Hanson began a new strategy that involved the buying of companies which he considered to have been poorly managed and which were underperforming, his objective was aimed at buying underperforming companies and after some time he would sell them in order to acquire other underperforming companies. His strategy was a success and led to a revolution in management where he advocated for proper management in large companies.
The resource based view strategy is a view which describes how a firm can use its resources to gain competitive advantage over its rivals and as a result gain above average earnings and returns, this strategy states that the firm has to first identify the potential resources that will lead to growth, the next step is to evaluate these resources on whether they are valuable, rare, the ability to control these resources and whether the resources can gain value in the future.
According to this strategy the firm will select an attractive industry to invest where the firm will have the opportunity to fully exploit its resources. The firm will also have to be capable of integrating their resource to perform tasks which will help the firm gain competitive advantage over its rivals.
Chandler (1960) introduced the strategy and structure theory which stated that organisations were the agents of the industry, for this reason therefore the organisations determined industrial transformation, according to this theory the market mechanism is replaced by the enterprises which allocate resources and coordinate activities, in his view the invisible hand in the market is replaced by the visible hand of management.
This strategy also states that the organisation moves from an unmanaged form of organisation to a managed form of organisation and for this reason management becomes a source of power to the organisation because management ensures continuous growth.
Hanson approach was based on the view that there were a number of firms that were not well managed and that management skills could be applied to any industry in the economy, his growth strategy was based on a number of objectives and strategy which can be referred to as conglomerate strategy, his strategy was to target large companies that were not well managed, these companies were located in the US or in the UK. After acquiring these companies Hanson would reorganise the company to achieve high levels of earnings and the company would gain value and he would sell the company at a higher price than he acquired it.
When the company was acquired there was need to reorganise the company in order to improve the current state of the company which was underperforming, this was made possible by the use of management skills and as a result the company would grow. As a result of this growth the company would earn more than the average in the industry and this would result into the gain in value of the company.
Hanson’s strategy was characterised by his ability to manage companies in way that they would generate a surplus, the surplus would be used to pay dividends and also for the purpose of acquiring new companies that were underperforming. His strategy objectives therefore were to achieve conglomerate growth in a firm and at the same time to achieve profits that were over and above the industries average earnings.
According to his strategy there were some of the most important internal and external resource that were very important in the growth of the companies he acquired, this included capital which was increased by surplus each year, the capital was used to purchase other companies. The other factor that was important to his success is labour, according to him the reduction in the number of labourers in companies would ensure a reduction in production cost which would increase competitive advantage. Finally the most important factor was the existence of underperforming companies.
The strengths of Hanson’s strategy for growth include:
His strategy increased investor’s wealth through the increase in share prices, this was made possible by his ability to create a surplus.
The other strength is that his strategy involved the termination business activities that were not profitable to the company he acquired.
His strategy also involved the acquisition of companies that were in different industries this showing that his strategies would be used in any industry in an economy.
However his strategy has some weaknesses which include:
His strategies were based on short term returns other than long term returns. He ignored long term benefits that would be realised continuously for a long period of time.
His strategy also has a weakness where Hanson would sell assets, this for example is evident where he purchased the imperial group in 1980 for 2.6 billion pounds and sold assets that amounted to 2.3 billion pounds.
Finally Hanson was not concerned about the products he produced, he was not concerned about the quality of products and services he offered to the market and his only objective was to acquire profits from an underperforming business.
Hanson is considered to have been successful in the strategies he used on under performing companies, however the strategies he states that his strategy would no longer work as underperforming and poorly managed business seized to exist. However his strategies clearly show the importance of management in a company. His strategy mainly was based on buying underperforming companies and after reorganisation and appropriate management was implemented he would sell the company.
He purchased under performing businesses and would sell them at a higher price than the price he had acquired them. Therefore he would gain from the value created and also from profits that the organisation had made during the period. When he acquired the company he would reorganise the company by the use of management skills and as a result the company would grow and start earning profits that were over and above the market average.
Hanson’s strategy was to generate a surplus and this surplus would be used to pay dividends and for the purpose of acquiring new companies. As a result of this the investors of these companies would gain due to increased share prices. This strategy therefore shows the importance of appropriate management and the use of diverse strategies to achieve business growth.
Sanchez R. (2004) Strategic Management: Organization Competition and Competence, John Wiley and Sons Publishers, London
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