Case Study On Cooper Industries
HOW ATTRACTIVE IS THE INDUSTRY ?
An attractive industry with a high average return on investment will be difficult to enter because entry barriers are high, suppliers and buyers have only modest bargaining power, substitute products or services are few, and the rivalry among competitors is stable. An unattractive industry like steel will have structural flaws, including a plethora of substitute materials, powerful and price-sensitive buyers, and excessive rivalry caused by high fixed costs and a large group of competitors, many of whom are state supported.
Diversification cannot create shareholder value unless new industries have favorable structures that support returns exceeding the cost of capital. If the industry doesn’t have such returns, …show more content…
• Acquisition of firms with stable earnings and counter cyclical to those Cooper Industries (E.g. Investment in electrical business in 70s).
• Acquisition of firms with high quality products & firms that were market leaders.
• Focussing on products that served basic needs & were manufactured by proven technologies so that Cooper gained consistent earnings from stable markets with predictable growth.
• Transferring proven practices around company rather than using outside consultants. Experience & judgement of senior management staffs.
• Cash flow is king thinking – It enforces attention to working capital management
• Centralised activities among divisions
• Skilled Labor & Capital
• Cooper conducted systematic supervision over acquired firms.
• Cooper’s CEO Cizik, 3 Senior VPs who manage Administration, Finance & Manufacturing services, and 3 Executive VPs who manage each division - Electrical & Electronic, Commercial & Industrial, Compression and Drilling. Central control over corporate policy but delegated day-to-day operating decisions to each operating unit. Senior Management is composed of former operators so that it knew what were good decisions to make. Cooper maintained a strong union-avoidance
An attractive industry with a high average return on investment will be difficult to enter because entry barriers are high, suppliers and buyers have only modest bargaining power, substitute products or services are few, and the rivalry among competitors is stable. An unattractive industry like steel will have structural flaws, including a plethora of substitute materials, powerful and price-sensitive buyers, and excessive rivalry caused by high fixed costs and a large group of competitors, many of whom are state supported.
Diversification cannot create shareholder value unless new industries have favorable structures that support returns exceeding the cost of capital. If the industry doesn’t have such returns, …show more content…
• Acquisition of firms with stable earnings and counter cyclical to those Cooper Industries (E.g. Investment in electrical business in 70s).
• Acquisition of firms with high quality products & firms that were market leaders.
• Focussing on products that served basic needs & were manufactured by proven technologies so that Cooper gained consistent earnings from stable markets with predictable growth.
• Transferring proven practices around company rather than using outside consultants. Experience & judgement of senior management staffs.
• Cash flow is king thinking – It enforces attention to working capital management
• Centralised activities among divisions
• Skilled Labor & Capital
• Cooper conducted systematic supervision over acquired firms.
• Cooper’s CEO Cizik, 3 Senior VPs who manage Administration, Finance & Manufacturing services, and 3 Executive VPs who manage each division - Electrical & Electronic, Commercial & Industrial, Compression and Drilling. Central control over corporate policy but delegated day-to-day operating decisions to each operating unit. Senior Management is composed of former operators so that it knew what were good decisions to make. Cooper maintained a strong union-avoidance