developing new, exciting and innovative devices, such as a line of Kindle e-readers and its new tablet, the Fire. The company has sought to broaden its customer base by reaching out to newer markets and locations, and has put in efforts to increase sales from existing customers through discounted shipping and other promotional items (Chaffey, 2012). Amazons strong performance in the stock markets through its robust share price growth has facilitated the company to enter into strategic alliances/mergers with a number of companies in various sectors. Marcus (2004) shows how Amazon partnered with Drugstore.com (pharmacy), Living.com (furniture), Pets.com (pet supplies), Wineshopper.com (wines), HomeGrocer.com (groceries), Sothebys.com (auctions) and Kozmo.com (urban home delivery). In the majority of partnerships, Amazon acquired equity stakes in these companies that enabled it to stake a claim in their profitability. Another strategy it adopted was to charge these partners fees in return for advertisements on the Amazon site to promote and drive traffic to their sites. Another cornerstone of its business strategy was charging publishers for prime-position to promote books on its site. This initially drew a lot of flake but eventually died down when people realized that paying for prominent placements was an existing practice in the book industry among retail booksellers and supermarkets. This phenomenon has led analysts to coin the phrase ‘Amazoning a sector’ that indicates one company becoming so powerful in its primary line of business that it comes virtually impossible for other similar companies to acquire a position in the marketplace (Marcus, 2004). Amazon has been very successful in formulating, creating and building a strong value proposition. In addition, it has been able to enter into new markets and attain leadership position by entering into strategic alliances. Amazons success can also be attributed to the company embracing newer technology that has facilitated it to drive advertising, promotion, sales and distribution through these partner companies. Amazon has created a strong, viable online platform that helps other retailers to promote products by taking advantage of the Amazon user interface and infrastructure through their ‘Syndicated Stores’ program that helps them tap into a broad customer base. Waterstones (www.waterstones.co.uk) is a leading chain of traditional bookstores in the UK. In the face of stiff competition from online retailers, Waterstones entered into an alliance where Amazon markets and distributes its books online in return for a commission online. In the US, Borders, a leading book retailer takes advantage of Amazons merchant platform for distributing its products. Toy retailer Toys R’ US also have a similar partnership. These partnerships help Amazon to rapidly broaden its customer base by tapping into that of the other suppliers. The company can also create additional revenue streams as visitors on the website buying books can also be wooed into making purchases in other product categories, such as apparel, footwear and electronics (Chaffey, 2012). Amazon Marketplace helps its customers and other retailers to sell their new and used books and other goods alongside the regular retail listings. Amazon ‘Merchants@’ program facilitates third party merchants (typically larger than those who sell via the Amazon Marketplace) to sell their products via Amazon. Amazon benefits through fixed fees or sales commissions per-unit. Observations and conclusion The intensively competitive global economy has propelled organizations to embrace global strategic partnerships and alliances in order to overcome the threat of being eliminated. A number of companies have adopted an approach of either being the hunter or accept being hunted in order to survive and succeed in the global marketplace. This cut throat competitive landscape may result in organizations hastily deciding to go the way of mergers and acquisitions for fuelling business expansion without exercising proper discretion and sound decision making. The ever changing technological world, fluctuations in exchange rates, instability in the political environment and natural calamities can result in a negative outcome for the business if it is not backed by strong financial power. These determinants combined with many such forces result in companies striving to formulate and implement their strategies effectively in order to succeed and grow. Well planned mergers, acquisitions, divestitures and closures backed by sound decision making can enable companies to overcome challenges posed by the competitive market conditions and achieve long-term profitability and success. Mergers represent a complex business transformation that entails the union of two business entities. Knowledge and information management have a very important role to play to ensure the success of the newly formed entity. Mergers create a new company with consolidation and integration of different business units and processes. Mergers result in the creation of a larger organization that takes forward the primary line of business of the acquirer and acquired firms. The process of acquisition involves the purchase and taking over of operations of one company by another company. Typically a bigger business with more financial resources, technology and equipment acquires a smaller company though this may not always be the case. It is triggered by the need of companies’ to acquire new assets, technology and technical know-how that may add significant value to its line of operations. As per a number of M&A research sources, M&A activity has seen a decline over the past few years beginning in 2007. Phillips (2011) in his study on mergers and acquisitions observes the number of acquisitions in North America ranging between the transaction value of US$ 15 million and $500 million has witnessed a decline of 22.8 percent during the period 2007 and 2008. The subsequent period between 2008 and 2009 reported a decline of 24.7 percent. There are many reasons why companies take the route of mergers and acquisitions to promote business growth. These include inorganic growth by getting a hold of the market share; the opportunity to enter new markets for their existing products; taking advantage of the economies in operations to cut down costs; entering into new geographical locations to make use of production facilities; ability to influence the supply chain, and take competitive advantage of the similarities in operations. However, it has been seen that a number of mergers and acquisitions fail to deliver the desired results. This could be due to a number of factors, such as inability in find commonality in the business strategies of the firms; failure to identify cultural clash, and major differences in modes of operations and business philosophy; core competencies are diluted due to lack of cohesion; incompetency in managing the acquired entity and its facilities; exit of key personnel critical to the success of M&A, and customers failing to embrace the new entity. References 1. 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Connell, R. 2009, M and A performance improvement: a non-traditional view, Journal of Management and marketing research, [online] available from http://www.aabri.com/manuscripts/10463.pdf 7. Haspeslagh, P. C., & Jemison, D. B. 1991, Managing acquisitions: Creating value through corporate renewal, New York: Free Press. 8. Kazimova, N. 2011, Analysis of Microsoft’s new strategic acquisition Skype, [online] available from http://www.academia.edu/1237693/Analysis_of_Microsofts_new_strategic_acquisition_Skype 9. Microsoft 2011, Microsoft’s business, [online] available from http://www.microsoft.com/about/companyinformation/ourbusinesses/en/us/business.aspx (accessed 3 Nov 2012) 10. Marcus, J. 2004, Amazonia – five years at the epicentre of the dot com juggernaut, The New York Press. 11. Phillips, J.T. 2011, Mergers, acquisitions, divestures and closures – records and information management checklists, ARMA International Educational Foundation. 12. Rainer, R.K. & Turban, E. 2008, Introduction to information systems: supporting and transforming business, 2nd ed., John Wiley & Sons. 13. Strategic Sourcerer 2012, Wal-mart, Amazon battling for online customers, [online] available from http://www.strategicsourceror.com/2012/03/wal-mart-amazon-battling-for-online.html 14. Young, R.D. 2011, Google acquired 11 companies in 2011, Microsoft made biggest transaction, [online] available from http://searchenginewatch.com/article/2092684/Google-Acquired-11-Companies-in-2011-Microsoft-Made-Biggest-Transaction Read More