U8 How to Evaluate Strategies?

Question 1

Schaeffler Sells 10% Continental Stake for $2 Billion

Answer 1

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.

Answer 2

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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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.

Answer 4

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

Answer 8

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.”

Question 9

Stock Declines

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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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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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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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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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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

Answer 14

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.

Question 15

Banks’ Holdings

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

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

Answer 19

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

Answer 21

“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.

Question 22

Cooperation Work

Answer 22

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

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

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

Answer 25

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

Question 26

Schaeffler Forecast

Answer 26

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

Question 28

How to Evaluate Strategy? There will always be several strategic possibilities available for?

Answer 28

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

Question 29

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

Answer 29

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

Question 30

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

Answer 30

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

Question 31

How to Evaluate Strategy?

Answer 31

Suitability Acceptability Feasibility

Question 32

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

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

Question 33

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

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(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)

Question 34

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

Answer 34

best and worst suited for implementation.

Question 35

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

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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.

Question 36

The best strategies available to organizations are ?

Answer 36

flexible and adaptable.

Question 37

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

Answer 37

pursued fairly independently of the oil price development.

Question 38

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

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enter a foreign market.

Question 39

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

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leave the alliance without great losses if it is unsuccessful.

Question 40

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

Answer 40

strategy stakeholders of the organization risk, the return, and the reactions of shareholders

Question 41

The risk indicates whether and how ?

Answer 41

accurately the strategy forecasts the expected results of the strategy.

Question 42

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

Answer 42

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

Question 43

Liquidity

Answer 43

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

Question 44

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

Answer 44

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.

Question 45

Return refers to?

Answer 45

the financial impact of the strategy on the shareholders.

Question 46

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

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

Question 47

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. ?

Answer 47

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

Answer 48

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

Question 49

Shareholder

Answer 49

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

Question 50

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

Answer 50

the shareholders.

Question 51

Dividend

Answer 51

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

Question 52

The shareholders have a strong interest in seeing ?

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

Question 53

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

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shareholders as they are the direct beneficiaries of potential profits.

Question 54

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

Answer 54

an organization to pursue the strategy.

Question 55

The study of feasibility is preceded by?

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

Question 56

The feasibility analysis looks at the financial means of ?

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

Question 57

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

Answer 57

the organization in order to allow further investments.

Question 58

Furthermore, the company needs to consider whether?

Answer 58

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

Question 59

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.

Answer 59

strategic decision sent to foreign countries

Question 60

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

Answer 60

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

Question 61

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

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

Question 62

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

Answer 62

the organization have to be considered and redesigned.

Question 63

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

Answer 63

the implementation plan.

Question 64

Four main areas need to be considered in this plan:

Answer 64

Organization Human resource management Controlling systems Corporate culture

Question 65

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

Answer 65

aligned with the strategic requirements.

Question 66

A central task in the implementation process is to?

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

Question 67

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

Answer 67

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

Question 68

Cross-functional teams are recommended in order for?

Answer 68

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

Question 69

Human Resource Management A program needs to be developed that defines:

Answer 69

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

Question 70

The effectiveness of the implementation depends on?

Answer 70

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

Question 71

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

Answer 71

the strategic implementation process.

Question 72

Controlling Systems Controlling

Answer 72

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

Question 73

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

Answer 73

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

Question 74

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

Answer 74

the implementation process starts.

Question 75

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

Answer 75

the management to supervise the implementation process.

Question 76

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

Answer 76

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

Question 77

Therefore, management has to clearly communicate ?

Answer 77

what the company goals are and what values the organization stands for.

Question 78

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

Answer 78

put strategy into practice.

Question 79

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

Answer 79

whether the strategy fits with the strengths and weaknesses of the organization and considers the opportunities and threats of the strategic decision.

Question 80

The best options for companies are ?

Answer 80

flexible strategies that can always be adjusted.

Question 81

The acceptability analysis looks at the expected performance results of?

Answer 81

the strategy.

Question 82

It looks at?

Answer 82

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

Question 83

The feasibility analysis deals with?

Answer 83

the capabilities and the human resource potential of the organization.

Question 84

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

Answer 84

the organization with regards to the implementation of the strategy.

Question 85

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

Answer 85

starts aligned

Question 86

A team has to be nominated and the range of?

Answer 86

authority of the team defined.

Question 87

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

Answer 87

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

Question 88

It is important for management to communicate the values of?

Answer 88

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