How to Sustain Growth and Profitability in Business - Cont'd
Some of the participants noted that growing businesses in Nigeria, especially in the more structured organisations were not very easy because of the constant tension between the owners and the managers.
While smaller business could easily take split-second decisions, thus, gaining ample time, the bigger ones often go through debates, sometimes, shareholders approval before taking a major decision.
This often acts as set backs, in view of the time lost.
The answer to such challenges, according to Chakravarthy is that business managers must have the courage to re-vision, pursue continuous renewal, look to mergers and acquisitions and alliances, not as strategies but as means to execute the strategies, personally sponsor growth projects and provide a supporting process.�€
Sometimes, also, he said some business managers rushed into some of these strategies, like in mergers and acquisition, which ended up crumbling rather than growing the businesses because the strategies by the partners were not properly aligned.
Although he said the matter remained inconclusive, he stated, The predominant finding is that mergers and acquisitions do not create value for the acquiring company�€™s shareholders in over two-thirds of the cases.
An example is a study done by the consulting firm KPMG International. It surveyed the 700 most expensive international merger and acquisition deals from 1996 to 1998; and concluded that only 17 per cent of these deals had added value to the combined company, while 30 per cent had had no impact whatsoever and as many as 53 per cent had actually destroyed value.�€
On the other hand, he noted that some have made a success of mergers and acquisitions, saying, A recent study by the Boston Consulting Group analysed the long-term stock market performance of more than 700 large publicly held US companies over a 10-year period ending in 2002. It divided the sample firms into three clusters depending on their level of M&A activity.
It found that the highly acquisitive group of companies had the highest median total shareholder return �€“more than a full percentage point per year higher than the median TSR of companies that made few or no acquisitions.�€
As willing as some managers are to bring healthy ideas, management expert, Professor Pat Utomi, however, noted that the real challenge was not the lack of initiative to do as advised, but the fact that business owners resisted change.
According to him, Some egos depend on the status quo, they would not want to let go.�€
Putting the varied views in perspective, Chakravarthy advised that whatever strategy to be adopted to balance growth and profitability, targets must be set and such targets must be integrated progressively to exploit all potential synergies.
- Culled From Punch
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