Business Strategy of Walden International Inc - Essay Example

07 March 2007 Business Strategy Walden International, Inc.’s (Walden) proposed acquisition of Able Corporation (Able) has various implications in the operations of both companies involved. It should be noted that these two business organizations are very much different in terms of financial and operating status. While Walden successfully reports its 35th quarter of growth, Able incurs losses for the second fiscal year. These companies also differ in their goals as well as the strategies that they employ in order to attain these objectives. However, this paper argues that the acquisition will be mutually beneficial for Walden and Able if the companies are able to establish common goals and reconcile their differences. Thus, the goal of this paper is to identify and recommend specific measures on how the proposed transition in ownership can be best managed with the interest of both parties in mind. This paper will primarily answer the biggest issues that Walden and Able faces which includes their different strategies and success metrics. How would you reconcile Ables need for building market share (long-term strategic business objective) with Waldens drive for year-to year quarterly increases in sales and pretax profit (short-term, corporate objective)? The current strategy of Able is building market in order to efficiently distribute costs. The business organization believes that in order to be successful in its industry, in needs to capture most of the market. The strategy can be seen as a long-term business objective. On the other hand, Walden pursues a short term corporate objective of increasing its quarterly income and pre-tax profits. At the first look, these two strategies seem to be in direct contrast with each other. For one, the focus of Walden is in the short run while Able is concern in the long term. However, looking more closely, both of these strategies can be simultaneously pursued as they will be bringing in the same results for the two business organizations which is growth. It can be argued that establishing the quarterly goal of revenue and profit increases can be attained through revamping the whole operation of Able and in the long run can help it earn a sizable share in the market. Walden’s acquisition of Able can be largely help the latter to pursue its goal of increasing market share and record sales and profit increases each quarter. It should be noted that aside from circular saws, Able’s products are only able to corner no more than 3% of the market. This is amidst the fact that there is a large and growing market for its products. Through the acquisition, Walden can help Able to invest in new facilities and overhaul its operations in order to enhance its efficiency thereby allowing it to control costs, market its product more extensively, identify more profitable product lines, and increase profit (Thomson 2002). There are many aspects in Able’s operations which needs immediate attention if it wants to increase sales and profit. First of all, the company should look into establishing a new manufacturing plant in a location with lower wages and more efficient workforce. Once established, Able should install state of the art equipments which will be able to produce its products at less time, less wastage, and less reworks. With these changes, the company will be able to manufacture at lower costs. With the more modern facility, Able will also be able to produce higher quality products than what it is currently producing. It should be noted that aside from its circular saws, the public’s general assessment of its product quality is mediocre (low to moderate). This poor quality can be in part attributed to the company’s obsolete equipments. Thus, with the modern facility, Able’s production efficiency is enhanced minimizing costs and boosting profits. The higher quality products can also command higher prices to its clients. The improvements above can consequently lead to an increased quarterly profit. These changes are apparently carried internally as they involve the business operation of Able. It should be noted though, that these changes will not suffice if Walden really wants to see an uptrend in sales and profits. The relatively meager market share of Able in the market amidst huge opportunities and expected market growth should also be looked into. The company can look into growing its sales and profits by capturing more customers. Increases in revenue and profits can never be attained if the company does not make a long term commitment of increasing its market share. It should be noted that portable electric power tools are usually replaced not quarterly but once a year. Thus, it is important for Able to attract new buyers of its products in order to consistently boost its earnings. In conclusion, Able should pursue growth in revenue and pretax profits by an overhaul of its operation activities and aggressive effort to grow its market share. Waldens success metrics of head count control, inventory management, inventory turnover, and days sales outstanding can be inhibitors to growth vitally needed by Able. What would you do to moderate these functional objectives and make them work for Able? With the current situation of Able, it is irrefutable that it badly needs to achieve growth in order to improve its financial performance. However, it should also be noted that Able’s current objective clashes with that of Walden’s success metrics of head count control, inventory management, inventory turnover, and days’ sales outstanding. It should be noted that Able is currently facing human resource problems such as low employee morale. After the acquisition, it is expected that Walden will take over the administrative functions of Able which can lead to downsizing and layoffs. This, in turn, is expected to be met by resistance. Layoffs might also mean taking the expertise needed by Able considering that Walden is relatively inexperienced in the industry where the former operates in. It is suggested that a smooth transition be facilitated in order to absorb some of the key employees in Walden’s corporate structure in order to retain the expertise needed in its operations. The administrative functions can be fully delegated to Walden’s workforce because it will enable to minimize administrative costs. However, Able should see to its employees are properly informed in advance about the transition and are given the proper and adequate compensation are given. The transfer of administrative functions to Walden will not hinder the growth required in Able. In fact, it can help the company to focus on its core competencies and business processes like research and manufacturing. Other success metrics of Walden are focused on working capital management such as inventory management, inventory turnover, and days’ sales outstanding. All of these efforts apparently eliminates wastage in the production process, minimize inventory costs, and facilitates the collection of receivables to enhance the company’s cash account (Keown et. al. 2005). With a deeper evaluation, it becomes irrefutable that these management techniques do not necessarily hinder the growth objective of Able. These measures should be put in place in order to control the company’s working capital and enhance its financial position. In Able’s growth prospects, it is necessary to control inventory as well as manage inventory turnover. It should be noted that there are significant costs related to holding inventory which erodes the profitability of a business organization. For Able to control the ballooning of its costs and enhance its profits, it should also look at producing only the right amount of output in order to avoid inventory holding costs. It should also work hard in finding ways to speed up the disposal of its products from its warehouse which can make its inventory turnover faster. Lastly, it is also recommended that Able speeds up its collection of receivables in order for it to have a sufficient fund to finance its short term working capital needs. It should be noted that a growing business organization should always focus on improving its working capital (Keown et.al, 2005). The success metrics of Walden will be instrumental in facilitating the growth of Able Corporation. References Keown, A.J., Martin, J.D., Petty, J.W., and Scott Jr., D.F, 2005, Financial Management principles and applications, Pearson/Prentice Hall International Edition, 10th Edition. Thompson, A. & Strickland , J 2002, Strategic Management. 3rd ed. New York McGraw- Hill Read More