Executive summary
The report deals with the application of innovation in an organization and how the organization manages the changes that occurred in the organization due to the implementation of innovation. The change can create problems for the managers and the effective management of change is also focused on. The suitability of Organic growth with that of acquisition is also discussed in this report. The report also analyses the growth and fall of Vader Corporation, one of the major players in IT-related business. The report analyses how Vader Corporation was able to achieve a tremendous growth rate at the initial stage, how the management had mixed factors like appropriate strategy, innovation, technology and design to achieve such growth.
It also analyzes the effectiveness of acquisitions made by Vader Corporation, which was treated as the major factor behind the growth of Vader Corporation at its initial stage. It also analyses other factors responsible for the fall of Vader Corporation. Finally, it is an attempt to provide a solution to overcome the worse situation faced by Vader Corporation so that through the solution it can return to the path of growth. The solution mainly focuses on downsizing the organization with an aggressive marketing strategy combined with extensive cost-cutting methods. The solution also deals with the management of issues that can arise when new strategies are implemented.
Introduction
Vader Corporation was a new generation organization based on the development of technology. As the technology grows it will provide new opportunities for entrepreneurs to start a new businesses. Vader corporation was founded in 1995 by Greg Hill and John Bent. It was providing digital solutions by creating website and development tools for both traditional and new generation organizations. It had integrated innovation, technology, strategy, and design in its endeavours to cater for its customers efficiently and to acquire new customers. The creative and effective project execution and intense self-promotion helped Vader Corporation to acquire a good market share before large companies started to focus on this industry. The efficient workforce of Vader Corporation played a major role in its establishment. The projects of Vader corporation lasted for several weeks or months only but that of the traditional organization lasts for years. All these factors made Vader corporation a much-preferred option for the customers.
The branding efforts also played well to differentiate Vader corporation from other players in the industry. The extensive press releases, white papers published about the internet had given more popularity for Vader Corporation and the services offered by it. Journalists were being invited to visit the firm so that such activities strengthened the branding. Vader Corporation offered an integrated package of services to its corporate clients which included strategic consulting, information architecture and end-user interface design, and customized software development. By 1999 the growth rate was high for Vader Corporation. It had acquired more capital through the issue of shares. Vader Corporation invited investment from other large organizations. Vader Corporation went on for more acquisitions to expand its presence in other geography and also for a concentric diversification in the business. By the year 2006 the business went down as there were more demand for conventional IT services and the stock price of the internet-based service sector had gone down.
The problems related to some of the acquisitions, layoffs and other problems like high fixed cost due to the acquisition of high talented human resources and high-cost infrastructure resulted in the degrowth of Vader Corporation.
Aim of the study
The aim of the study includes; identifying an appropriate growth strategy for Vader Corporation that suits the industry environment prevailing now and that strategy should provide a better result or at least avoid the outcome experienced by Vader Corporation at present i.e. to avoid challenges of integration and overpayment. Check out the effectiveness of the available options like;
- cutting back the cost, source additional funds and conduct aggressive marketing and thus return to the path of growth.
- Downsize Vader Corporation so that full concentration is given to its most profitable operations.
- Attempt to be acquired by some major players so that Vader Corporation have the attractiveness to be acquired with its highly talented employees and top-class anchor clients.
- Extinguish the business and distribute the assets to the shareholders.
Analysis
Organic growth refers to the growth that a company achieved through increased output and extensive sales. This does not include the growth or profit achieved through acquisition, merger or takeovers. These are the growth or profit generated within the firm and is known as organic. Organic growth indicates the effectiveness of management in using its internal resources for increasing profits. It also indicates the manager’s ability to use their skill to improve the business. (“Author Unknown.” Organic Growth 2008). The acquisition is the process by which one company acquires total control over the other. The growth through acquisition is known as inorganic since the profit is generated with the acquired company and managers of the original firm are not using their skills for profit generation. The acquisition may be either to gain more market share or to expand business in new geographic areas. The management of the acquired firm is an important thing in every acquisition. (“Author Unknown.” Acquisition 1997-2008).
For the initial period, the growth achieved by Vader Corporation was fully organic. It had utilized the internal resources to the maximum to achieve growth. The managers utilized their skills, to attract talented employees and to attract customers. When Omnicom invested $3.5 million in Vader Corporation, which enabled Vader Corporation to go for acquisition. But Vader Corporation did not benefit from all its acquisition. Vader corporation acquired companies a having size double than it. The management had to be concentrated more on organic growth than the acquisition part. It is true that the organization was able to enjoy the service of talented employees through acquisition but at the same time it became a burden for the organization in a later period due to the excess investment in human resources. Vader Corporation had all the potentiality for organic growth, it had a pool of talented employees with it before it went out for the acquisition.
If the organization had gone for organic growth it would have utilized the human resource effectively which could result in high profit and employees with enhanced skills. Through the acquisition, Vader Corporation was able to cover more geographical areas but it has to check that whether it succeeded to establish the core values of Vader corporation in these acquired organizations. In order to expand the business in another geography, the establishment of subsidiaries is better suited to acquisition while giving consideration to the legal aspect of the acquisition. The acquisition does not always harm business but it depends on the benefit received by the acquisition, factors such as whether the acquisition is friendly or hostile is also to be considered. Vader Corporation initiates for acquisition only after it receives investments from Omnicom and it withdrew its investments with a high profit but it is vague that whether Vader Corporation was able to make profits through the acquisition.
The acquired firm should be managed in such a way that it would not be a burden for the parent firm. There were problems with the integration of acquired firms like i-cubes with Vader Corporation and the top authorities quite Vader Corporation by selling out the stocks of Vader Corporation they had with them. So a growth strategy that is more concentrated on organic growth with comparatively less focus on acquisition will benefit Vader Corporation and this won’t create such a situation which Vader Corporation experiences now.
Problems
In order to find out a solution for overcoming the present situation of Vader Corporation, it is necessary to identify the problems that exist with the organization. Extensive recruitment created problems as some of the recent acquisitions fail to generate income to the expected level and instead it had created problems in the form of layoff. The share price of Vader Corporation shown a declining trend, not only Vader corporations but also that of almost all internet-related stocks went down. So venture capitalists refused to invest in such firms and this badly affects the plan of management to raise capital by the issue of secondary shares. Talented employees who stick to the organization, having stock options had left the organization. The demand for conventional IT services increased and this also caused problems for Vader Corporation. The high priced real estate; the high cost fixed assets also had given problems to Vader Corporation. The fixed-price contracts which generated business but for which the profit margin was low created problems. Even though the organization had given a non-layoff promise to its employees it had reluctantly laid off around 220 employees as part of the cost-cutting policy of the organization and this intern created an adverse effect on the morale of the firm. The recession in the economy of the United States, especially in the IT sector became another blow for Vader Corporation.
A SWOT analysis would also give an idea on which strategy should be adopted by Vader Corporation to return to the path of sustainable path of steady growth. The organization has to concentrate more on its strength and eliminate the weakness. Vader Corporation has a strong edge in internet-related business, it has the privilege of the highly talented workforce and the support of anchor customers all these factors can be considered as strengths. But weaknesses are there in the side of management, especially in the case of managing the acquisitions and acquired firms. The business model should be so flexible that the growth doesn’t affect by any change even if it is unexpected. The business model of IBM is an example.
Opportunities are there for Vader Corporation as its business dealt with technology-related services and the world economy is highly related to technology but should be adaptable to the changes in technology and customer preference. Threats were there in the form of devaluation of the stocks of Vader Corporation but it was not the problem with Vader Corporation only, all the organizations operating in the internet-based industry suffered, the recession in the US economy is another threat.
(Chapman 1995-2008). A turnaround process will better suit to solve the problems. The following stages can be utilized for this purpose:
- Turn around consultants may be brought in to manage the situation.
- Situation analysis can be done in order to evaluate the chances of survival according to the root cause of the distress and strategies should be developed accordingly. The strategies may be any of the following;
- Can be a change in top management as there are problems regarding the lay off of certain top authorities who were with i-cubes previously.
- Divesting some of the assets as the investment of Vader Corporation in fixed assets i.e. Both in the form of human resources and in the form of real estate to source cash for improving the business.
- Restructuring the strategies so that some of Vader Corporation’s strategies, especially in the case of acquisition and development shows a sign of failure, which has to be revalued.
- Develop new strategies to source more funds so that Vader Corporation failed to attract investment through the issue of new stocks due to devaluation in its stock. Revenue can be generated through the selling of assets in real estate or by downsizing.
- To cut down the cost for the reason that the balance sheet shows a negative balance and in order to sustain it requires drastic cost reduction in the operating cost. It can be done through the implementation of an effective cost control system.
- The strategic acquisition is another option but it will depend upon the organization’s financial capabilities to acquire a new firm or to highlight the chances of getting acquired by some other firms, for which Vader Corporation has to prove its industry attractiveness.
- Attain positive cash flow as early as possible by downsizing the business units or by selling off fixed assets, etc. Reducing the staff strength is another option but it will affect the morale of the firm since Vader Corporation has an image of an employee-friendly organization. If employees can be compensated or shifted in an appropriate manner it will help Vader Corporation to source more funds.
- After when the positive cash flow is obtained the suitable strategic plan of downsizing the organization with aggressive marketing should implement with more improved operations. Modify the product mix according to the need of the customer so that there is more demand for the services of conventional IT services and the products should be repositioned accordingly to achieve constant growth.
- Thus return to a successful path of growth, internalize the changes, make the employees cope up with the new business environment.
(“Author Unknown.” Strategy: Turnaround Management 2002-2007).
Suggestion/ solution
While thinking about a solution to overcome the present situation it is better to downsize the Vader Corporation supported by cutbacks and aggressive marketing. As it had already been pointed out that there are issues with some of the acquisitions as in the case of the acquisition of i-cubes. Some of the acquisitions were aimed to establish the presence of Vader Corporation in another geography also. But the profitability aspects should be given more consideration than spreading the presence. Such non-performing subsidiaries should be sold off so that through this the organization can raise funds for the functioning of the performing subsidiaries. The firm has to identify its core competencies so that the diversification should be concentric. Through some of the acquisitions, it had entered into conglomerate diversification and lost the leadership in its core competent field. While going for a conglomerate diversification the management has to go for a feasibility study. If Vader Corporation had acquired some other organization that operates with conventional IT services it would have been an asset for Vader Corporation due to the fact that the growth of conventional IT service providers did not suffer degrowth. So Vader Corporation can focus to acquire such firms in future in the future.
While downsizing the organization treatment of existing employees can be a problem. In order to solve such a situation, the organization can directly communicate to the employees so that the management should discuss the situation with the employees and take suggestions from their sides also. Either the management can help the employees to find out some other job or train them to be multitasking. As the organization is aiming for an aggressive marketing program, the organization can train the employees who are suspected of losing their jobs so that they can work with the marketing department to build up a new image for the company.
Another option that the organization had with it is to offer the service of the surplus employees to other organizations on lease and retain the employees when Vader Corporation begin to earn profit. Poison pills and puts can also be tested for a much worst situation but have to consider the moral side also. Downsizing enables the firm to sell out some of the assets in real estate so that some capital is generated. Outsourcing can be a better option so that the Vader Corporation getting business through fixed-price contracts for which the profit margin is low Operating costs can be reduced gradually by outsourcing the business to developing countries. Acquisition of a similar type of organization in developing countries or establishing a subsidiary in such a country can lead Vader Corporation in the path of growth.
Aggressive marketing activities can generate business by influencing the customers. Since there was no bad opinion for the quality and accuracy of the services provided by Vader Corporation it can very well return to its path of growth. If it is needed the management of Vader Corporation can arrange a meet of its shareholders, through which the management should provide confidence to the shareholders and convince them for further investment. It should be very well communicated that the recession that the US economy is facing plays a major role in creating a downward trend in the share value and the recession is a short term one and the organization has all the capabilities with it to return to the path of profit.
Journalists can be invited to the firm so that future plans can be announced through the media. It will be better to address the anchor – clients so that at their office so that the help of such customers are essential in the long run.
Cost cut can be done through the selling off the high-cost real estate and to give a new image to the existing organization. As Vader Corporation is into the service sector the physical evidence part is important, but the impression generated through physical evidence is a temporary one and it won’t last for a longer period. So Vader Corporation has to concentrate more on the quality of the service rather than the ambience. To provide a quality service it needs the combination of effective management and efficient employees. While acquiring some other firms Vader Corporation is subjected to provide designator power to the top authorities of such firms ignoring the fact that whether they are able to cope up with the industry or they will be willing to stick on to Vader Corporation for a longer period. According to the BCG matrix model:
(“Author Unknown.” The BCG Growth-Share Matrix. 2002-2007).
It is advised to milk the cow when it reaches the stage of low growth rate and high market share. The cash from the matured business unit should be used for the growth of other business units which are at the stage of a question mark. The business units at the stage of the star will consume more cash as it has the potential to grow and needs investment to grow. In the case of Vader Corporation, the internet-based business of providing a digital solution to other firms was the core business. Vader Corporation went on for acquisition at the time when its core business was in the stage of stars.
Through the acquisition, it had undergone a conglomerate diversification in its business. The new firms like i-cubes that are acquired by Vader Corporation were in the stage of question mark which needed more investment before the core business had reached the stage of cash cows. As a result, some of the acquired businesses returned to a stage of ‘dogs’ having a low market share and low growth. This became a burden for Vader Corporation. One of the mistakes that Vader Corporation committed was that it had gone for acquisition before reaching the experience curve. If Vader Corporation was able to gain market share over its competitors in its core business areas it would be able to develop a cost advantage and will be able to avoid the threat of low cost from conventional IT service providers who were able to maintain the growth rate while Vader Corporation shown a declining trend in its growth. If such a cost advantage was developed by Vader Corporation it will be able invest more in advertising and sales and thus to built the brand image. The acquisitions made by Vader Corporation helped the firm to spread its presence in other geographical areas but failed to grab subsequent market share through these acquisition.
Conclusion
Innovation always provides new business opportunities for an organization but the management of change that happens due to implementation of innovation is an important factor in the long run. Vader Corporation fail to sustain its growth rate for a longer period due to its failure in managing the acquisition, fixed asset, weakness in forecasting, etc. While analyzing all the factors it has been suggested to go for downsizing the organization with aggressive marketing activities supported by actions for cutting down the operating cost. The ways in which operating cost can be reduced is also discussed along with suggestion for additional revenue generation. The ways to manage issues that may arise when such a strategy is implemented for uplifting Vader Corporation is also given in the report. By implementing the new strategy it is sure that Vader Corporation can return to a path of growth.
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