Strategic Case Blog
|Posted on June 21, 2016 at 7:30 AM|
The Wedoit Company has been growing steadily at about 7% per year bringing on 5-8 new customers annually. It has been growing because it has quick response times and competitive pricin for its custom metal products. But the market growth potential is limited and margins are narrowing. Management is considering various options for new growth direction.
A.) Add in new types of products for their existing customer base.
B.) Acquire a company with a standard product line that fits with their existing mfg operations.
C.) Acquire a company that is focused on rapid prototyping services.
Which path should the executives of Wedoit choose?
The revenues of Options B and C are similar as are the current profitability. Option A requires very little investment, so the initial thought is that Option A has the lowest risk but after conducting an IRA planning project we see that’s clearly not the case.
This scenario happens every day in the US as companies wrestle with growth and change. Using the IRA strategic planning process, we can evaluate the entire business scenario of each option and deliver a 9 point score that will quickly highlight the most successful option for Wedoit.
The Issues become very clear.
A. If Wedoit Offers new and different products (Option A) , they would be choosing the highest risk option. This is the least likely success path. Although their organization is familiar with the approach the market demand is not great.
B. Acquisition of a product that fits into their existing operations (Option B). In this scenario their organization is geared up for the work they would just have to adjust their sales and marketing structure. But the target acquisition is selling out because the product line is no longer the front runner in their space. Wedoit can remove some overhead costs after the acquisition to improve operating profit, but that doesn’t change market and competitive conditions.
C. The best choice, (Option C) has growing demand in the market and is a service that requires similar skillsets to their existing organization. The slightly lower score for the organization is due to the learning curve with the new markets and technology. But most importantly, Option C represents a stronger market where differentiation is rewarded. This option also helps the company to sell its existing products by being more responsive and opens new market segments to Wedoit.