Tagarchief: holding company

September 2000

September 2000

September 2000

Internet Strategy

The Internet

The internet, a new medium to use and to improve the efficacy and communication in a company. The internet can further be beneficial to reach customers and new prospects. The internet is a relatively new technology which gained in the last three years considerable attention and is predicted as the new revolution in the world, on par with the invention of the steammachine, the electric light and the combustion engine. The internet is and will do a lot of things and if it is of the same importance as other great inventions will have to be seen. The internet is a new technology with the ability to greatly improve the communication in the world. This is the major advantage of the internet. The internet will give everybody the opportunity to reach other parties with an unprecedented speed and if done right with great accuracy.

The difficulty with the internet, as with all new technologies / inventions, is what can the internet do actually for the world. This has to be discovered before any larger investments have been made in internet activities. As using the internet is certainly not cheap, larger investments in technology, people and marketing wil be necessary before the intenet will behave as expected.

For every new application a new vision and strategy will have to be developed. To develop the right internet strategy the next questions have to be answered. What do you want to reach and who are the customers / users of your internet site. These two answers decide which and what kind of technology and design is necessary to make a venture into the world of internet a success.

Strategy

The right strategy of your operation determines the success of your operation. Every move in the virtual world has to be focussed on the target group otherways the message you want to spread with your site will be lost in the ocean of information now available on the internet.

The strategy will determine what, when, how and how to implement the advantages of the internet. Strategy is essentially how to manage the resources in a company and how to anticipate on future developments and demands.

The internet strategy is dependent on what is your objective and who is targeted. The objective might be to inform your customers or your staff about the products and ventures of your company. Something like a brochure of your products or to inform your staff about company policies and new projects and/or targets which have to be reached. The internet will be in this situation like an information channel which can be active or passive. Just what is demanded by the management. Or finally the internet as a division / part of the company. The company will in this case offer the internet related services to the market and earn something through the services delivered and the value of the internet as a business and investment opportunity

The internet as information site for customers

The most commonly used way of the internet is like a medium to inform people about the company. The internet was originally designed as a communication system to improve the communication between actors. The internet was therefore at first mostly used by a company as a kind of product brochure. Companies gave and give a presentation of the company, the products and how to reach the company, e.g. the sales department. As the internet is available to large groups of people it is an efficient and relatively cheap marketing instrument.

The target of this kind of site are the existing customers, to give them an up to date view of the company, and to attract new customers who are looking for products offered by the company. The potential customers can be directed to the company’s site by conventional marketing campains or by a premium treatment of the search machines who can direct people to particular sites.

An internet site can also be used to publish financial, sales and product information of a company. This will give all investors the equal opportunity to get informed about the company and avoid of being accused of treating some groups of investors better as the general public.

The internet as comunication channel within a company

The second and increasingly used method of the internet is like a LAN or WAN, respectively a Local Area Network or Wide Area Network. Especially larger companies can use the internet as a communication medium to improve the communication within a company. All employees in a company can create new relationships with people in a different divison in another town or continent for that matter through the use of a LAN of WAN. The quality of such a realtionship can be equal if they would be working door to door.

The LAN or WAN can be used to transfer information/data to all people working in a company or there can be an active exchange of information and ideas between several departments. It is possible to have several Research and Development departments on different continents to work together. New and better products can be developed by the combined power of the R+D departments of a company.

Who is receiving what information and who is allowed into what databank can be perfectly be controlled and arranged. Protocols and passwords can be used allow people into a file or allow them to look into the computer, hard disk, of fellow project members.

The internet as buying and selling instrument

The internet as mentioned before can be perfectly used as an instrument to improve the efficacy of the procurement and sales departments. The procurement of products can be handled by the internet, it will give suppliers the opportunity to know what is wanted when and at what price. This will give them the opportunity to offer the right product at the right price and at a predictable delivery schedule. Another advantage of internet procurement or sales is that the suppliers and buyers can combine the supply and demand therefore they will be able to generate a larger order andthey will be able to get a better price.

The sales department can also achieve big improvements by an internet sales channel. The service to customers can be improved and potential new customers can be reached more freely and more open by the use of the internet.

But again your objective should be clear, what do you want to sell and what are your objectives about selling the product. What place do you want to occupy in the market. There are roughly three types, the seller’s market, the buyer’s market and the neutral market.

The seller’s market is dominated by the seller, the company can use its advantages it normally enjoys in the real market to his benefit. Product information, price, quality and delivery can be decided by the seller. The internet site has only to be practical and beneficial to the seller. The information on the site is written and edited by the producer/seller. The real story might be somewhat different from what can be seen on the site. The site is an extension of the company and very often found by companies who have a direct seals channnel.

The buyer’s market is different as the buyer is like in the real world having an advantage over the seller. The buyer can choose between several products. Product information, price, quality, service and quick delivery will become important. The internet site has to be practical for the buyer, easy to use and inviting to come again.

This will mean an advanced very good looking site. The site has to be interactive to fulfil all needs and wishes of the buyer and it has to remember preferences of the buyer. Most buyers like it to be treated specially and be taken immediately to the part of the site which interests them most. The information on the site is much closer to the truth as the buyer is able to influence the site, he can even write his own recommendation about a product without any interference of the seller/producer. This site is closer to the customer as he needs to be treated with care. This kind of site is often found at a reseller’s site, this site just wants to sell a product and as he has more products on sale it is not that important what product is sold as long as a product is sold.

The neutral market is the most difficult. Nor buyers nor sellers are able to dominate the market. This will mean that the site has to be convincing and practical but with not the same level of service as the buyer’s market. The site will however be very fair about the products as it is not allied to a certain producer nor a customer. The disadvantage of a neutral site is that not always the best products and prices are available nor will they become available on the short term as it is not seen as the task of the site to improve the product. This kind of site will be mostly found at sites of government, consumer advisory organisations or at the sites of large multi-product sales companies.

The internet operation in a company

The internet is not only beneficial to a company to exchange information or to sell products but it can also generate additional capital for a company. The question here is what to do with the new internet division. Essentially the internet operation is a new part of the company which will most likely have outgrown its origin, just as an addition to the sales and marketing departments, and will need very often more capital than the company is able or willing to finance with company resources.

There are three options to play the internet. The internet operation as an independent company, as a joint venture or as a consolidated division.

The parts of the company responsible for the internet operations, design, management, sales and procurement, will be taken together, in sofar they are not already belonging to the same department, and will be set up as an entity of its own. The indepence of the entity will have to be decided considering the position of the company in general.

As mentioned before the new entity can be constructed as an independent company with only a minority ownership wich will be rendering services to the former holding company. As a joint venture, the new entity is only partly owned and managed by the holding company. It will be very often merged with another internetcompany which has some services/skills on offer which previously were not present in the company. The joint venture will remain a big supplier to the former holding company. Or finally the internet entity remains a part of the holding company as a consolidated division. The consolidated division will be under direct control of the company’s management and directly delivering a share to the company’s balance sheet. Where as the other two options wil only be listed as a participation and only become visible if there are any profits.

All have their advantages, an independent company is the less risky and will if the IPO, Initial Public Offering, is done properly the most beneficial as it will generate a lot of immediate available capital and value for the holding company.

The joint venture has its own advantages as the risks will be controllable as any losses will not drain the profits of the former holding company, if a service can not be delivered you are free to look somewhere else, new technologies can be incorporated and finally it is still able to deliver a nice return.

The consolidated division is the most controllable, the activities can be focussed on the holding company but it can be the most expensive in regard of the investments and will deliver a lower return on investments as it is closely connected to the holding company, it willhave however lesser sales opportunities and there will not be any high return as the entity will remain part of the holding company.

All have their advantages and disadvantages, it will depend on the holding company which alternative to choose. The most important factor to the decision is in what business you are and what are the immediate needs and expectations of the holding company. For example if the internet activities have become an important part of your sales system, it is profitable, or will be on the short term, and if the company is not in a desparate need for capital, the internet activities can be best kept as a consolidated division. But if certain technologies are needed and the company does not have the skills to develop it in house and/or the financial position is weak, a joint venture would be the best choice. And finally if the internet activities are considered as a nice to have and are not an important part, or better non-replacable part, of the company and the holding company is in need of capital or wants to improve its figures and the internet activities are large enough the spin off of the internet activities in an independent company would be the best choice.

The decision about how and when to use the internet is of strategic importance for a company. It is necessary to have some kind of internet application for every company but every company does not need an advanced internet site or a fully utilized internet department, this all will depend on the specific situation of every individual company. It is however necessary to be aware of the situation and what is possible as some kind of internet stragegy, game plan, is unavoidable.

Standaard
September 1999

September 1999

September 1999

A note on business management

Every manager which is busy with running a company has to do his or her routine tasks and has to solve several problems and sometimes more importantly problems still to come. Managing is dealing with the present and anticipating on the future at least if you are Schumpeter’s kind of entrepreneur business man or woman.

To assist you in succesfully executing the manager’s job here some ideas and inroads which could be supportive to your company.

Contrary to common belief running a company in booming times is just as difficult, sometimes even more difficult, than in depressing times and markets. Where as in a depression the most important goal is to improve the revenues and cut costs in a booming period it will be maintaining the growth. As most people and companies experienced coming somewhere, like be number one in your sector, is relatively easy but stay up there and still improve is the difficult part of the game.

Managing success is the name of the game and it will demand all skills available to do so. All parts of the company have to be brought in line with this goal and participate to maintain and improve the numbers and products or services which are responsible for the success.

Managing success

A large number of companies, especially in the tech sector, have become very succesful. From virtually nothing they moved themselves into the top league of the business community. Large revenues, high growth and a seemingless never ending demand created companies with a lagging infra-structure which is threatening future growth and the health of the company. But not only the upstarts have this problem also the mid and large size corporations will and have experienced the same kind of problems. Namely inadequate company structures and hierarchies have and will undermine new and very often profitable operations which have been initiated to keep the holding company in the group of high performance companies.

The prime responsible for the position of the company is the management. They have to maintain the current position, seizing opportunities and avoid threats which may damage the performance of the company. A good strategy and a superior implementation of the, tactical, workplan should make it possible to achieve the goals which are stated in the business forecasts.

There are four areas which are very important and necessary to manage success. The management team has to carefully adress or bring the next four important areas in order to avoid the chaos of an inadequate business structure. The areas responsible for the growth and stability of the company are people, systems and organisation, products and services and control, finances.

You can read more about business management, productmanagement, communications and procurement in our reports from May 1998, September 1998 and November 1998.

People

The management of people have become a major issue in booming industries and the very often connected tight labor markets. Without the right people it will prove to be very difficult to maintain a given situation, not to speak about any improvement.

The value of the human resources department has become more important because the retention and the attraction of the right people has become increasingly difficult. It is not enough to offer an attractive pay package and perks but other elements like the working environment, development opportunities and the corporate culture are just as important than the bank account.

Not only the all important creative research, development and design people should be included in the people management but also the sales, production and supportive workforce should be included. The second group of workers might be a little easier to replace but a proper work environment and the corporate identity can never be established if the company is a two track enterprise.

A correct people management is the first condition to maintain and improve the position of the company. And after the good payment package, the above mentioned corporate culture, development opportunities and working environment will stimulate the people to do their utmost to protect and support the company.

Corporate culture

A good corporate culture is not only beneficial in the sales and marketing but it will bind the people, the workforce, to the company. An intimate bound has to be created between the company and its people. They all need and want to belong to belong to the company and need to be proud on their company. To be proud they have to know and be able to identify themselves with the mission, doctrine, of the company. For example we make live easier for the people and we connect the world kind of fundamental ideas.

Development opportunities

The development opportunities will keep the workforce sharp, up to date and committed to the company. The development opportunities do not only mean promotion in the hierarchy but also opportunities to increase their knowledge and skills. This can be done by learning and exchange programmes but also by sabbaticals. As better educated and open minded people will be more flexible and useable but also more willing to explore new ground and opportunities and go the extra mile if it is beneficial for the company.

Working environment

A good working environment is responsible for that the people working in a company get the feel good feeling. If they feel comfortable they will be working harder, will make lesser mistakes and will report the rare mistakes and other possible problems easier and faster so that they can be corrected. A proper working environment can be created by a work or better people friendly workplace, good relations between the people working together to stimulate cooperation and discussion and finally to recognize and reward the achievements of the people working for the company.

Systems and organisation

Systems and organisation in a company are the elements responsible for the execution and the infra-structure. All organisations need good equipment and a proper infra-structure to stay competitive and profitable. If the equipment is not attractive and uncapable the workforce will get dissatisfied as they will loose the confidence in the company and the products they develop / manufacture / sell and it will undermine the company as the current product(s) will very soon be outdated and unsaleable. If the infra-structure of a company is inflexible and rigid it will undermine the adaptablility of the company to use opportunities, for example new products or production methods, and therefore it will raise costs and limit profits on the medium to long term.

A large number of companies have been drawn into the trap of outdated systems and an outmoded infra-structure. The success a company had with a given product or service could have made the management very averse of any change as this would increase the costs and decrease the profits on the short time, change the comfortable structure they know and like and everything is, in their perception, so nice and good.

To succesfully manage a company it demands that the management is open to new ideas and stimulates change to avoid the inertia of relying to much upon a given situation. Opportunities into new products, production methods and advanced research, control and office equipment should be explored and if useful be implemented to stay ahead of the competition.

Organisation

The infra-structure should be open to change. Rigid hierarchies and large complex structures should be avoided as new products and technologies demand a different approach than the old style factories. Small modular business units should be created with their own management structure and responsibilities to stimulate development, optimise production, improve customer relations, control costs, and nurture the internal relations to avoid the ivory tower syndrome of the management.

An additional advantage of a flexible and open organisation is that new ideas will be embraced more easily and effectivily. New or modified products and production methods can be brought forward and by a simulation tested on success or applicability.

The benefits of a proper infra-structure can be summarized as that it creates a good working environment, improves the communication between the workforce and the several departments in a company, stimulates new ideas and optimises development, production and sales.

Systems

The above mentioned open and flexible organisation is a pre-condition to the use of the most advanced and cost effective sytems available. The systems are necessary to improve research, production and the sales and marketing activities. Without being consequently at the forefront of development, outdated equipment will increase costs, minimize profits, destroy opportunities which could be realised and it dispels the workforce and more importantly in the end the customers. And it will be much more difficult to make up a structural shortcoming then continue to swim in the main stream.

The advantages of an advanced systems company are that the systems, office, reseach and production equipment, are needed to keep the work force up to date, interested in the company and the products, stimulate new developments, improve the relations in a company and communication with the customers and ofcourse have advanced cost effective production facilities.

Products and services

The need to have an attractive product package, might it been an actual product or a service rendered, and an effective services department is essential for a company to beat the competition. A lapse in one of both or in both elements will have a dramatic effect on the bottom line.

Product management

The product package should be regularly evaluated, updated and renewed, if necessary into new sectors, to remain a competitive company. A system of product cycles should be introduced to forego any attempt to be sticked to certain product. The product should not outlive its useability or desireability. Improved or new products should be introduced timely to keep the customer, market, satisfied and to remain, as a company, competitive.

Customer relations

In a customer focused market it is of the utmost importance to keep the customer satisfied, the customer is king and should be treated accordingly. The after sales service should belong to the important departments of a company. The services department will be in close contact with the customers and they can find out what is wanted and expected now and in the future. This knowledge is very important to the present product package but even more important to future developments. The efficacy of the services department is responsible for the return of the customer if a new acquisition will have to be made. Consequently complaints should be dealt with immediately, or at least in the shortest possible time, as most customers rely on the products to work. If a customer is satisfied he will be more likely to return.

Conclusion

An attractive product package and an efficient services department, customer relations, are the key, at least external, to remain a succesful company. As the customer will hold those two responsible for their satisfaction and this will translate to the bottom line of the company.

Control

The last area with should be handled with great care is control, or better the financial aspects, of the company. The need to properly manage people, update systems and organisation and innovate products and services should be guided by the financial sense of every important decision. But always remember to much control, risk aversion, is as worse as to little control, a va banque game. A balanced company is using financial control as a supportive instrument not to simply killing off new developments.

A well managed company with several business units which operate semi-autonomous under their own management have the option to explore opportunities with new products and production methods. The semi-independent unit can open up new markets and achieve results beneficial to the whole group. The holding company in turn has to implement an advanced financial control system for all units operating under their aegis to exploit opportunities and avoid threats, or simpler stated to control costs and maximise profits.

The company should also implement a company wide bookkeeping, enterprise resource planning, ERP, system. The business units should have their own ERP system but this should be coupled to the main system of the holding company, also semi-integrated into the group just like the management of the business unit.

An unified financial control system does not only demand the same kind and level of hardware and software but also identical ratio’s. The ratio’s should be tailored to the specific situation of the company. Derivatives of the Net Present Value, Return on Investment, Cost-Benefit, Cost-Performance and Activity Based Costing ratio’s should be used to create a common understanding within the group. Decisions can be made afterwards based on not only on strategic policy but also on fundamental research thus easier acceptable and supportable for all concerning parties.

An unified control system will give each unit the opportunity to work with their own budget and at the same time receive financial support from the holding company. As the holding company is at all times fully aware of the activities and possible shortcomings of the business units. The holding company is also able to collect the necessary information to properly run the company and inform the public and the shareholders about the present situation.

Finally with an unified control system all can be treated equally, cost-benefits can be estimated and can be kept under control and mutual experiences can be shared. If an unit experiences some financial difficulties with a certain project it can be compared with other projects and the correct action can be undertaken.

The main function of the holding company will be financial control to assure that projects succeed and that the same standards and methods will be used. If they succeed to implement this kind of system progress and improved business results will be achieveable.

Standaard
September 1997

September 1997

September 1997

Sense and nonsense about diversification – The market in volatility

Sense and nonsense about diversification

Diversification, the policy of companies to move in areas which do not belong to their core or traditional activities. Most of the larger and successfull companies in the western hemisphere at some time tried to diminish their dependency on their traditional activities and increase their sales and profits by buying into or start on their own capabilities in new very promising markets.

In Asia a number of companies started as diversified companies and they became very succesfull in their operations. These conglomerates are active in numerous fields ranging from financing to steelmills and electronics.

What is the right or better policy to pursue, concentrate on the core activities of your company as most business consultants will tell you or diversify or stay diversified as some especially Asian companies do.

The western experience

The activities of companies in the western hemisphere were mostly limited to the fields in which they started. Only if the company was successfull they started to move in to other businesses. Those businesses where in the first time mostly related to their original activities.

The move into other areas was out of a surplus of cash which needed to be invested and the success some new trades, like technology, had shown which was very attractive to an investor.

Only a few companies started as a conglomerate, mostly they where involved in the trading business or put together through acquisitions of an investment house.

The basic idea behind the conglomerate was that the different divisions of the holding could support eachother. The element of synergy should deliver a better and more profitable company. And being involved in more than one business means being less dependent on the well being of that particular business.

The results of those conglomerates were mostly disappointing. Some divisions did very well but the profits of these were used to cover the losses of the loss making divisions. After some time the decision was taken to sell or close down the loss making or worser perfoming divisions and return to the core activities.

A number of respectable companies followed this path like Exxon, AT&T and Daimler Benz. They all tried to move into areas which were new to them. After some time they have sold those divisions which did not deliver what was expected.

The synergy did not produce better results, the divisions could not work together, the costs were going up every month or the divisions were inadequately managed to deliver the return which was expected.

And these four elements are the main problem why diversification did not bring the expected advantages. Synergy is only working if the elements which should work together can do something for eachother. If this is not the case, there is no reason to combine them.

To make diversification effective and create synergy the different divisions should be able to work together. But the divisions mostly have a different business climate and hierarchy. A particular climate and hierarchy can be very succesfull for one business but could be absolutely disastrous in another business. The management team of the holding company should consider this and create and stimulate a system which is best for each business but at the same time be the impartial broker to induce cooperation between the divisions.

If you enter a new business the start up costs can be high and the returns in the first years can be disappointing. These high cost and low returns combined by a incapable system of cost control will make diversification look like a horror trip. Some knowledge and financial stamina is therefore necessary to enter a new business. The new operation should be like a chrystal ball to control the financial situation. At every moment the holding company should be able to evaluate and question the policy of the management but at the same time give them enough space to run the operation.

The management of the holding company and the divisions is equally important to make a conglomerate work. The holding company should support the management of the divisions. They are the specialists and know what is needed to make a certain operation successfull. To much meddling of the holding company will destroy the creativity and profitability of the division. The management of the division should on the first place improve the position of the division and only after that look what it can do for the group or holding.

The conglomerate is not a grouping in which one part is saving the other part but a business concept were one division maybe helping the other division. Each division stays responsible to deliver sales and profits and at the end create a financially strong and independent holding company.

Most of the multinationals in the West considered their diversification plans as a way to support the core activities and become more independent from one business. They were not able or willing to accept the idea that diversification would change the business structure of the company. The management did not behave as the management of a holding company should do. The intrests of the core activities were still the center of there attention.

Only a few companies became successfull conglomerates. A company like General Electric behaves as a good holding company. Another example is General Motors which had a bad start because they wanted to use the capabilities of new acquired companies to support their main car business but later changed their policy after some big disappointments. GM let companies like EDS and Hughes manage themselves with little interference of the GM management and consequently they became very profitable operations.

Conglomerates in Asia

The rise of the Asian economies is based on the performance of a number of large conglomerates in each of the tiger economies. Everybody knows them; Mitsubihi, Matsushita, Mitsui, Hyundai, Samsung, etc. These large companies were build with the help of the goverments in each of these countries. The goverments furnaced them capital, a protected home market and support inresearch and legislation.

The conglomerates operate in nearly sectors of the economy. They have chemical, electronic, steel mills and processing, services, financing companies.

The wide spread of operations where for one part a necessity and one part wanted. It was necessary because all those companies started in relatively backward economies they had to take care that all parts which were needed for the production had to come together at the right time. The only way to do that was to start and operate so many companies themselves.

It was a wanted development because the goverments of those countries sensed that if they wanted to promote the economic development, the economy had to be supported as efficient as possible. To support only a few companies would bring the highest returns and the fastest economical development.

Most of these heavily diversified companies proved to be efficient and successfull. Even when these economies and companies belong now to the developed world the performance of most of those conglomerates did not loose their dynamics and profitability.

The diversified company has proved to be a successfull concept in Asia. The conglomerates could develop itself into global players and the national economies could get out of the misery which was effectively left behind after the second world war.

The conglomerate?

After considering the western and eastern conglomerate it can be stated that a pro or contra is not possible. In the West a conglomerate can be successfull if the conditions are right and the rules as mentioned above are implemented. The return to core activities is easy and profitable but to become or stay a conglomerate can be as profitable and will promise an even brighter future. But the companies in the holding should be in the best case complemental/supplemental, independent, have the appropriate management and the support of the holding company.

In Asia the conglomerate was a necessary and wanted developement to promote the the economical development. But even now the conglomerate is still an efficient and profitable company.

The conglomerate will be in existence in the future and probably with better results on the long term but it is more difficult to manage.

The market in volatility

The Western stock markets showed there volatile behaviour in the last two weeks of August. The markets reached their best marks but also had two corrections. But the market could nearly regain their former position before turning down again.

The US stock market was under the influence of a bad bond market, threats of inflation and computer sell programs. At the same time many investors became nervous about the large caps and started to rotate their holdings into mid and small cap stocks.

The mid and small cap stocks had shown an impressive performance in the last three months. Where as the S&P 500 had a return of 6 % the Russel 2000 showed a healthy 12 %. The situation seems the same as a year ago when the nifty fifty of the Dow became appearently exhausted, the small cap stocks were the one which promised the bigger growth.

It is therefore not a bad policy to look into the stocks of the Russel 2000 to spread the risk in your portfolio. But on the long term, three to five years, the Russel 2000 will not be able to outperform the Dow.

The big players of the Dow could be less performing in the second part of the year but there are still a lot of companies with low P/E ratio which still offer some growth. You could think about Salomon Brothers, NCR, ITT industries and Rowan companies.

The correction of these weeks will not last forever, the economic forecasts are simply to good to make the correction lasting to long. But however do not expect the same impressive growth as in the first half of the year. At the end of the year we expect the Dow at around 8000.

It is however possible to increase your stock holdings, in that case we favour the above mentioned stocks with a low P/E ratio and a number of the stocks we mentioned in our last update.

The volatility will however continue to harass the stock market with even a larger correction, possibly around October, but do not get exited about that, the losses will be recovered within a month. If you want to be on the safe side you could however hedge your holdings but only if you are in need of money in the last quarter of the year. Otherways it is only a waste of money.

Standaard