MG112A Business Policy & Strategy

CASE ANALYSIS
By: Group 2
Group Members:
Derama, Grace T.
Guintibano, Clarice I.
Aguila, Christian Dave O.
I.

Title of the Case: Case 2- The Wallace Group

II.

Time Context: at present time

III.

Central Problem:
Cause:
Most managers feel that each of the three groups functions as an
independent company. Electronics and Plastics are still stable and profitable,
but both lack growth in markets and profits.

Symptoms:
The most important problem facing the Wallace group is leadership. The
Wallace group may have a Board of Directors but lacks Corporate
Governance because there seems to be no transition from a single
proprietorship to corporation thinking and management which very much
evident in lack of cohesiveness between the three divisions. Rather than
operating as a team, the three are more like rivals competing for resources
and personnel.
Corporate Governance
1. Stage one management in a stage three corporation. Harold Wallace is
trying to micromanage all three divisions
2. Lack of a corporate strategy, company has no mission and no definite
goals.
3. Poor organizational design creates span of control problems and results in
poor operations.
Personnel management:
1. Morale is poor

2. Recruitment backlog
3. Salary structure not commensurate and updated based on the current
demand.
4. Experienced staff/ personnel are retiring and no one is heading the
business expansion effort.
5. There is no management development program in-placed.
6. No performance standard and evaluation of employees
Reports management:
1. There are no standard reports required by higher management.
2. There is no value chain or coordination in between departments
Information Technology
1. Un-standardized methods of collecting data and presenting information
MIS being develop is not a users need- based system. No consultation
has been made to users as to what benefits they could get from the new
system.
Corporate policy on transfer pricing
1. Cannot meet volume and profit targets when saddle with noncompetitive
material costs.
2. The corporate policy of transfer pricing needs to be addressed in terms of
product cost and profit margin.
Diversification
1. Heavy dependence on government contracts could put the corporation in
financial difficulty if further sales diversification cannot be found.
Financial issues
1. Unprofitable chemical division needs new management or it needs to be
analyzed for sale to someone else.
Marketing
1. No clear marketing strategy
IV.

Viewpoint: Frances Rampar, President of Rampar Associates

V.

Statement of Objectives:
Must Objectives:
Want Objectives:

VI.

Areas of Consideration
The Wallace Group is a product of diversification strategies taken upon By Mr.
Wallace, who originally just wanted his, then defense-related dependent,
Electronics Business gain a foothold of the private market within the
electronics industry. Mr. Wallace and the Board embark a vertical integration
into plastics and chemicals, by acquiring previous Supplier companies, in
order to lessen production cost for Electronics group so that finances may be
channeled towards product development and line extensions. The acquisition
required a public stock offering that would channel most of the funds to pay
off debts incurred by the 3 groups especially the Chemicals Groups debt. Mr.
Wallace ended with 45% of the Stocks, Jerome Luskics, former owner of the
Chemicals Company with 5% and rest of the 50% distributed among the
public. The company now consists of a corporate staff and the three
operational groups, running as three independent companies: Plastics,
Chemicals and Electronics, each managed by a Group Vice President with
Harold Wallace serving as both Chairman and President and keeps sole
control all of the three entities, generating sales of $70 million with a net
income of $1,760,000. Presently, the morale within the company has
deteriorated to the point where some of the employee stockholders made an
attempt to force Wallaces resignation. Mr. Wallace has hired Frances
Rampar, a management consultant, to conduct a management survey into the
problems facing The Wallace Group. Her task is to develop a series of
priorities for Wallaces consideration.

INTERNAL ENVIRONMENT
STRENGTHS

WEAKNESSES

A The company is able to supply

many of its own component
parts and raw materials
because it is well-integrated.
B Solid performance from the
plastics
and
electronics
divisions in the past. The
electronics group has a good
track record in developing and
manufacturing
countermeasure equipment.
C Being a public corporation
provides the firm with flexibility
to attract equity capital vs.
long or short term debt.

A Tremendous
dissatisfaction
among management and
employees. This resulted from
Wallaces failure to delegate
to subordinates and a lack of
clear strategies or long term
plans, goals, or objectives.
B Lethargy and lack of direction
on top managements part.

EXTERNAL ENVIRONMENT
OPPORTUNITIES
A Favorable market niche in
electronics. Long standing
reputation
of
reliable
government
contracts.
Potential for increased sales
due
to
administrations
commitment to a strong
military
with
the
latest
technology.
B Auto industry on an upward
trend with high sales volume

THREATS

suggests solid future sales.

Capital structure
Financial ratios
Solvency ratio
Debt-to-assets ratio: 35% of companys assets are financed with debt.
Generally, higher debt, higher financial risk and thus weaker solvency
Debt-to-equity ratio: 54% higher ratio indicates weaker solvency
Financial leverage: 1.54
Measures the amount of TA supported for each one money unit of equity. This
means, 1.54 of total assets is supported for every $1 unit of equity. The higher
the financial leverage ratio, the more leveraged the company is in the sense
of using debt and other liabilities to finance assets.
Profitability ratios
Net profit margin
4% 3%
This measures the better view of a company's potential future profitability.
Comparing the PY and CY performance, it is positively increasing its profit.
Return on Equity
7%
5%
This measures the return earned by the company on its capital. In current
year, 7% was the return earned on its capital and 5% in prior years.
The above capital structure of The Wallace Group depicted how financially
sound the company is. The company is earning, and solvent thus, the
decision of Harold Wallace to undertake diversification to reduce exposure to
risk was a good portfolio strategy.
To address the identified key issues and problem of the company, money is
not a problem. Merely revisiting the companys policy and structure is needed
to strengthen its internal capacity for future growth and development.
VII.

Alternative Courses of Action

VIII.

Final Decision

IX.

Detailed Action Plan

The company should undertake the following courses of action:
TIME PERIOD
WITHIN 30 DAYS

30-90 DAYS

90 DAYS-OVER

RECOMMENDED ACTION