Local Acquisition and a Global Presence

As defined in my previous post, an acquisition happens when one company purchases another an then absorbs them into its own operation.  We see big examples of this all the time in the news, like General Electric (GE) acquiring Alstom, a powerful French multinational company focused on the railroad industry.  Alstom’s energy sector was absorbed by GE for its technology, its machinery and know-how, and its local connections which GE needed to set up future acquisition and marketing moves.  It was the largest acquisition in GE’s rich history of enveloping companies.  There was tons of news coverage and press on this because of its scale.  However, local businesses acquire companies too, it just may not make as big of a splash (if any) in the news.  A good example of this is Albany Towing Services, a local company who built a business starting from a single tow truck.  The market demand for towing in Albany, NY is enough to sustain numerous companies, but like any great athlete, their team wanted to dominate the market.  After successfully running the business for 4 years, the company had saved a sizable amount of capital, which the owner had planned on investing and diversifying in the stock market to create an executive bonus plan for his employees.  Then, an opportunity seemingly dropped into management’s lap.  Another towing company in the area had been slowing down in the past few years as the owner reached his decided “retirement age” and was planning to step down.  The owner of Albany Towing Services spoke with him and reached an agreement to buy him out, which turned out to be a great deal for both parties.  Mike’s team absorbed the infrastructure, such as extra space, equipment, trucks, an additional building, and the other company’s owner was able to collect a nice chunk of change on his way out the door to retirement.  That strategic move was on a much smaller level than GE’s deal, but the relative impact of it was the same – a game changer.  From there, the company grew more rapidly, buying more trucks and growing their reach in the Capital Region.  Today, they’re recognized as the market leader, and it the turning point was a single decision that made the difference between good and great.  The moral of the story is two things – (1) that any business can apply the techniques that we hear about in the news and (2) there’s always a deal to be made.  Regarding the latter statement, reaching a deal that works for both parties is rarely easy, which is why you need to be creative.  Consider the following when making a decision:

  • What is the best and worst case scenario for me
  • What is the best and worst case scenario for the other company/party involved
  • What are the possible alternatives
  • What could be done to make sure both parties feel that they’re getting a fair deal
  • How can an even match be made?
    • Example:  I’ll buy this truck from you if you give me 50 free visits to the doctors office.
      • Bartering can play a huge role here.  The deal doesn’t always have to be made with money.  Sometimes, deals work out even better without it.

Do your research ahead of time and don’t go into a meeting trying to “beat” the other person.  You’re objective is to find the common ground and work something out that everyone’s happy with.  It just works better that way for all parties involved.  No one wants to feel slighted, and by going into the negotiation looking for a win-win, no one has to be.

Big Words in the World of Management

Acquisition – Occurs when a larger company buys a smaller one and incorporates the acquired company’s operations into its own.

– The opportunity to complete a strategic acquisition is one of the best ways to enhance the value of a company

Autonomy – The degree to which the job provides freedom, independence, and discretion to the individual in scheduling the work and in determining the procedures to be used in carrying it out.

– A job with a high degree of autonomy allows individual employees to do their work at their own pace and in the way that they choose.

Break-even analysis – A technique for identifying the point at which total revenue is just sufficient to cover total costs.

– Break-even analysis is a simplistic formulation that is valuable to managers because it points out the relationship among revenues, costs, and profits.

Centralization– A function of how much decision-making ability is pushed down to lower levels in an organization.

– The more centralized an organization is, the higher the level at which decisions are made.

Conscientiousness – A personality dimension that describes the degree to which someone is responsible, dependable, persistent, and achievement oriented.

– John is not very conscientious; he is very irresponsible and I cannot depend on him.

Devil’s advocate – A person who purposely presents arguments that run counter to those proposed by the majority or against current practices.

– A devil’s advocate acts as a check against groupthink and practices that have no better justification than “that’s the way we’ve always done it around here.”

Groupthink – The withholding by group members of different views in order to appear to be in agreement.

– Groupthink prevents a group from being able to work effectively.

Growth Strategy – A strategy in which an organization attempts to increase the level of its operations; can take the form of increasing sales revenue, number of employees, or market share.

– Dell Corporation implemented a growth strategy a few years ago and began selling computers overseas.

Kaizen – Japanese term for an organization committed to continuous improvement.

– W. Edwards Deming, a statistician from Wyoming, has been credited with helping Japanese industries make a turnaround after World War II with his idea of kaizen.

Norm – Acceptable standard shared by the members of a group.

– It is important to know the norms of an organization before your interview so you know what to wear to the interview and have an idea of how the organization is run.

Outsourcing – An organization’s use of outside firms for providing necessary products and services.

– Many companies these days choose to outsource to other countries where the labor is cheaper.

Ringisei – Japanese consensus forming group decisions.

– The Japanese value conformity and cooperation.  Before making decisions, Japanese CEOs collect a large amount of information, which is then used in ringisei.

Stressor – A factor that causes stress.

– Stressors can range from personal matters, like financial problems, to organizational matters, like downsizing.

Intellectual Property – Proprietary information that is critical to a firm’s efficient and effective operation.

– Many firms are vulnerable to theft of intellectual property.  Value chain partners need to balance their trust and control of each other.

Parochialism – Refers to a narrow focus in which one sees things solely through one’s own view and from one’s own perspective.

– To be successful in business, especially international business, people need not have a parochial view of the world.

Rational – Describes choices that are consistent and value-maximizing within specified constraints.

– Managerial decision making is assumed to be rational, or logical and objective.

Creativity – The ability to produce novel and useful ideas.

– I am very creative, but I do not have the means to physically produce my product ideas.

Fixed-Point Reordering System – A specified point at which inventory is replenished.

– Walmart is one business that has a Fixed-Point Reordering System.  When inventory decreases to a preset mark, the computer system automatically reorders new inventory.

Authority – The rights inherent in a managerial position to give orders and expect them to be obeyed.

– Authority was a major tenet of the early management writers; it was viewed as the glue that held the organization together.

Fiscal Year – A 12 month period that usually starts on January 1.

– In companies where sales are heavily affected by seasons, the fiscal year may not start on January 1.

From the smallest to the biggest companies in the World, everyone is going global.  That no longer means opening up an office in another country, although you could.  Rather, most business owners use the Internet as a means for expansion into other countries.  Social media sites like Facebook are growing exponentially and allow easy access to a diverse, global audience.  With over 1.3 billion users, Facebook is king, but other major players in the industry like Twitter, Instagram, and Pinterest aren’t far behind.  Sites like this function almost entirely on advertising dollars, but it’s a great thing because a company with 5 people can throw up a business page on Facebook in 20 minutes and sell to China.  It’s crazy!  The companies we’ve created pages on all went through rapid expansions before the social media age kicked into high gear.  Now that they have it, the game has changed.