Case Analysis of: M-Tronics

Topics: Subsidiary, Division, Investment Pages: 8 (2996 words) Published: December 16, 2010
A Case Analysis of:
M-TRONICS

Key Issues:
The main issues of this case are best summarised as follows. They are; 1) how can M-Tronics increase operating efficiency and reduce costs in its electronics department? 2) How can M-Tronics reduce conflict problems between R&D and other segments of its Electronics department? 3) How should the philosophy towards the level of autonomy CEO Martel gives his directors be shaped in the future to address management concerns? 4) What is the best way to provide new financial resources to ensure continued success for the Machine division? 5) Lastly, how should the Entrepreneurial Subsidiaries program be formatted to provide for continued growth and success for M-Tronics? Internal Analysis:

The analysis of M-Tronics will consist of a separate analysis of the old McKenna Machine Co., as well as one of Datronics. This will provide for a greater understanding of the ambidextrous organizational structure of M-Tronics. Beginning with McKenna Machine Co., it was founded in the early 1900’s when there was consolidation of small local machine shops. There were four local machine shops that merged to form an industrial machine parts manufacturing corporation. McKenna Machine Co. was a family run business with a management team that consisted of mostly older executives. Most of these top executives held positions with McKenna for over 20 years. At the time of acquisition, they had revenue of $600 million and net profit of $12 million. They also held a market share of 40-60%. This positioned them as the market leader. However, the budget for the machine division has become static and new financial requirements needed to increase production quality have not been received since its last investment in the 1970s. The organizational structure was that of a centralized chain of command. The leadership style was that of a paternalistic family oriented business. They had a strategy that included economies of scale, having high quality outputs, and a complete line of products offered to satisfy all customer needs. They also have top salespeople who enjoy working for McKenna. They are in a slow moving mature industry and therefore didn’t focus on R&D; rather concentrating on a follower strategy. To make up for this lack of innovation, they chose to diversify their company through acquisitions of Entrepreneurial Subsidiaries. They began with several acquisitions in the 1980’s finally acquiring Datronics in 1989 at which time they created a new company called M-Tronics. We now analyse the Datronics Company. Their formation and strategy are quite different from that of McKenna Machine. They began as an entrepreneurial start up when John Martell left his previous job to begin his own company. Initially, Datronics was founded in 1979 and they were able to survive on government research grants and contracts. They competed in a highly competitive but also high growth potential industry. In its beginning, Datronics was able to develop some sophisticated electronic equipment with industrial applications. Due to much needed capital limitations, they became open to equity investments or acquisition as a means of getting capital to better exploit their products. Datronics strategy was different from that of McKenna. They focused heavily on R&D and chose to subcontract their marketing and production of the products. Also, they had a great deal of emphasis placed on growth and innovation. This was evident by their focus on the R&D. It had reached revenues in excess of $100 million in its first 10 years of existence. With the analysis of both separate companies, we now look at the culture of M-Tronics after the acquisition. They used an ambidextrous strategy in merging the two companies. They were able to keep the structure of the machine division separate to that of the electronics division. The machinery division was able to continue along their established path and focus highly on production improvements to...
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