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MGMT508 The Wallace Group Case

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MGMT508 The Wallace Group Case

  1. 1. The Wallace Group<br />Ahmed Moussa<br />Aly El Sherei<br />Rehab Wahsh<br />
  2. 2. Outline<br />
  3. 3. COMPANY OVERVIEW<br />
  4. 4. The Road of Acquisitions<br />Product Diversification Initiative within the electronics industry to gain a foothold in the private markets via product development and line extensions.<br />Electronics<br />(Sole Proprietorship)<br />Total dependence on defense-related contracts<br />Plastics<br />(Sole Proprietorship)<br />Group<br />(Closed Corporation)<br />Chemicals<br />(Sole Proprietorship)<br />two-thirds business defense-dependent <br />40%<br />Investors<br />60%<br />HAL<br />Electronics Group<br />(Publicly Traded)<br />40%<br />Investors<br />45%<br />HAL<br />10%<br />IPO<br />5%<br />J.L.<br />Chairman & President<br />
  5. 5. Business Portfolio<br />Consolidated Sales = $70 mill<br />Chemicals Group<br />Electronics Group<br />29%<br />50%<br />21%<br />Plastics Group<br />Principal sales are to large contractors in governmental and automotive markets. <br />
  6. 6. ELECTRONICS<br />microelectronics, electromagnetic sensors, antennas, microwave, and minicomputers. <br />Engineering and manufacture of countermeasure equipment for aircrafts. <br />
  7. 7. “Developmental” PROGRAMS<br />Development of New Display Systems <br />Upgrading Existing Display Systems<br />Army Department Contracts<br />Minor Programs:<br />Army-LG <br />OBT-37<br />Defense Department Contracts<br />Major Programs<br />The Navy-A Program: Tactical Aircrafts<br />Air Force-B Program: Observation Aircrafts<br />
  8. 8. PLASTICS<br />Plastic components utilized by the electronics, automotive, planes, etc.<br />switches, knobs, keys, insulation materials, and other components used in the manufacture of electronic equipment<br /><ul><li>Manufacturing problems have forced the group to raise its prices.</li></li></ul><li>CHEMICALS<br /><ul><li>Supplies bulk chemicals to the Plastics Group and other companies.
  9. 9. These chemicals are then injected into molds or extruded to form a variety of finished products.
  10. 10. Manufacturing problems have forced the group to raise its prices.</li></li></ul><li>Vertical Integration & Profit Pool<br />
  11. 11. Corporate Level Management<br />Shareholder’s Cost - -><br />Does It Create or Destroy Value? Competitive Advantage?<br />
  12. 12. Stakeholders<br />
  13. 13. ISSUES & problems<br />
  14. 14. Chair – President Conflicts<br />
  15. 15. Risk and Diversification<br />© 2007 Thomson/South-Western. All rights reserved.<br />
  16. 16. WANT<br />Management Preferences<br />Individual<br />Strategic<br />Tension<br />NEED<br />Environment<br />Industry<br />CAN<br />Resource Capabilities<br />and Organization<br />Firm<br />The Strategic Analysis Triangle<br />Reach out into new markets wherever possible.<br />?<br />Competencies in the areas of microelectronics, electromagnetic sensors, antennas, microwave, and minicomputers. <br />
  17. 17. VISION?<br />Hal’s Mind<br />
  18. 18. MISSION?<br />Diversification?!<br />
  19. 19. GOALS & OBJECTIVES<br />“Despite our failure to achieve some objectives, …….” <br />
  20. 20. CORPORATE STRATEGY<br />Ad Hoc - Ineffective<br />
  21. 21. CORE VALUES<br />Conflicting<br />
  22. 22. Organizational Structure &<br />Corporate Culture<br />
  23. 23. Organizational Structure<br />
  24. 24. Corporate Culture<br />
  25. 25. BUSINESS PERFORMANCE<br />Financials, Ratios, Groups<br />
  26. 26. Business Performance: Financials<br />
  27. 27. Business Performance: Ratios<br />
  28. 28. Business Performance: Groups<br />Electronics<br />Accounts for 70% of group’s net income and 50% of groups revenues.<br />Small growth despite large potential.<br />Narrow Focus: countermeasure equipment for aircrafts for defense sector.<br />Customized systems business model.<br />Preference to supply from sister companies despite higher prices.<br />Plastics<br />Chemicals<br /><ul><li>25% of group’s net income
  29. 29. 28.6% of groups revenues
  30. 30. Small growth, while the market is expanding.
  31. 31. Serves multiple industries.
  32. 32. Make-to-Order business model.</li></ul>5% of group’s net income <br />21.4% of groups revenues<br />Main customer is the Plastics BU<br />A commodity.<br />Not profitable.<br />Many unresolved old problems.<br />
  33. 33. SWOT<br />
  34. 34. SWOT<br />S<br />
  35. 35. SWOT<br />W<br />
  36. 36. SWOT<br />O<br />
  37. 37. SWOT<br />T<br />
  38. 38. recommendations<br />
  39. 39. Corporate Governance<br />Separation of Ownership & Managerial Control (Modern Public Corporation)<br />Separate Risk-bearing from Decision-making<br />Response to Managerial Opportunism:<br />establish governance and control mechanisms to prevent managerial opportunism.<br />
  40. 40. Internal Governance Mechanisms<br /><ul><li>Ownership Concentration
  41. 41. “Large Block Shareholders”  greater probability that strategic decisions will be focused on maximizing shareholder’s wealth.
  42. 42. Minority Groups
  43. 43. Board of Directors
  44. 44. Representing the firm’s owners by monitoring top-level managers’ strategic decisions
  45. 45. Background Diversity and Independence
  46. 46. Auditing, Compensation, and Nomination Committees
  47. 47. Financial vs. Strategic Controls
  48. 48. Strengthening of Internal Management and Accounting Control Systems
  49. 49. Establishment and use of formal processes to evaluate the board’s performance
  50. 50. Creation of a “Lead Director” role
  51. 51. Director Election by Majority rather than by a Plurality
  52. 52. Executive Compensation
  53. 53. Use of salary, bonuses, and long-term incentives to align managers’ interests with shareholders’ interests</li></li></ul><li>Governance Costs<br />External Governance Mechanism<br />Market for Corporate Control<br /><ul><li>Becomes active when the firm’s internal controls fail
  54. 54. Takeover of the company if underperforming relative to industry rivals in order to improve the its firm’s strategic competitiveness</li></ul>Costly Takeover Defense Tactics<br />
  55. 55. Corporate Strategy<br />Goals<br />Value<br />Proposition<br />Product Market<br />Focus<br />CoreActivities<br />The goal should be:<br />Profit Maximization of the group as a whole.<br />Sustainability<br />
  56. 56. Management Preferences<br />Organization<br />Strategy<br />Environment<br />Resources<br />The Diamond-E Framework<br />
  57. 57. Corporate Strategy: BCG<br />
  58. 58. Corporate Strategy: Recommendation<br />
  59. 59. Business Strategy: Intensive Growth Matrix<br />
  60. 60.
  61. 61. Business Strategy: Recommendation<br />
  62. 62. Organization Recommendation<br />
  63. 63. Organization Recommendation<br />
  64. 64. Proposed Corporate Structure<br />
  65. 65. Proposed Electronics Group Structure<br />
  66. 66. Proposed Electronics Group Structure<br />
  67. 67. Proposed Plastics Group Structure<br />
  68. 68. implementation<br />
  69. 69. Questions<br />

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