A Turnaround Strategy for Able Corp. Essay

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Situation Analysis

Given an acquisition offer on the table, the family that controls Able Corporation must drive shareholder value with two paramount goals: the sustainability of the company and a level of profitability that will enable reinvestment. Hence, the priority strategic objectives are a) top line revenue growth and b) guaranteed profitability.

STRENGTHS – In seeking a turnaround to consistently profitable operations, Able can be confident of strengths in R & D and market standing. The company has had the drive and technical expertise to consistently innovate in the portable electric power tools (PEPT) business. Secondly, the core circular power saws product leads its segment with a 40% market share.

WEAKNESSES – The company is a high-cost operator. Combined with the inability to manage quality and follow through on market development where new products are concerned, Able has oscillated between profits and losses in the last two years. Inconsistent business performance is, in turn, a significant reason why the company has not reinvested in the two obsolete plants.

OPPORTUNITIES – The consumer channel and cordless segments show robust growth. It is in the latter that Able has demonstrated some success in innovation.

THREAT – The perennial threat is that some larger competitor (e.g. Black & Decker) will deploy the marketing resources to undercut Able’s leadership in rotary saws. Currently, this is exacerbated by the decline of new-home construction market and a recession that has shattered consumer confidence. It is to be expected, therefore, that the market for power tools is weak (Mallas, 2007).

First of all, a turnaround strategy is premised on the rationale that Able can be saved. The unassailable position of the company in circular saws affirms this, as does the superb brand equity and loyalty the product line enjoys in both professional and consumer markets.

Able needs to reformulate strategy towards showing operating profits and reducing production costs. In turn, maximizing profits means milking the company cash cow, circular saws, and restructuring the business to cut costs drastically. An appropriate benchmark may be the 7.6% operating margin ratio Black & Decker showed on annual revenues of $6.4 billion in 2006. The rationale for this is that achieving greater market share in a stagnant or declining business is not as viable as maximizing profits no matter the state of the market.

Gaining the support of one’s superior and changing the mindset of a family committed to market share targets in the past requires looking for a change in management thinking (Internet Center for Management and Business Administration, 2007).. This is best done by appealing to enlightened self-interest and building consensus among all stakeholders. That is, formulating a business plan that emphasizes profits rather than market share will invoke:

  • The prospects of more consistent dividends rather than the 50% chance of losses Able experienced in the last four years;
  • The heightened probability of windfall gains should Able do well in the medium term and go public with an IPO.
  • The ability to perform according to the quarterly-profit requirements of Walden International, should a sell-out take place.
  • Funds to reinvest in continued innovation and transforming the physical plant.

Concretely, the strategic plan will call for maximizing profits on circular saws with premium pricing over second-ranked competitors that do not enjoy the advantages Able does in brand equity and loyalty. This may well require a higher-profile image advertising campaign, necessary in any case to support an upcoming stream of new products.

The profits thus generated will go to, first, product development for the growth market segments of consumer and portable tools. Product champions, very likely family members, must be put in charge so as to ensure stockholder commitment, oversight for successful market development and solid profits.

The second crucial strategic platform, streamlining production costs, may well require: moving production of the AC product line overseas (possibly to Taiwan); offering early retirement to the (presumably) aging labor force so as to pave the way for moving portable tools production to the Southeast, where unions are not a factor; and putting in place quality management teams that report directly to the product champions.

References

  1. Internet Center for Management and Business Administration, Inc. (2007) Turnaround management. NetMBA.
  2. Mallas, S. (2007). . Web.
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