Case Studies
Hunter Engineering Corporation in The Groups Version
Hunter's employs 4,000 people in 43 profit centres in 4 divisions selling engineering products all over the world. Its shares are quoted on the New York and London stock exchanges. Recently profits have been falling and a new Group CEO has formed a Planning Team to consider how to reinvigorate the Group.
Following the advice in their Argenti System for Groups the team consisted of the Group CEO and CFO, the Group Development Director and the four Divisional CEOs. The CFO also acted as Planning Facilitator. They began by immediately identifying the shareholders as the intended beneficiaries and "growth of EpS" as the sole top aim of the company. Again following the Argenti System, they looked back over the past few years to compare their performance with their two closest competitors and noted that, while their earnings had fallen from $95m five years ago to $89m today, their two competitors had risen from $111m to $149m and from $59m to $89m. Hunter"s share values had suffered even more. After extensive discussion with their financial advisers and others the team accepted the view that the new CEO, and possibly others, would probably be dismissed unless profit rose towards at least $100m by Year 3 while a target of around $160 in five years time would probably be considered satisfactory by the relevant financial communities.
The team drew up an optimistic and pessimistic forecast for the next five years and, on present strategies, profits would probably come out between $90m and $113m in three years time and between $97m and $140m in 5 years – some very unexciting figures. They suggested that the Group could miss the three year minimum target and would almost certainly not hit the satisfactory target for Year 5. The scale of their task was clear – they needed new strategies that would give an extra $12m earnings by year 3 and around $20m by Year 5.
The team was joined by another 20 of their senior colleagues from Group and the four divisions for the SWOT Workshop. Following closely The Argenti System procedures for this one-day event, a number of "strategic elephants" were quickly identified; the vigour of three of the divisions compared with the fourth one (The Steel Division) which no longer had a viable product, was one of these. The poor human relations in all four divisions of the Group was also notable. The recently appointed CFO distinguished himself by announcing that, in his view, the company could safely borrow an additional $100m if suitably profitable projects became available.
A set of strategies for Hunter"s appeared with considerable clarity in Stage 4. One conclusion was that Hunter"s should spend generously on the three thriving divisions. These divisions should each select what projects they wish to pursue and Group would then choose which would be adopted by ranking them in terms of Return on Investment. On the other hand the Steel Division should either be sold (yielding perhaps $50m), or renovated (costing $30m), or perhaps Hunter could buy a small competitor and pair it with Steel Division to make a viable unit (total cost $70m) or, finally, close it down (cost $5m). An exercise on these alternatives was to be initiated immediately. A Human Resources Director should be recruited with a view to improving morale, absenteeism, sickness and productivity generally.
The planning team began to draw up some of the Action Plans. It took only a brief discussion before the decision was made to sell the Steel Division, as opposed to the other alternatives. It was noted that Hunter"s would then become only a three-legged organization which would alter the Group"s risk profile. It would be important to check in Stage 5, which includes a formal Risk Analysis, that the proposed expansion of the three other divisions did not accidentally result in any further increase the risk profile of the Group.
New forecasts were made showing the effects of these new strategies and both the pessimistic forecast and the optimistic one showed that the targets would be handsomely exceeded – so much so that there was some scepticism among the top executives. This was reduced when they were invited to do the calculations themselves which produced much the same result. The Group planning team also suggested that each Division might like to start a strategic planning exercise to clarify some of strategies which, while of lesser significance than the plan at Group level, were of great importance to each division.
In accordance with the Argenti System process the Group planning team completed their task by drawing up a Monitoring System in which the five year forecasts were taken as a template for the earnings growth. The list of SWOTs was treated likewise – a list of trends and events that were to be expected over the next few years and upon which the validity of the strategies rested. If, at any time in the future, an event or trend appeared that was of major strategic significance, but was not in the forecast, then that would throw doubt on the validity of the strategies. In this changing world, sooner or later, such unpredicted events will occur and a new set of strategies may then be required.