Business Dilemmas - Case Study 1 - The Strategic Dilemma
Author:
Eugene Greene
Even the most intractable of business problems have solutions at the end of the day. In the first of a new three part series, Eugene Greene describes one such dilemma.
A company involved in the importing and distributing of pharmaceutical products for over 80 years which had been built up through mergers of similar businesses to a turnover exceeding €65m.
THE PROBLEM
Due to legislative restrictions on the use of its main product, the lack of a good pipeline of other products and more importantly, the advent into Ireland of a new and very competitive alternative product, the company began to lose money and go into pretty rapid long term decline; indeed, the widespread availability of the alternative product allowed almost unrestricted access to the market by new entrants at a very low cost of entry.
Although serious rationalization of the operations was taking place in order to stop the haemorrhaging, the speed of the decline in profitability took everyone by surprise and continued to overtake savings generated through the cost reduction programme. The future looked very bleak and in an attempt to spread the remaining fixed overheads, a decision was taken to diversify and invest considerable funds in a product area in which the management had absolutely no experience or expertise and would be up against some really serious competition in the marketplace. The decision was driven by strong management worried about jobs.
THE SOLUTION
It was at this stage that I was asked to become Chairman of the company. Although the decision to set up the new business had already been taken, no funds had as yet been invested and some of the Directors were very unhappy about the new plan. They felt an independent perspective would be valuable in the Board's deliberations.
The Company's six non-executive Directors were also Shareholders, and had been competitors before merging their companies together. There was a lack of trust between them even though their fortunes were now inextricably entwined together. In fact, some of them didn't even like each other so it was a bad recipe for going ahead with a new long term investment.
After lengthy discussions and reviews, the penny finally dropped that going ahead with the new venture would entail not only very high risk, but also that all of them would be even more tightly bound together for years to come. A sudden shifting of priorities took place.
The new venture idea was dropped and as all the financial projections for the ''old' business showed only continuing losses, it was also quickly decided to make a complete break, get out of everything, sell the business and, give whatever was left back to the shareholders before the remaining assets were all eaten up by ongoing losses.
A buyer was eventually found for the business, the remaining assets were sold within a reasonable period of time and whatever was left, which was quite substantial, was distributed to shareholders.
My main role in this conflict was to act as a facilitator, independent of the Directors and the Management, to enable a final decision to be taken in a rational way on the future of the company. The decision had a lot of emotional ramifications as most of the people involved had been in or around the business for many years.
The company needed to face reality and develop a clear strategy for the future.
In this case, this could not have been done without the help of an independent, objective adviser.
Eugene Greene is a former President of the Institute of Chartered Accountants in Ireland. He now specialises in conflict resolution in business. His booklet, “Solving Business Dilemmas”, is in stock in the ICAI library.
Email: greeneeugene@eircom.net