ADM 5262 Strategy Implementation

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ADM 5262 Strategy Implementation

• MBA Program
• Faculty of Administration
• University of Ottawa
• November 7th, 2001

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This Evening

• Lecture Corporate Growth and Restructuring
• Overview Canadian Airlines Case
• Group work Analysis of Canadian Airlines Case
• Break
• Class discussion Canadian Airlines Case and
  applicability of theory to airline industry

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Corporate Growth and Restructuring
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Some Theoretical Results on Uncertainty

• Firms earn profits by addressing uncertainty
  (Knight, 1921)
• Transactions will be undertaken within the firm
  rather than using market governance when that
  mode of governance is more efficient (Williamson,
  1985)
• Using the firm protects against opportunism
• Threat of opportunism is higher under conditions
  of higher uncertainty
• Managerial risk taking is particularly affected
  by performance targets (March and Shapira, 1987)

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Corporate Restructuring, Uncertainty and
Diversification Strategy(Bergh and Lawless, 1998)
gt Predicted relationship
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Increasing Competitiveness, Uncertainty and Firm
Boundaries
Decreasing Investment
Increasing Investment
High Uncertainty
Low Uncertainty
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Mergers, Acquisitions, and Takeovers

• Merger Two firms agree to integrate their
  operations on a relatively coequal basis
• Acquisition One firm buys another firm
• Takeover An acquisition where the target firm
  opposes the action

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Restructuring Activities

• Downsizing Wholesale reduction of employees
• Downscoping Selectively divesting or closing
  non-core businesses
• Leveraged Buyout Purchase involving mostly
  borrowed funds
• Management
• Employee
• Another firm

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Leveraged Buyouts

• Generally occurs in mature industries where RD
  and innovation are not central to value creation
• High debt load commits cashflows to repay debt,
  creating strong discipline for management
• Increases concentration of ownership
• Focuses attention of management on shareholder
  value
• Greater oversight by active investor board
  members
• Leads to more value-based decision making

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Restructuring and Outcomes
Short-Term Outcomes
Long-Term Outcomes
Alternatives
Downsizing
Downscoping
Leveraged Buyout
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Restructuring and Outcomes
Short-Term Outcomes
Long-Term Outcomes
Alternatives
Loss of Human Capital
Reduced Labor Costs
Downsizing
Lower Performance
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Restructuring and Outcomes
Short-Term Outcomes
Long-Term Outcomes
Alternatives
Loss of Human Capital
Reduced Labor Costs
Downsizing
Reduced Debt Costs
Lower Performance
Downscoping
Higher Performance
Emphasis on Strategic Controls
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Restructuring and Outcomes
Short-Term Outcomes
Long-Term Outcomes
Alternatives
Loss of Human Capital
Reduced Labor Costs
Downsizing
Reduced Debt Costs
Lower Performance
Downscoping
Higher Performance
Emphasis on Strategic Controls
Leveraged Buyout
High Debt Costs
Higher Risk
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Increasing Numbers of Spin-Offs1985-1996
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Decreasing LBOs and IncreasingSpin-Offs 1985-1996