Social, Political, and Economic Environment
Notably, Turkey had its second financial crisis since 1994 in 2001. The Turkish currency had dropped by 27%, short-term interest rates had risen by 7500%, and “the Turkish stock market had lost more than 18% of its value” (Khurana et al. 1). This situation has resulted in vast outflows of foreign money and an increase in interest rates. Indeed, social, political, and economic issues all influence M&A and divestment choices businesses make. Mergers and acquisitions are increasingly popular strategies for organizations seeking to maintain a competitive edge and position themselves ahead of competitors. The setbacks have effectively halted the Turkish government’s ambitious stabilization and anti-inflation initiatives. With the banking sector accounting for 65% of Dogus Holding’s income, this systemic shock was bound to have significant consequences for the firm.
The Importance of Construction Line of Business
Dogus’s initial line of business was construction; the company specialized in dam building, highway construction, and other infrastructure projects. By 2001, Dogus Insaat had completed projects worth $4.5 billion; in 1999, the construction line of business generated 3.6% of Dogus Holding’s sales and 3.5% of assets, with EBITDA margins approaching 50% (Khurana et al. 6). Because Turkey is a developing country, the construction industry will prosper. Mr. Ayhan Sahenk established the construction business, and no one in the family would study the industry from scratch or visit and inspect the sites. Ferit stated that the family would decide what to do regarding the potential of exiting the construction industry. Nonetheless, because this part of the business reflected Dogus’s legacy, it held a great deal of personal importance for Ayhan.
Ferit and Construction Line of Business
Essentially, Ferit has the support, mainly from the newly recruited managers, and the power to restructure the construction line of business as a CEO. Nonetheless, business transformation included shifts from construction to financial services and the retail network in the future. The factors that work against Ferit are obstacles in balancing the group’s three various sorts of managers. For instance, people who have been with the group from its inception and have made significant contributions to Dogus’s progress may show resistance because the construction line of business was of heritage importance. The second group consists of experts who will take the group forward and support Ferit and his objectives the most. The third category comprises managers who are frightened of losing their position and authority and will go to any length to protect their interests. Hence, Ferit must bring all these groups together to work toward a shared objective to reconstruct the portfolio and change the managerial style.
Recommendations
Significantly, with 14 of the 96 enterprises responsible for 65% of sales, Ferit intends to remove some industries, such as food processing and construction, and restructure the group around more successful consumer and service-oriented businesses, such as banking, automobile distribution, and retail. Because there might be resistance from a group of managers working for the company from its inception, I would recommend holding a meeting to discuss the organizational change emphasizing the reasons why it is beneficial for the success. For instance, the economy turned increasingly toward services between 1998 and 2000. Between 1996 and 2000, construction contributed around 5%-6% of GDP (Khurana et al. 3). In comparison, the service industry, which includes hotels and catering, accounted for almost 20% of the total. The central mission of the Dogus Group is to become the leading service provider group in Turkey via customer-driven expansion in branded services. To achieve this goal, it needs to maintain its leadership position in the banking industry, expand its automobile business, and aggressively grow in the retail sector; consequently, it is vital to change the portfolio.
During the planned economic expansion of the 1960s and early 1980s, family-owned enterprises like Dogus took advantage of government chances to grow and prosper and soon found themselves with many companies in various areas. After the founder dies, more than one-third of family-owned enterprises globally fail through bankruptcy or sale, and seventy percent fail by the third generation (Khurana et al. 4). It happened to family-owned enterprises as a result of a lack of defined business goals dispersed portfolios, poor human resource management, personalized decision-making procedures, and an absence of institutional capabilities. Thus, the suggestions are to continue strengthening Humanitas and get the board members more involved in the general vision and strategy-setting.
The Executive Committee, which included the general managers of each major operational firm and a few essential advisers, convened on an irregular basis. General managers’ compensation, including bonuses, was connected only to the success of their respective firms, not to the success of Dogus Holding as a whole. As a result, it is critical to have regular meetings and create incentives, such as compensation, for general managers to collaborate with other Dogus enterprises rather than focus on their own. The action plan I suggest Ferit present to the Dogus Holding Executive Committee includes creating new corporate-wide institutions and standards, a common Dogus Group culture, and a managers’ compensation plan that promotes cooperation between Dogus companies. I believe Dogus should also seek a strategic foreign partner to reduce the dangers of the new international competition and erase the older culture of interpersonal relationships in business.
Work Cited
Khurana, Rakesh, et al. “Taking Charge at Dogus Holding (A).” Harvard Business School Case 402-009, 2001.