Monsantos Dramatic Restructuring - Assignment Example

Monsanto Global Strategy Q1: Monsanto’s dramatic restructuring during 1996 and 1997 Monsanto underwent dramatic restructuring between 1996 and 1997 to redefine itself in two ways. First, it aimed to establish itself as a leader in segments of the life sciences field in a range of areas including agricultural biotechnology, food ingredients and human health products. The company also aimed to establish a global strategy, rather than one dominated by the US market – what the writers call transformational management. The company’s CEO Robert Shapiro noted that in recent years, the needs of the chemical and life sciences had become quite different, and it was in the best interests of the customers, employees and shareholders that the company took appropriate steps to allow the business to reach it maximum potential. The company weighed several options, including separation into two public companies, one that would focus on life sciences while the other focused on chemicals. There was also a possibility of combining the chemical businesses with one another or with other companies, or keeping the chemical businesses and restructuring them. The management thus analysed how the Life Sciences and Chemicals segments of the company differed and how each was able to address the needs of their markets and customers. It was suggested that the Life Sciences segment would identify unmet needs, brand their products for the consumer market, set prices for their goods to capture value, have a new product launch and cycle management, and redefine or invent their distribution channels. On the other hand, the chemicals segment would focus on predicting and meeting customer specifications, setting prices to manage share and assets utilisation, and managing the cost of doing business. Monsanto’s purpose was reinforced by several acquisitions including that of DeKalb Genetics Corp in March 1996 and the Agracetus Division of W.R. Grace & Co in April 1996. Monsanto also fully acquired Calgene in May 1997 so as to build its technology base and set the pace for future growth. Q2: The broad conceptual basis for the company’s new strategy Monsanto’s transformational management strategy was premised on remaking the firm into a set of activities that could be manageable by way of fitting in a coherent whole, but which could predict future market and technological situations in the core business. The company noted that there were significant changes in the fields of agricultural chemicals, food ingredients and pharmaceuticals, and hence, there was need to transform it to be able to meet the changing needs of the market. The initial step was to define a new competitive environment in which the company was going to operate. By using the life sciences model, the company realised that products and services are based on research in genetics and applied to areas of human and animal health and feeding. Thus, by defining the kind of operating environment in which it would be, Monsanto was able to exclude from its core activities the commodity chemical segments that had been its mainstay in the past. Having defined its future, the company was able to position itself to enjoy maximum advantage from that future. For instance, the management realised that by producing seeds that were herbicide-resistant, the company reduced the need for chemicals; and by genetically engineering seeds, the need for fungicides was reduced. Most importantly, Monsanto understood the need to make its customers and potential customers to believe in the same view of the changing world, and thus to introduce products and services that would meet their future needs. Hence, by having an overview of what the market would need in future, Monsanto was able to prepare itself by having the appropriate technologies and products; and its customers by progressively making them understand these changes. Q3: Emerging relevant competitors for the ‘new’ Monsanto The emerging competitors to Monsanto include Novartis, American Home Products, Pfizer, Pharmacia & Upjohn, Genentech, and International Flavours and Fragrances. Novartis was formed when CIBA-Geigy and Sandoz merged in 1996. It became the world’s largest agrochemical company and a major player in nutritional products, with operations in 142 countries. The company’s competitive position is further augmented by the fact that between 1996 and 1997 it embarked on a campaign to guarantee name recognition as well as brand loyalty. It is particularly a major player in the life sciences segment, where Monsanto intends to be a key player. American Home Products is a major competitor because by 1997, it had diversified operations in biotechnology, pharmaceuticals, animal health, consumer health care, medial supplies, agricultural products, and diagnostics. It had a good sales base of $14 billion and had operations in more 145 countries. With this diversity in various fields, American Home Products is a major threat to Monsanto especially in as far as research and development for new products is concerned. Pfizer is a well established company having operations in more than 150 countries and a sales volume above $10 billion. The company specifically focuses in healthcare, animal and consumer health care – which are within the scope of Monsanto’s operations. Pharmacia & Upjohn is an emerging competitor having started operations as an individual company in 1995 after the merger of The Upjohn Company of the US and Pharmacia AB of Sweden. The merger definitely shows that there is a wide array of capabilities bought together from the two companies, not to mention the fact that the company is a key player in inflammatory diseases, nutrition, and women’s health. Although Genentech and International Flavours and Fragrances are not direct competitors with Monsanto, they cannot be ignored because they have the capacity to give the company major competition in future as they expand the scope of their operations. Q4: Is the concept of ‘transformational management’ relevant in this case? Why? The concept of transformational management is relevant in the case because through this approach the management at Monsanto was able to carefully consider the context in which it was, and to identify the characteristics of competition in the future in the business activities that the company wanted to pursue. According to Grosse (2000), a firm that engages in transformational management does not relax and say that its has products or services and only wants to know where to sell them; rather it sees the world going in a new direction, identifies its strengths, and positions itself in order to survive in the future business environment. The company then looks at the rest of the world and the future and how it will provide services or products in the future. This is true of Monsanto as the company realised that there were key changes in its field of operations and it would only be competitive if it embraced the change tide by transforming itself to deal with the future. It is clear that Monsanto anticipated the changes that would occur in the agricultural chemicals, food ingredients and pharmaceuticals fields and thus positioned itself to deal with these changes by restructuring. By doing this, the company was able to identify the activities that would add most value in the future so that it would take maximum advantage of that future. Through transformational management, Monsanto was also able to convince its customers as well as potential customers to have a broader view of the changes that were coming, and hence, it was able to introduce them to new products that targeted future needs. It is therefore noteworthy that without transformational management, Monsanto would have stayed put with obsolete technologies and products as other companies changed there own processes. In the end, the company would be caught unawares and would probably lose customers as they would go for the more innovative products produced by its competitors. Q5: How the restructuring impacts upon raising ’shareholder value’ With the new business structure, Monsanto was guaranteed of a bright future as it was well positioned to meet the future needs of the market. As a result, it was able to add value in three major ways (1) through Operational Excellence of Monsanto Business Units; (2) through growth sources such as Business Unit projects and investments; and (3) through portfolio restructuring such as mergers, acquisitions, swaps and divestitures. The restructuring process definitely means that the company can now invest resources in areas where it can expect the best outcomes – which increases its probability of making profits and hence raises shareholder value. Additionally, Monsanto acquired several other firms after its restructuring, including DeKalb Genetics Corp, the Agracetus Division of W.R. Grace & Co, and Calgene. The impact of acquisitions is that they add shareholder value if the price paid is less than the maximum acceptable purchase price of those companies that are acquired (Doyle, 2008). The maximum acceptable price refers to the standalone value of the prospect plus the value of any synergies that are likely to arise from combining the two firms (Doyle, 2008). It can be said that Monsanto must have conducted adequate analysis before acquiring the prospective companies that it acquired to ensure that it was guaranteed added shareholder value after the acquisitions. Finally, management at Monsanto considered the best interest of all players in the company, including shareholders, to ensure that they reached their maximum performance. Obviously, this was attained through better performance of the company and guaranteed improvement as a result of the restructuring process. References Doyle, P. (2008). Value-based Marketing: Marketing Strategies for Corporate Growth and Shareholder Value (2nd edition). New York: John Wiley & Sons. Grosse, R. & Shamsi, A. (1997). ‘Global strategy in the life sciences: Monsanto Corporation.’ The American Graduate School of International Management. Grosse, R. E. (ed) (2000). Thunderbird on Global Business Strategy. New York: John Wiley and Sons. Read More