Strategy error by Kraft?
Kraft foods finally won control of Cadbury with a big £11.9 billion ($19.4b) offer. Warren Buffet, owner of 9% of Kraft, says it’s a bad deal – and he’s rarely wrong. Will Kraft do the usual and try to extract ’synergies’ by slashing costs, or deliver real value by leveraging the combined resources to drive medium- to long-term growth in cash flows? … and will analysts allow them to do it right?
Great M&A opportunities
Can’t always tell if some insight has subtle power or is just stating the blindingly obvious? Me neither. BCG says Seize M&A opportunities while they last and presents the usual financial ratio research to prove that acquisitions in a downturn generate better returns than those made in the upturn.
Why is this surprising – when targets’ values in the upturn will inevitably reflect the underlying growth, to which an acquiror has to add for the deal to generate value? Still, even if obvious, the point is not wrong – or am I missing something?
More important is that an acquisition can safely offer a solid, deliverable route to enhance sustained long-term growth in free cash-flow – which rarely gets captured in these kinds of short- to medium-term assessments of M&A performance in any case. That’s a task for strategic management, not wheeler-dealing.
eBay/Skype split
Sad to see the ill-fated marriage of eBay and Skype end in divorce. Though it’s more fun to celebrate strategy triumphs, disasters can offer important lessons too. An Economist article focuses on the sale itself and worries about eBay’s prospects, but doesn’t assess why the original strategy didn’t work. At its most basic, it was a common issue – over-optimism about how business A customers would form a strong and easily-captured potential customer-base for business B. [I made the same mistake myself in the past!] Take a look at eBay’s presentation of the rationale offered at the time of the orginal acquisition – it’s scarily thin on any analytical justification for the hoped-for benefits. Investors should expect better.
Aims – growth, survival …
I made a strong case in a previous post that strategy research should have been asking how strong firms grow cash flows, not deliver profit ratios. I had two main push-backs – 1. is growth relevant in present conditions? – 2. survival is really all that matters. Read more
How firms are coping
Mixed news from a recent S+B survey of execs. 75% say they do not need extra financial support – as I suspected – though that may change of course. More worrying is that most seem not to be taking the correct actions, given their specific situations. Read more
Good & bad downturn advice
I have commented on some of the consultants’ and journals’ advice in earlier posts, so thought I would share what some senior execs think who I’ve been asking in recent events. Here’s just a few … Read more
Profiting from the downturn – e.g. airlines
Nice example of what looks like a strategically sound business [Lufthansa] pouncing on valuable resources shaken loose when a feeble competitor [Alitalia] stumbles. The Economist reports they will be offering new services to eight other European cities from under-served Milan. Read more
Another couple of gems from SMS
Another really insightful piece – unpublished as yet … Feldstad, Gao and Burkay of BI Norwegian School of Management on how come Google and eBay – mega powerful global players in their sectors – both got killed by local rivals in China [in eBay's case, in spite of acquiring a strong local player]? In both cases, it seems, they got the ‘value network model’ wrong - well worth a visit to www.alibaba.com who saw off eBay. Here’s a summary, which will feature in 2nd edition of Strategic Management Dynamics:
Smart airline strategy for the melt-down
Seeing the sector is anticipated to lose $5bn this year, and more in 09, who managed strategy well over the last 5 years? .. which of course would include anticipating and planning for the inevitable down-turn? Competent strategic management for most firms would imply Read more
Managing through the downturn
Downturns provide opportunities as well as challenges, assuming of course you are going into the dip in reasonable shape. I see a few good tips from McKinsey, specifically on acquisition and pricing plus some particular advice for retailers.