There was no mention regarding the specific time context on both cases but the time context can be assumed to have occurred during the 1990s. The company has a diversified operation and it was during that period where diversification , acquisition and mergers prevalently took place. II.VIEW POINT
Frances Rampar, President of Rampar Associated, a management consultant, who conducted a management survey into the problems facing the Wallace Group. Her task is to develop a series of priorities for Wallace’s consideration. She had to make an effective sales representation to Harold Wallace. Harold Wallace was the president of the Wallace Group. He has asked Rampar to conduct a series of interviews with some key Wallace Group employees, in preparation for a possible consulting assignment for Rampar Associates. III.CENTRAL PROBLEM
At a glance the central problem seems to be the absence of cooperation between each group. Since the group is consisted of three independent outfits that are not keen to share information and cooperate with each other. The thorough examination of the case reveals that the main problem is not only the absence of it’s but a worse the group is out rightly affected by negative synergy.
Synergy is the cooperative interaction among groups, especially among the acquired subsidiaries or merged parts of Wallace group that creates an enhanced combine effect is the central problem. Top management should understand the difference in organizational cultures, and understand of how diversification activities will “fit” or to be coordinated with the existing business.
The problem regarding the cooperation between the groups was a result of the diversification strategy. The Wallace group attempted to vertically integrate plastics production but Wallace cannot manage the acquisition, so he instead opted to attract equity capital and formed a closed corporation. Prior to this acquisition, several years back, Wallace acquired a chemical company on the verge of bankruptcy by means of public stock offering.
The diversification that was undertaken by Wallace is referred to as conglomerate diversification. It occurs when a firm diversifies into areas that are unrelated to its current line of business. Synergy may result through the application of management expertise or financial resources. The primary purpose of conglomerate diversification is improved profitability of the acquiring firm. Little, if any, concern is given to achieving marketing is to diversify further because two thirds of Wallace’s business is dependent on defence related contracts. The most common reason for pursuing conglomerate growth strategy lies with a firm’s limited current line for business. That is why the original set up of Wallace, the electronics group, was made to merge with two acquired non related businesses which are the plastics and chemical components. Firms may also pursue a conglomerate diversification strategy as a means of increasing the firms growth rate. Growth in sale may make a company more attractive to investors especially for those firms who are publicly listed.
This strategy goes without certain repercussion; the biggest disadvantage of a conglomerate diversification strategy is the increase in problems associated with operating unrelated businesses. Managers from different divisions or components may have different backgrounds and may be unable to work together effectively. Competition between strategic business units for resources may entail shifting resources away from one division to another. Such move may create manifestation in the Wallace group. This materialized in what the Wallace group is experiencing as stated in the case, the erosion of corporate governance.
Wallace group’s corporate governance is in question and is most often viewed as both associated to corporate structure and the relationships which determine corporate...