CASE ANALYSIS As Partial Requirement for the Subject MKTG11

(Sales Management: Analysis and Decision Making)

Under: Mr. Ruben dL. Manahan

Submitted by: Escaner, Remilson Francisco, Roxanna Mariz Gonzales, Kelvin Jay Paglomutan, Aries Santos, Rezel MaryAnn Victoriano, Kelvin Dan

MARCH 2011
CASE PROBLEM

SHOULD BP SHAREHOLDERS APPROVE THE DEAL? Share holders of British Petroleum (BP) were faced with a challenging decision. BP CEO Sir. John Browne had recommended that the venerable British company purchase longtime American competitors Amoco for $57 billion. Browne had just led Bp in the purchase of Atlantic Richfield just for six months earlier for $27 billion. If the share holders approve the deal, BP-Amoco would become the second largest oil in the world-not bad for a company that had been serious financial trouble just seven year priors. In a presentation to press and industry analyst, Sir Brownes presentations to shareholders were straight forward. The merger would make BP a super-major company, holding the third largest of oil and gas reserves. Browne portrayed the new company as having distinctive assets, global reach and strongly competitive returns. The company would be lightly restructured. The resulting synergies gained by the new firm would result in a net $2 billion pretax savings. The merger would also geographically diversify BP improving the balance in its revenues between the United States, Europe, and the rest of the world. BPs earnings in 1997 were $4.6 billion and Amocos totaled $2.7 billion. Combined revenues of two giants would total $108 billion. The current combined market capitalization (the total value of its shares) of some $110 billion would create Britains largest company. Critics of the proposal suggested it was so simple. Among other issues, Sir Browne needed to develop a strategy for BPs natural gas assets. The merger was scheduled to make BP the worlds largest company producers of natural gas

(only smaller than the giant Gazprom and the U.S Company Exxon). Analysts that predicted that demand for natural gas would grow twice and as fast as that for oil, yet there were questions about BPs knowledge and skills in the area. Former Amoco executive said the company did not understand the nature of the gas business. There was also concern that Browne might not grow the new business. Browne has shown great skill in cutting cost and gaining efficiencies, but analyst still concerned. It takes a different set of skills to cut a company than to grow it. For all his success, Browne had not clearly demonstrated to everyones satisfaction that he could move a company to sustained growth. Still the numbers presented by Browne and his management team were impressive, they were careful to document the source of their estimated $2 billion in cost saving, providing assurances that these moves were well planned. Further, the management teams suggested its numbers were conservatives as they did not reflect any synergies that might occur in revenue generation-only those costs cutting. As a result, the $2 billion improvement in profit might be conservative. Further, the management team at BP had linked its owned management compensation to meeting the strategic cost targets. In describing the merger to BPs share holders, Browne described the BP-Amoco link-up in glowing terms as a superb alliance of equals with complementary strategic and geographical strengths which effectively creates a new super-major company that can better serves a millions of customers worldwide. There was a great deal of information to consider when making the decision. The security and exchange commission (SEC) filling alone concerning the acquisition were more than 100 pages. There

were strong opinions for and against the acquisition.

CASE ANALYSIS

Q1. What criteria do you think BP used in making its decision? Would you consider their decision process rational? A2. The time of course, it will be irrational if they will just buy Amoco immediately, Browne had just led BP in the purchase of Atlantic Richfield just for six months earlier for $27 billion Company and the company had been in serious financial trouble just seven year priors. Q2. What criteria might you use as an investor that would be different from BP? A2. I will suggest, resolve their other financial problem first before they will buy another accompany again because other investors were not convinced in just buying companies, and they need their interests. We need more time and plans for the company, because we just bought Atlantic Richfield. Q3. What decision do you think the shareholders should make, and why? A3. Just wait for several years until the money used in buying Atlantic Richfield will return resolve their financial problems, plus their total revenue, then, buy the Amoco Company.

Submitted by: Santos, Rezel MaryAnn Francisco, Roxanna Mariz

CASE PROBLEM

GES TWO DECADE TRANSFORMATION: JACK WELCHS LEADERSHIP When Jack Welch took office in April 1981 as the new Chairman and Chief Executive Officer of General Electric, the company had entered the stage between the maturity and decline. In 1980 right before Welch took the position, GE's organizational rigid structure, resistance to change and bureaucratic climate make it impossible to perceive important environmental changes. Moreover, the organizational structure, decision-making process and information management procedures no longer fit the organization's needs. Welch responded to the

board's mandate and acted to revive the organization from the decline stage into the earlier stage of the organization life cycle. He collected GE's resources to focus on its key businesses, adjusted the organization structure and planning process to stay lean and agile, and most important, created an atmosphere, a culture where concepts like agility, excellence, and entrepreneurship are coming to life. The motivation behind Welch's strategic leadership to take aggressive actions to transform GE could be from his strong commitment to a paradigm that earned him the job and the high task interest from the challenge of the uncertainty. Similar to most new CEOs, Welch wanted his philosophy and ideas to reach and stay at each corner of the company and he realized that he could not attain this goal without taking intense transformation. Moreover, this

reengineering could help him solidify and enhance his power, which could be aided by the passage of time, to facilitate the transformation of the company. This process would generally take a long time to achieve. GE is one of the largest and most diversified industrial corporations in the world. The Company's products include lamps and other lighting products, major home appliances,

industrial automation products and components, motors, electrical distribution and control equipment, locomotives, power generation and delivery products, nuclear reactors, nuclear power support services and fuel assemblies, aircraft jet engines, plastics and a wide variety of high-technology products, including products used in medical diagnostic applications. In general, in 1981 the

industry environment where GE was involved was a declining one. The main problem in a declining industry is that falling demand for products lead to the emergence of excess capacity (Charles W.L. Hill, Gareth R. Jones, 1988). In trying to use this capacity, GE began to cut prices, thus sparking a price war and diminishing the profit. After taking the position, Welch sold out those business in GE's portfolio that faced no potential return in the future industry and retained and added some with the potential to be number one or number two in that industry. In other words, Welch took GE out of the declining industry and put it in the growth one. In these two stages of the industry life cycle, the company has a major opportunity to capitalize and expand its capacity on the lack of rivalry and build a strong hold on the market. Welch changed the financial system and

concentrated the organization's capital to expand the capacity for those potential business units. This could bring GE's operation into economic of scale and then lock out the potential competitors. Moreover, this strategy could help the company prepare for the shakeout stage of industry life cycle, which has intense competition. Jack Welch is known to be an icon in today's business world. He has set the standard to which many Fortune 500 companies are being benchmarked against in today's competitive market. Although he has been

characterized as "not fitting the corporate stereotype" and not being

"conventional," General Electric has seen their price earnings go from 7 to 16 and their value go from 326 to 498 under his direction. Obviously, he is doing something right! He believes in constructive conflict and forces managers to defend their views. Mr. Welch came up with a very specific vision to "be the

most profitable, highly diversified company on earth with world quality leadership in every production line" and would accept nothing short of this. He also set the goal to be number one or two in every business that the company was in, and disengages from those where this was not possible.

CASE ANALYSIS Q1: Will GE be able to sustain in the success that it has realized during the past twenty years under Welch as the acting CEO once he departs?

A1: A successor has to be found to replace the retiring Jack Welch, as no suitable candidate has yet been determined. This is becoming a concern for shareholders who want to realize the same returns they have been receiving under the Welch regime. The new CEO needs to be dynamic to lead this complex organization, and sustain the rate of growth realized during the Welch era. Q2: Without the right successor, how will GE continue being as successful as it was in the past 20 years in terms of creating value for shareholders? A2: This is likely going to become very unmanageable if GE continues to expand its business units, as the new CEO will be hard pressed to maintain the same level of direct involvement without being spread too thin. Plus, the controls do not appear to be in place to monitor management, as Welch maintained that documenting processes creates needless bureaucracy. As such, it will be very difficult for the business unit CEOs to understand all of the business lines in order to properly allocate resources. GE used to be known as a light bulb company; today it is hard to know what GEs core products are. GE likes to let the business units operate on a standalone basis, like a small business. It is unclear whether or not GE has a clear overall mission and vision for the organization. Q3: The questions that GE as an organization has to ask itself are: who am I, and where do I want to be in the future (ten to twenty years)? A3: Jack is a very hands-on CEO. He is not afraid to get involved in projects and initiatives that he implemented. He participated in the Session Cs every April and May to evaluate the 3,000 senior executives of the organization, the top 500

of which had to be personally approved by him. Welch also taught GE managerial training courses on a bi-monthly basis at its Crotonville facility, boasting I have not missed one session yet. It does not appear that GE had anyone nominated to take over for Welch upon his retirement. This was a major concern of shareholders.

Submitted by: Gonzales, Kelvin Jay Paglomutan, Aries