MRC, Inc. is a Cleveland based manufacturing company specialized in power brake systems for trucks, buses, and automobiles; industrial furnaces and heat treating equipment; and automobile, truck and bus frames. As till 1957 most of MRC's sales were made to less than a dozen large companies in the automotive industry, it was exposed to the risk inherent in selling to a few customers in a very cyclical and competitive market. To minimize the risk and to explore new business opportunity MRC's management decided to diversify their business operation. After their fifth successful acquisition, the CEO of MRC Archibald Brinton faced with a dilemma of whether to buy American Rayon, Inc.
Topics which are covered in this case are:
in short capital budgeting is the planning process used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures. In our case Acquisition of ARI was a major capital budgeting decision for the MRC management.
Many formal methods are used in capital budgeting, including the techniques such as • Accounting rate of return
• Net present value
• Profitability index
• Internal rate of return
• Modified internal rate of return
• Equivalent annuity
Here in our case, we have used Net Present Value or NPV, which is estimating the size and timing of all the incremental cash flows from the project. These future cash flows are then discounted to determine their present value. These present values are then summed, to get the NPV. The NPV decision rule is to accept all positive NPV projects in an unconstrained environment, or if projects are mutually exclusive, accept the one with the highest NPV.
Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry that the business is already in. At the corporate level, it is generally entering a promising business outside of the scope of the existing business unit. In our case, the managements was actively pursuing a diversification strategy to minimize the risk of selling goods to few customers.
Product planning plays a major role in the later part of our case. Product planning is a process used to identify and develop new products. The purpose of planning is to make choices about which product ideas a company should invest in. Companies can approach product planning from a number of different perspectives. Having a system in place before planning begins is important as it helps to avoid wasted time and creates a framework for decision making. Consultants who specialize in marketing and corporate decision making can be involved in the development of a product planning system for a company, which will accommodate the company's approach to business while helping it avoid expensive dead ends. So, once MRC acquired ARI it will require a great deal of assets invested in product planning for a successful reemerge from the drowning rayon business. Q1. What are the key elements of MRC, Inc.'s corporate strategy?
Ans: Corporate Strategy is about enabling an organization to achieve and sustain superior overall performance and returns. It is a core responsibility of senior executives and encompasses a range of critical activities, from defining and refining corporate vision to strategic performance measurement and management. Upon becoming the CEO in 1957, Mr. Brinton had begun an active program of diversification by acquisition. So therefore "diversification" was the way forward for MRC. The...