Planning in Times of Uncertainty - Essay Example

? Strategic Management Situations being faced by Lockwood Group with Regards to its Various Business Units Lockwood Group had been facing various problems in its business operations since the beginning of the second half of the 20th century when its business activities used to deal with various segments such as that of manufacturing parts of automobile vehicle, equipments that run either on electricity or any other sources of power, metal alloys, wings for airplanes, appliances, furniture, equipments of communication, specialty chemicals along with consumer products. The firm was even indulged in business through retail chains as it purchased several outlets of retail businesses. The huge problem that the firm faced was that neither of these business options worked out quite well and as a consequence of this appalling performance, the firm had to either sell the units or liquidate at a loss for sustaining businesses. Apart from the tangible benefits in terms of financial loss, the firm also faced huge crisis in terms of losing intangible losses such as that of skills and experiences. Along with these losses, the firm also faced problem that was in the form of diversion of attention from better opportunities for avoiding risk. The decision of selling out the unprofitable business units was generated as renovating plans for the 21st century. Fundamentally, four aims were set for this era that included the following: (a) reduction of operational holdings that failed to either achieve the short-term goals or are not fit for the firms long-term sustainable strategy and a targeted profit of 600 to 700 million Dollars was anticipated from their sales; (b) reinvestment of the accumulated profits from these sales to profitable business areas of the firm; (c) improvement of equity return from these reinvesting strategies in the long run; and (d) strengthening of the firm’s financial position in terms of reviewing balance sheet and position of credit. The firm followed the benchmarking technique with the help of BCG matrix utilization and derived that the structure of the firm would be designed as such that it would be comprising of mainly four business units: financial services, energy, packaging and forest products. Following the designed strategies, the firm insisted on selling the unprofitable business units but in this case also the firm faced the same problem of being unable to achieve strategic targets. It failed to generate the targeted 700 million Dollars sales from those units and achieved a figure which was around 250 million Dollars lesser than that was targeted. Prior to providing recommendation based on the analysis of the current situation of the firm in the form of a strategic plan of five years, it is essential to present a brief outlook of each of the positions of business units or the exact situation that the firm at present is facing. Lockwood Group’s financial services unit is believed to be strongly positioned within the industry. It is due to the efficiency of the management that this business unit has become able to enhance their targeted segment of the market and also have become successful in avoiding any grave situation of cut throat competition with huge and potent competitors. Avoidance of competitors was essential for the business units holding a brand new position within the industry. With regard to the business position of energy, the firm is in a strong position in spite of being an initial operator within the industry but taking into account the firm’s abilities in production and exploration of energy, its position is not that strong. The unit of production and exploration is believed to be at a risky position as the firm does not hold strong position of investing huge amounts of money in exploration activities and also are reluctant in taking risk through exploring in adverse situations. In the packaging segment of the firm’s business, it is holding an uncertain position as in order to become successful in this segment, the firm would have to remain updated along with the changing demands of the consumers and accordingly make huge financial investment for incorporating innovative technological products. The forest products segment of the firm is although performing at par but cannot be held with assurance of performance improvements in the future due to the utilization of near to obsolete technology. Recommendations for the Firm Considering the present scenario of the business, it has been observed that recommendation with respect to each of the business units’ progress is essential. Recommendation for Financial Services Segment As recommended by the consultants of Lockwood Group, the firm should concentrate heavily towards investment in business expansion of the financial services segment in order to cope up with the moves of their competitors. At this juncture of the business where every segment is at their initial stages, it would not be viable to incur certain additional costs. Thus, the firm can utilize the profits that are gained from the various other operations of the businesses inclusive of the financial services segment and incorporate those into further business expansions. Before investing additional funds into the operation of business expansion, it is also essential to concentrate heavily upon the marketing aspect of the present unit so that sales can be enhanced for generating more revenue to make the entire recycling of revenue generated from the business units. Financial Impact The operation of the firm according to the above recommendation will keep the firm away from incurring additional cost into the businesses. Utilization of surplus revenue will lead to tax saving as well. Thus, in monetary terms, huge amount of costs can be saved. In terms of long-term benefits also, this strategy will be helpful (TORONTO, 2009). Recommendation for Energy Segment The energy segment of the firm was also completely new. The firm is facing problems in its department of production and exploration. This signifies that investment in research and development segment of the firm is of immense importance at this point of time. However, considering the market position of the firm which is at its initial stage, it might not be viable for the firm to invest huge amounts in exploration activities. Instead of blocking up percentage of profits in this aspect, the firm should concentrate towards developing the present business structure in this segment. It would be of extreme help if it can seek certain amount of help from the US government on the grounds that energy sector holds strong implication for enhancing country’s GDP. Financial Impact Concentration towards business structure development would not force the firm’s management to strive for financial structure decisions. It is because at this juncture, investment towards procurement of skilled and talented workforce is essential for long run objective fulfillment. Talent enhancement would not incur much cost in comparison towards investment in core activities of investment. Moreover, government support would provide excessive scope of business development for the firm, both in terms of long-term as well as short-term perspectives (Pasquier, 2011). Recommendation for Packaging Segment Packaging industry is such an industry which deals with commodity products where long-term sustainable strategy cannot be exactly designed. In this sector, business performance completely depends upon the demands and expectations of the consumers and the ability of the companies to cope up with these demands and expectations. It is highly recommended to the firm that substantial amount of capital is held during every phase of the market variation which is determined by the consumers. This indicates that the firm should be organized with every aspect which is required for adhering to the changing market conditions. Capital inducement according to the market demands will provide scope for the firm for remaining competitive over long period of time. Financial Impact Holding of capital in cash or marketable securities will ensure liquidity of the firm. At the same time, higher amount of capital holding in the form of assets will provide more stability in the firm’s balance sheet and financial position (James, 2008). Recommendation for Forest Products Segment It is essential for the firm to concentrate heavily on provision of efficient training and development facilities to the manpower present within the operation section of the forest products’ plants. Maintenance of equipments and machineries is immensely required as machines are almost obsolete in this segment of the business operation. Training of present staff with regard to efficient handling of the plants and recruitment of more trained staffs for supervising the present staffs is required. Financial Impact In the forest product segment of the firm, investment towards restructuring of organizational form would incorporate necessity of cost incurrence in the firm’s internal activities. Although, at present, this structure definition will seem costly, within a period of five to six years, this business structure can be anticipated to provide benefit to the firm in terms of revenue generation due to utilization of innovative technologies and skills of enormously trained staffs (US Department of Energy, 2011). Events or Uncertainties in Recommendation Implementation and their Remedies The first and foremost uncertainty that can hinder the effective implementation of the above mentioned recommendations for Lockwood Group is that of the economic waves. In order to cope up with the economic uncertainties, the firm should constantly take review of the indicators of the economy. Valuable and valid forecasting of the economic variations will help the firm in avoiding the adverse impacts of this uncertainty and the recommended strategy could also be implemented successfully then. The second important internal event that can hamper the recommended strategy implementation is that of the fear of miscommunication among the various segments of the business. There can be disincorporation of any financial aspect that can mislead the upper management and thus situations of ineffective decision making can arrive. For avoiding this uncertain adverse impact within the entire organization, the management of the firm should ensure that timely information of each segments’ performance reaches the higher authorities at the right time for enabling them to take effective decision at the most appropriate time. The third and probably the most important uncertainty is the availability of cash within the organization. Considering the adversities caused due to credit crunch during recent times, it is essential for the firm to ensure adequate cash figures in the accounts. Moreover, considering the huge competition within the industry, it is also essential that customers are provided with credit. Hence, it will be better to maintain concrete liquidity position pertaining to uncertainty associated with the risk of bad debt (Gleeson, 2011). Exhibit 1 Considering the recommended strategies and possible financial impact of those strategies along with the firm’s financial performance during the past five years, the following predictions of upcoming five years’ financial status can be presented: Results of Operations (in Dollars) 2009 2010 2011 2012 2013 Revenues 10506 11871 12700 13845 15229 Net Earnings 412 456 487 511 542 Per Common Share Net Earnings 8.54 9.66 10.11 11.23 12.35 Dividends 3.64 3.78 3.81 4.00 4.23 Financial Position at Year End Current Assets 3185 3256 3588 4012 4325 Total Assets 8001 8179 8554 9052 9419 Current Liabilities 1521 1534 1499 1487 1452 Long-term Debt 1452 1342 1220 1135 1012 Redeemable Preferred Shares 498 486 477 450 400 Common Stockholders Equity Per Share 80.25 82.36 96.21 100.23 115.24 Common Shares Outstanding (in 000’) 84,856 87,245 88,542 90,111 90,452 After-Tax Return On Average Common Stockholders’ Equity 9.23% 9.56% 9.78% 10.11% 12.45% Number of Employees at Year End 42,254 45,665 47,423 48,399 50,666 Exhibit 2 The following line chart shows the time line performance of Lockwood Group during the past 28 years on the basis of which the trend of the firm’s performance can be determined. The above timeline of the firm demonstrates good scope of operations in the future as after the year 1990, i.e. after the adoption of successful strategy, it has depicted high level of performance. The deterioration of performance during the period from the year 2006 to 2008 can be considered due to the adverse consequence of the economic condition. However, on consideration of the various uncertainties and their remedial steps along with recommended sustainable strategy, future scope of strong performance can be predicted for the firm. References Gleeson, A. (2011). Planning in Times of Uncertainty. Retrieved July 08, 2011, from http://articles.bplans.co.uk/writing-a-business-plan/planning-in-times-of-uncertainty/403 James, A. (2008). Sustainable Achievement of Business Expansion And Quality (SABEQ). Retrieved July 08, 2011, from http://pdf.usaid.gov/pdf_docs/PNADM753.pdf Pasquier, S. B. (2011). Implementation of the 25 Energy Efficiency Policy Recommendations in IEA Member Countries: Recent Developments. Retrieved July 08, 2011, from http://www.iea.org/papers/2011/25recom_developments.pdf TORONTO. (2009). Toronto Region Financial Services Strategy for Enhancing Global Competitiveness. Retrieved July 08, 2011, from http://www.toronto.ca/legdocs/mmis/2009/ed/bgrd/backgroundfile-25249.pdf US Department of Energy. (2011). Operating and maintaining Energy Smart Schools. Retrieved July 08, 2011, from http://apps1.eere.energy.gov/buildings/publications/pdfs/energysmartschools/ess_plug-loads-template.pdf Read More