Hanson Strategy: the Buying of Companies - Essay Example

Introduction:
His strategy was a success and led to a revolution in management where he advocated for proper management in large companies.

The resource-based view strategy is a view that describes how a firm can use its resources to gain a competitive advantage over its rivals and as a result gain above-average earnings and returns, this strategy states that the firm has to first identify the potential resources that will lead to growth, the next step is to evaluate these resources on whether they are valuable, rare, the ability to control these resources and whether the resources can gain value in the future.

Hanson approach:
Chandler (1960) introduced the strategy and structure theory which stated that organizations were the agents of the industry, for this reason, therefore, the organizations determined industrial transformation, according to this theory the market mechanism is replaced by the enterprises which allocate resources and coordinate activities, in his view the invisible hand in the market is replaced by the visible hand of management.

This strategy also states that the organization moves from an unmanaged form of organization to a managed form of organization and for this reason, management becomes a source of power to the organization because management ensures continuous growth.

Hanson stated that his management skills could be applied to any industry in the economy, his growth strategy was based on a number of objectives and strategies which can be referred to as conglomerate strategy, he chose companies that were located in the US or in the UK. After acquiring these companies Hanson would reorganize the company to achieve high levels of earnings and the company would gain value, after the organization gained value he would sell the company at a higher price than he acquired it.

When the company was acquired he would undertake strategies that would oversee the growth of the organization, the growth of the organization was made possible by the use of management skills. He undertook strict financial management control and also asset management where he sold any resources that were not profitable in the organization. This sale of assets would ensure proper capital allocation in the company he had acquired.

His strategy was characterized by his ability to manage companies in a way that they would generate a surplus, the surplus would be used to pay dividends, and also for the purpose of acquiring new companies that were underperforming.

According to his strategy, there were some of the most important internal and external resources were very important in the growth of the companies he acquired, one of these resources was capital which he considered to be important in the company he pickets, he increased his capital through surpluses which in turn would enable him to purchase other companies. The other factor that was important to his success is labor, according to him the reduction in the number of laborers in companies would ensure a reduction in production cost which would increase competitive advantage. The other most important factor and resource was the existence of underperforming companies.

The strengths of Hanson’s strategy for growth include:

His strategy increased investors’ wealth through the increase in share prices; this was made possible by his ability to create a surplus.
The other strength is that his strategy involved the termination of business activities that were not profitable to the company he acquired.
His strategy also involved the acquisition of companies that were in different industries this showing that his strategies would be used in any industry in an economy.

However, his strategy has some weaknesses which include:
His strategies were based on short-term returns other than long-term returns. He ignored long-term benefits that would be realized continuously for a long period of time.
His strategy also has a weakness where Hanson would sell assets, this for example is evident where he purchased the imperial group in 1980 for 2.6 billion pounds and sold assets that amounted to 2.3 billion pounds.

Finally, Hanson was not concerned about the products he produced, he was not concerned about the quality of products and services he offered to the market and his only objective was to acquire profits from an underperforming business.