Business Case Interpretation
What are the nature and characteristics of businesses/industries that they are in? What is the business selection strategy? What businesses are they entering or exiting? Are they related or unrelated? Again, it must be stated that Tyco is the epitome of a holding company. This can be said with certainty since each division has a president who “functions as a CEO. ” Whether it is fire protection or packaging materials, Tyco entered businesses that were unglamorous but provided an opportunity for profitability and growth.
Before the creation of the medical products line, most businesses fit neatly into one of four reas. Since then, it seems like the company was more inclined to find any opportunity to grow, as long as it fit within the financials of the holding company. And did they ever acquire businesses! Early on, in the days of Mr. Gaziano, Tyco earned a reputation as a corporate raider. Later on, under Fort and Koslowski, things operated under more diligent control. 3.
What are the unique resources they have developed to create a competitive advantage? Are they general or specific?
The corporation seems to have created a few highly important resources in order to survive and succeed as a holding company. More than anything else, Tycds strong financial savvy in managing unrelated businesses is a general skill that few have ever mastered. Other areas where it has excelled are more specific, and all of these relate to the different businesses they company has entered. Tyco is now skilled in the areas of fire protection production, disposable medical product marketing, etc. 4.
How does the corporate office contribute or create value for its business units?
Tyco seemed to succeed in spite of two major flaws in management’s style: the use of fear-based directives and a complete lack of attention to cost-saving synergies. Looking at the use of fear first, the example on page nine proves Tycds reliance on numbers led to middle management fear under Dennis Koslowski. While it may have been effective, it probably led to a lot of dissension among the ranks despite the Brad McGee’s comment on page two of the case really typifies how little synergy there was between divisions.
Perhaps this was necessary given the holding company structure, but I think some middle ground could have been achieved. In certain circumstances this could have been seen as a positive, like in the case when the ompany was looking for the best deal in the marketplace, instead of being forced to buy something internally.
But by and large, it feels like more could have been done. On the positive side, Tyco corporate did an excellent Job of making sure the numbers were always top-of-mind.
In addition, the company intelligently added hedged acquisitions and creations (like the servicing example) to continually keep the Wall Street numbers moving forward. 5. What kinds of structure and systems has Tyco set up to manage its business units? How well do they work? As stated earlier, Tyco prided itself on a holding company structure that really tried to make each division an entrepreneurial power unto itself.
Everything centered on each division president’s ability to hit a few preplanned budget goals.
Lowballing expectations was also ferreted out in order to force these managers to perform at the very best levels. The initial iteration of this clean-up effort started with John Fort. By reducing long- term debt from 119% to 8% of shareholder’s equity, Mr. Fort was able to make all future year financial fgures shine.
He gave his manager’s freedom to meet targets, ut was very controller heavy; in essence perpetuating this attention to the financials. There was one drawback to this style though. In my mind, this Wall Street-heavy strategy makes all planning year-by-year.
Thus, long-term corporate health might be sacrificed in the effort to make each year’s goals. Moreover, this strategy was in stark contrast to the bonus structure set up at Tyco, adding further to the minds of those who ran the business from day-to-day.
6. Has the company created and sustained its corporate competitive advantage? Explain the sources of sustainability for Tyco. We all know the hot water Mr. Koslowski got the company into a few years ago with his lavish spending at a company party.