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Strategic management > U8 How to Evaluate Strategies? > Flashcards

U8 How to Evaluate Strategies? Flashcards

1
Q

Schaeffler Sells 10% Continental Stake for $2 Billion

A

Schaeffler AG, a German industrial bearings maker, sold a 10.4 percent stake in Continental AG (CON) for 1.6 billion euros ($2 billion) to reduce debt after a failed takeover of the tire producer.

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2
Q
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M.M. Warburg and Bankhaus Metzler disposed of the 20.8 million Continental shares they were holding on Schaeffler’s behalf for 77.50 euros

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3
Q
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apiece, the Herzogenaurach-based company said today in a statement. That was 4.9 percent less than Continental’s 81.49 euro closing price yesterday.

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4
Q
A

Family-owned Schaeffler gained control of Continental, Europe’s second-biggest car-parts supplier, in 2008 at the height of the financial crisis.

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5
Q
A

The takeover bid backfired when more investors than Schaeffler expected accepted the offer as markets collapsed, leaving it with more than 90

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6
Q
A

percent of the shares and more than 10 billion euros in debt. Cash from the stake sale will cut debt at the Schaeffler Holding parent company by 31 percent to 3.5 billion euros, it said today.

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7
Q
A

“This share sale makes sense, because Schaeffler is still highly indebted,” Tim Schuldt, an analyst with Frankfurt-based Equinet Bank AG, said

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8
Q
A

today by phone. “The dividend yield is less than their cash costs on the loans, which means that they actually have to insert cash to service the debt.”

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9
Q

Stock Declines

A

Continental fell as much as 4.9 percent to 77.47 euros, the biggest intraday drop since July 23, and was trading down 4.6 percent at 2:30 p.m.

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10
Q
A

in Frankfurt. The stock, which re-entered Germany’s benchmark DAX Index (DAX) yesterday, has gained 62 percent this year, valuing the company at 15.6 billion euros.

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11
Q
A

Schaeffler’s bonds rose to a record and were the top three gainers in the Bank of America Merrill Lynch high-yield index. The manufacturer’s 400

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12
Q
A

million euro 8.75 percent notes due 2019 gained 1.2 cents to 113.47 cents on the euro, pushing the yield down to 6.3 percent, according to data compiled by Bloomberg.

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13
Q
A

The German bearing maker refinanced debt in February with about 8 billion euros of loans, including a 1.4 billion euro loan sold to institutional investors, and 2 billion euros of

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14
Q
A

high-yield bonds, according to data compiled by Bloomberg. In June, the company added three banks to its loan facility, raising the total to eleven. Schaeffler’s stock isn’t traded.

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15
Q

Banks’ Holdings

A

Schaeffler’s direct stake in Hanover, Germany-based Continental was limited to just less than 50 percent under a four-year agreement

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16
Q
A

between the two manufacturers in August 2008, intended to settle the takeover dispute. Banks held the excess Continental stock that investors had sold to Schaeffler.

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17
Q
A

The share sale and the end of any contractual agreements between the two banks and Schaeffler will reduce

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18
Q
A

“complexity in the participation structure,” Schaeffler Chief Financial Officer Klaus Rosenfeld said in today’s statement.

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19
Q
A

The amount of Continental’s freely traded stock increases to 50.1 percent from 39.7 percent. The Schaeffler family agreed to keep its current 49.9

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20
Q
A

percent holding in the auto-parts maker for the next six months, remaining its biggest shareholder, the company said.

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21
Q
A

“Our participation in Continental is of long-term and strategic nature for the Schaeffler family,” owners Maria-Elisabeth Schaeffler and Georg Schaeffler said in the statement.

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22
Q

Cooperation Work

A

The companies are involved in more than 30 joint industrial projects at different stages of development, including turbo chargers and an electronic parking brake, said Hannes Boekhoff, a Continental spokesman.

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23
Q
A

The manufacturers have also teamed up in purchasing, which led to savings of 350 million euros to 400 million euros in the three years through 2011.

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24
Q
A

“Our successful cooperation in a variety of topics and projects continues as before,” Boekhoff said by phone.

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24
Q
A

earnings jumped because of lower raw-material costs. The growth, and a 1.1 billion euro share sale in 2010, helped Continental reduce debt to

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24
Q
A

Continental, which is also Europe’s second-largest tire maker, raised its 2012 revenue and profit forecasts in August after second-quarter .

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24
Q
A

6.88 billion euros in June from a peak of 10.9 billion euros in 2007, following the acquisition of the VDO car-parts business from Siemens AG

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24
Q
A

Chief Executive Officer Elmar Degenhart said this month that he expects Continental to continue

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24
Q
A

to grow faster than global car markets by four to five percentage points next year. Degenhart forecast an increase in worldwide light-vehicle

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25
Q
A

production of as much as three percent in 2013 as expansion in North America and Asia offsets stagnation in Europe.

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26
Q

Schaeffler Forecast

A

Schaeffler reiterated its full-year forecast on Aug. 28 as demand outside Europe helped sales rise. The company is targeting sales growth of

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27
Q
A

more than five percent to about 11.2 billion euros this year. Earnings before interest and taxes should exceed 13 percent of sales

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28
Q

How to Evaluate Strategy?

There will always be several strategic possibilities available for?

A

companies to consider. However, management has to decide which strategy to pursue.

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29
Q

Whether choosing a specific strategy was the right decision will only become?

A

evident later, after it has been implemented. So how then can management limit the risk of implementing a strategy that might fail?

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30
Q

There are various evaluation criteria that analyze the suitability, acceptability, and feasibility of?

A

the strategic options, which we will explore in this section.

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31
Q

How to Evaluate Strategy?

A

Suitability
Acceptability
Feasibility

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32
Q

The suitability of a strategy evaluates whether it is a good fit for?

A

the strengths and weaknesses of the organization as well as the opportunities and threats of the market environment.

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33
Q

The techniques described earlier in the course —————————————————————————————————————————————————————– help in carrying out this assessment.

A

(the PESTEL analysis,
Porter’s Five Forces,
SWOT analysis,
an analysis of the strategic possibilities,
the product life cycle,
benchmarking,
and the definition of the competitive advantages)

34
Q

All this information makes it possible to rank the various strategic possibilities and see which are?

A

best and worst suited for implementation.

35
Q

Let us illustrate this with the example of Shell, which intends to?

A

pursue an expansion strategy. If the oil price declines because the demand for oil goes down or there are substitute products available in the market, it would not be advisable for Shell to expand through large direct foreign investment.

36
Q

The best strategies available to organizations are ?

A

flexible and adaptable.

37
Q

If we take the example of Shell, we would advise the company to choose a strategy that can be?

A

pursued fairly independently of the oil price development.

38
Q

An expansion option that does not require enormous investments would be an alliance with a contractual partner in order to?

A

enter a foreign market.

39
Q

This leaves the option of acquiring the partner if the alliance proves successful. Shell also has the flexibility to?

A

leave the alliance without great losses if it is unsuccessful.

40
Q

Acceptability
An acceptability evaluation looks at the expected performance results of the—————-. It should meet the expectations of the
————————————————-. It looks at the———————————————————————————-.

A

strategy

stakeholders of the organization

risk, the return, and the reactions of shareholders

41
Q

The risk indicates whether and how ?

A

accurately the strategy forecasts the expected results of the strategy.

42
Q

Questioning and testing the assumptions of the strategic plan or analyzing how ?

A

the strategy influences the liquidity of the organization provides important information on the risk level of the strategy.

43
Q

Liquidity

A

This describes the financial means that are readily available to an organization.

44
Q

Let us look at the example of Shell again. In order to decide how to expand, Shell should analyze?

A

how far its liquidity will be reduced if it opts for a direct foreign investment.

Then it should look at the impact of a sinking oil price on the organization’s results

and at which price level the company would still be able to survive the crisis.

45
Q

Return refers to?

A

the financial impact of the strategy on the shareholders.

46
Q

The ‘return on capital employed’ (ROCE) is a ?

A

financial indicator that looks at how effectively and profitably the organization uses its invested capital.

47
Q

The question for Shell is how much it will gain in profits in the long term from using its liquid means for a direct foreign investment. ?

A

The company could then calculate the long-term profits of an alliance.

48
Q
A

This will show the long-term financial situation of the organization and helps in weighing up the expansion decision.

49
Q

Shareholder

A

The shareholder is the owner of a share of an organization.

50
Q

The financial situation of a company influences the share price and the dividends paid to?

A

the shareholders.

51
Q

Dividend

A

This is the part of the profit that is shared with the shareholders as a payment.

52
Q

The shareholders have a strong interest in seeing ?

A

their share of the company increase in value (i.e., the share price goes up).

53
Q

Managers are therefore responsible for justifying their strategic decisions to the?

A

shareholders as they are the direct beneficiaries of potential profits.

54
Q

Feasibility
A feasibility analysis looks at the capabilities and the resources of?

A

an organization to pursue the strategy.

55
Q

The study of feasibility is preceded by?

A

a detailed SWOT analysis and a product life cycle (PLC) analysis.

56
Q

The feasibility analysis looks at the financial means of ?

A

an organization but also at its human resources and capacity to realize a strategic decision.

57
Q

The PLC looks at the product portfolio and asks how many products generate profits for?

A

the organization in order to allow further investments.

58
Q

Furthermore, the company needs to consider whether?

A

it has the right people to implement a strategy or whether it needs to hire further staff.

59
Q

Topics like training and development of personnel as well as incentives and promotions need to be considered in order to make a ——————————-. Some people might have to be ———————————- for a certain period of time – a budget will be required for this decision.

A

strategic decision

sent to foreign countries

60
Q

It is not easy to evaluate strategies. Often, conflicts can arise between?

A

managers and shareholders as they have different goals for the organization.

61
Q

Management is responsible for making decisions to the best of their knowledge that are in the best interests of?

A

the entire organization as well as communicating such decisions to the shareholders and stakeholders.

62
Q

In order to effectively implement the tasks of the strategic analysis and realize goals and strategies, the structure and processes of?

A

the organization have to be considered and redesigned.

63
Q

The formation of the internal structures and processes are part of?

A

the implementation plan.

64
Q

Four main areas need to be considered in this plan:

A

Organization
Human resource management
Controlling systems
Corporate culture

65
Q

Organization
The structure and processes of the organization need to be?

A

aligned with the strategic requirements.

66
Q

A central task in the implementation process is to?

A

appoint a team in charge and define their status and range of authority.

67
Q

The team should take a central role as a service provider of?

A

all planning and controlling tasks for the functions and divisions of the organization.

68
Q

Cross-functional teams are recommended in order for?

A

the implementation of the strategy to penetrate all departments of the organization.

69
Q

Human Resource Management

A program needs to be developed that defines:

A

the necessary training,
selection,
and development of new or current employees and reward systems in order to facilitate the implementation.

70
Q

The effectiveness of the implementation depends on?

A

the employees in the organization and their willingness to put the plan into action.

71
Q

Therefore, the employees need to be involved, evaluated, and rewarded in terms of?

A

the strategic implementation process.

72
Q

Controlling Systems

Controlling

A

This is a financial management and steering system for the management of an organization in order to control the organization.

73
Q

It is also important to define the controlling methods which help the management to follow?

A

the implementation process through financial indicators as well as action plans.

74
Q

The controlling system is a key part of the implementation process and needs to be defined before?

A

the implementation process starts.

75
Q

For the internal controlling, this is a goal-oriented support system for ?

A

the management to supervise the implementation process.

76
Q

Corporate Culture

The infrastructure of the organization should be designed in such a way that?

A

the employees think, feel, and act according to the goals set by the organization.

77
Q

Therefore, management has to clearly communicate ?

A

what the company goals are

and what values the organization stands for.

78
Q

Only by doing this will a supportive corporate culture be created that is ready to?

A

put strategy into practice.

79
Q

In order to evaluate whether the strategies are suitable, the organization has to look at various criteria. The suitability analysis provides information as to?

A

whether the strategy fits with the strengths

and weaknesses of the organization and considers the opportunities and threats of the strategic decision.

80
Q

The best options for companies are ?

A

flexible strategies that can always be adjusted.

81
Q

The acceptability analysis looks at the expected performance results of?

A

the strategy.

82
Q

It looks at?

A

the risk,
the long-term return,
and the reaction of the shareholders with regards to the strategy.

83
Q

The feasibility analysis deals with?

A

the capabilities

and the human resource potential of the organization.

84
Q

It provides information on the financial means and the human resource potential of?

A

the organization with regards to the implementation of the strategy.

85
Q

Once the strategic decision is made, the implementation phase——————–. The structure and processes of the organization have to be ———————with the strategic goals.

A

starts

aligned

86
Q

A team has to be nominated and the range of?

A

authority of the team defined.

87
Q

The selection, development, and training of the employees starts. At the same time, controlling methods have to be?

A

defined to support the steering of the strategic implementation by the management.

88
Q

It is important for management to communicate the values of?

A

the organization as well as the strategic goals in order to evaluate the employees accordingly.

Strategic management (8 decks)

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