Grasps should look to focus more n the businesses which are its cash-cow rather than focusing on everything. From the case we see that Grasps has a market share of 20% in cement market and 22. 5% in apparel market. While 1 1% in others.
So Barilla Group can actually opt Out Of these markets so as to focus more on cement and VS.. This will also decrease the pressure on the management and will help them unlock conglomerate discount.
Hinsdale Hinsdale was founded in 1 962 mainly as an aluminum and copper producer. From the case we see that neither the copper nor the aluminum market is doing that well.Increased operational costs, environmental issues and heritage of sufficient power are the major issues that the company faces. To tackle the power issue the company can actually make use of the in house production that they have set in for Grasps. Also they can outsource some of the production to countries where the availability of raw material is there as well as the costs are cheaper.
In order to make the operations optimal Barilla Group needs a more focused approach in this company and have to invest in R&D to build tech oenology that could optimize and reduce the costs.Ditty Barilla Novo ABA Novo is another company that was 1 SST established basically as a textile manufacturer. It then diversified itself into many other sectors.
It currently ventures into Financial services, Telecoms, IT, Textiles, Rayon, Carbon Black, Fertilizers, Insulators & Garments. Focus businesses perform better than conglomerates. ABA Novo is a company that is too much diversified.
It needs to bring on its focus on certain profitable businesses. There are many businesses which are focused on certain sectors and they tend to perform better than conglomerates.For e. G.
Reliance Capital which is an individual company under Reliance Industries has a much bigger market share than ABA Novo. This can be attributed to the fact that Reliance Capital due to its better focus is able to perform better. Also when the focus is more on one particular segment the growth prospects are much better. Right now for ABA Novo the cash might not be a problem but it is the growth that actually matters. So the Barilla Group should look to opt 1 .
Get out Of unprofitable businesses. 2. Build in-house capabilities. 3.
Outsource costly processes. 4.Adopt focused approach 5. Look for growth in the focused business segments. In which industries should the Barilla Group focus? Identify by sector, geography and growth/income.
Following are the industries the Barilla Group should focus on 1 . Financial Services and Insurance Sector- This is one market sector that has huge amount of growth opportunities. As in 2007 1 50 million people are covered by insurance whereas 450 million people are actually present in the market. This is also expected to grow to 600 million whereas the insured customer base is expected to grow to 400 million.Also from the financial we see that the insurance turnover for the company is the largest and is showing an increasing trend for the past 5 years. Even though the company is showing losses but due to the growth prospects the company would be able to perform better and recover the losses.
The company needs a more focused approach in this particular sector so as to perform better. 2. Telecoms- Another sector that Barilla Group should focus upon is the telecoms sector. This is another sector with immense growth opportunities. Idea Cellular also right from its inception has performed reasonably well.Its acquisition with Spice communications has also added new states to its armory. Even though Idea has licenses to operate in 22 dates it is currently operating in only 14.
Also from the financial we see that Telecoms is also one of the major sector which has a great amount of turnover and profit as well. For these reasons we feel that telecoms should be given more focus. 3.
Cement-Another industry that Barilla must focus on is the cement industry. The reason for that could be attributed to the fact that the per capita consumption of cement is growing at an exceptional rate.Also the price of the cement is on a rise. This means that the market is very favorable for cement manufacturers as both demand and price are on a rise.
The prospects are also bright for Burial’s Grasps which in 2009 was ranked 9th globally in capacity. Its market share is 20% 2nd to Holmic – 22. 5%. 4. Aluminum-The other industry we would like Barilla to focus on is the Aluminum industry. This is because Hinsdale -Burial’s company- was actually Indian’s largest and most vertically integrated aluminum producer. It has a competitive advantage in costs. Expansions have led to increased costs.
More focus on this regard can actually bring back the company to its past days. Even shortage of power, production facilities and all such issues also require ore keen attention. 3. Is it possible for a conglomerate to become too diversified? Diversification is a form of growth strategy. Growth strategies involve a significant increase in performance objectives (usually sales or market share) beyond past levels of performance.
Many organizations pursue one or more types of growth strategies. One of the primary reasons is the view held by many investors and executives that “bigger is better. Growth in sales is often used as a measure of performance.
Even if profits remain stable or decline, an increase in sales satisfies many people. The assumption is often made that if sales increase, profits will eventually follow. Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its current line of business. One of the most common reasons for pursuing a conglomerate growth strategy is that opportunities in a firm’s current line of business are limited. Finding an attractive investment opportunity requires the firm to consider alternatives in other types of business.Firms may also pursue a conglomerate diversification strategy as a means of increasing the firm’s growth rate. Growth in sales may aka the company more attractive to investors. Growth may also increase the power and prestige of the firm’s executives.
Conglomerate growth may be effective if the new area has growth opportunities greater than those available in the existing line of business. Probably the biggest disadvantage of a conglomerate diversification strategy is the increase in administrative problems associated with operating unrelated businesses.Managers from different divisions may have different backgrounds and may be unable to work together effectively. Competition between strategic business units for sources may entail shifting resources away from one division to another. Such a move may create rivalry and administrative problems between the units. Caution must also be exercised in entering businesses with seemingly promising opportunities, especially if the management team lacks experience or skill in the new line of business.Without some knowledge of the new industry, a firm may be unable to accurately evaluate the industry’s potential. Even if the new business is initially successful, problems will eventually occur.
Executives from the conglomerate will have to become involved in the operations of the new enterprise at some point. Without adequate experience or skills (Management Synergy) the new business may become a poor performer. Without some form of strategic fit, the combined performance of the individual units will probably not exceed the performance of the units operating independently.
In fact, combined performance may deteriorate because of controls placed on the individual units by the parent conglomerate. Decision-making may become slower due to longer review periods and complicated reporting systems. 5.
Are the group’s recent organizational changes appropriate? The changes that K. M. Barilla made in the Barilla Group were: 1. Retirement policy He introduced a retirement policy in 1 995,on the basis of which around 325 senior employees, who were there early ass,had quit the organization in the next five years . Subsequently about 400 young employees replaced them. 2.Corporate logo In 1 996,he launched for the first time a corporate identity that would serve a corporate logo. The group selected the rising sun as the logo, which signified optimism and served as a unification symbol for the group.
3. Recruitment process K. M. Barilla also changed the group’s policy in house recruitment. In 1 996,he also made changes in group’s HER system. He hired professionals from other companies into his management team 4.
Change in decision making The part system of daily financial reporting which focused mainly on production Was replaced with an ” Economic value added model”.This model focuses on the aspects of profitability, asset productivity and growth. K. M. Barilla also established ditty barilla management corporation limited, the strategic decision making for ensuring the best practices across the group companies. K.
M. Barilla decided to reduce the group’s dependence on fiber eased business where its market share was low. Instead he decided to concentrate on non-ferrous metals as there was less competition and Hinsdale already had a big presence in the aluminum sector 5. 360 degree appraisal K. M.Barilla introduced a 360 degree feedback program in 1 999 that permitted managers to raise questions over his leadership style, managerial ability and also personal traits but he could not define what he expected from his employees. After the feedback, he issued each senior manager a six page letter mentioning the areas of improvement and his expectations.
6. Scholarships to students and Awards to employees In 1 999 K. M. Barilla launched the ditty barilla scholarship to promote excellence among students community to cultivate the leaders of tomorrow.He also launched Ditty Barilla awards in 1 999 where team achievements recognized every year . 7. Happiness at work Barilla had also implemented the organizational health survey by the late sass, which measured the “Happiness at work” index. This was carried out track the employees satisfaction.
8. Hierarchy based on performance of employees K. M. Barilla also brought in some managerial changes in the group. Before K.
M. Barilla took the chairmanship, the hierarchy in the group was determined by seniority instead of merit. He instituted a performance appraisal system.
He decided to implement performance management systems, reviewed compensations and accentuated on training to bring meritocracy. He personally led the recruitment program from business schools. 9. Changes in reporting He also brought about changes in reporting system being followed at the group. The top 20 executives of the group, who had greater responsibilities in the group, could report directly to K. M. Iberia, thereby giving them complete redeem to run their businesses and same holding the more accountable for their performance.But, despite remaining profitable, the company’s growth has been slower as compared to its peers in the recent past.
It has been reflected in the stock market where its market capitalization of INNER,OHO scores is less than its total turnover . Also, he is not focused on shareholders. He should focus on shareholders by giving dividends and more benefits. 4. Does diversification create value for the Barilla group in India? How different is diversification likely to be valued globally? For corporate diversification to be economically valuable, two conditions must hold.Firstly, there must be some valuable economy of scope among the multiple businesses in which a firm is operating. Secondly, it must be less costly for managers in a firm to realize these economies of scope than for outside equity holders on their own.
If we focus on the value which the diversification has created for the Barilla group in India we find companies like Idea cellular in telecoms sector, Modular Garments acquired by ABA novo, Jay Share Textiles under the brand linen, Indian Rayon, Barilla Carbon, Indo Gulf redelivers, Ditty Barilla Insulators the largest producer of the insulators in India and SSI data systems.The Barilla Group was primarily structured into three companies I. E. Grasps Industries, Hinsdale Industries and ABA Novo. The cement industry represented by ultra tech cements and various other industries have flourished under Kumar Barilla. The decisions to diversify has given Barilla Group a very good leverage in all the fields.
Diversification is reducing the risk associated with the business as there is intense competition from the rival Indian conglomerates like Data, Reliance etc. Most of the genuineness of Barilla have shown growth in the past years consistently.If we see the net profits of the Grasps Industries we find that it has been fairly Consistent and growing.
The turnover and profits of Hinsdale and Ditty Barilla MENLO also have shown rise . In 1 995, Kumar Barilla initiated a systematic approach to acquisitions to build growth and not rely on the Greenfield projects. The aim was to make larger bets on fewer businesses in sectors where the group could hold a dominant position. The mergers allowed shareholders to gain. Thus diversification created value for the Barilla group in India.
The situation globally was different than that of India.