CHAPTER ONE
INTRODUCTION
1.1 Background Of The Study
In this contemporary economy,
it has been noted that the business of most organization is not dependent only
on the financial resources available, or the numerical strength of the work
force but as a result of the managerial ability, competence and management
style adopted in such organization.
This explains why
in present times stories are abound of failures, abysmal performance and on
some occasion total collapse or winding-up of several business organization. So
many reasons have accounted for this, one is globalization and technology and
another is Mergers and Acquisitions (M & A).
The paradox is
that globalization, technology and M .~ A advances, open Up new opportunities
even as they threaten the status quo. ‘1 he history of mergers contains enough
tragedy to terrify the most resilient organization. The diversification wave
around the world in 1960’s and 1970’s famously ended in tears and break-ups.
Yet despite claims that lesson had been learnt, the 1990’s merger wave was as
damaging as any before it. Shareholders in acquiring firms typically gain less
from mergers than shareholders in acquiring firms. But according to a study,
Rene Stulz (2001) of Ohio State University and two fellow economist found out
that acquiring shareholders lost $216 billion- over 50 times what they lost in
real terms in 1 980’s, although they spent only six times as much. Strikingly,
these losses were concentrated in just 87 deals iii 1 998-2001. In total, mergers during that period actually
destroyed some $134 billion of shareholders wealth. Many of the most disastrous
mergers have been the result of chief executives excessive
ambition. The chairman Daimler (1999), Jorgen Shrimp’s acquired of Chrysler, or
Time Warner Gerry Levis Merger deal with America- onLine (AOL).
In the past few
years there has been so much hostility on Merger & Acquisition from
investors and outside directors that the typical boss would propose anything
other that doing a Merger. Today profit ;~ souring, balance sheets strengthened
amid corporate governance reforms implemented. Investors amid outside directors
are increasingly asking the boss not what lie is doing to get the firm back on
track but how lie plans to expand it.
In this
environment, Merger proposals are once again, enthusiastically received. These
changes are throwing companies into state of confusion, regarding strategy on
whether bosses would curb their imperial ambitions enough to proposed only
deals that truly make business sense, whether boards and investors have
mastered the courage to question a boss’s merger plans thoroughly or equally
not to put him under such pressure that lie proposes a merger out of
desperation and whether working together, shareholders or chief executive are
better abbe to spot the difference between a faddish merger and a useful one.
Also to protect profits, companies have primarily responded by cutting their
cost, re-engineering their processes, and downsizing their work forces. Yet,
even companies that succeed in cutting their costs may fail to increase their
revenues if they lack strategic vision and strategic know-how.
In most viable
organizations, there is always the record of efficiency, effectiveness, higher
productivity and profit maximization. While it is otherwise in some of the
operations of their contemporaries. One of the reasons behind the successful
performance of business organization is the application of the principles of
strategic management in the operations of their
organizations by top level managers, in today’s environment of Mergers amid
acquisitions.
As noted by
Wheelen (1989) “many managers of today’s business organization failed because
the managers refused to manage them strategically.
They made
decisions based on long standing rules! policies or standard operating
procedures. They failed to realize that they must look into the future as they
plan their organization wide objectives, initiate strategies or set policies.
They failed to realize that they rose above their training and experience in
such functional/operational areas as accounting, marketing production or
finance and grasped the overall future of the organization.”
One would be
tempted to ask at this juncture, what exactly strategic I management is or why
strategic management is relevant for (lie success of any business organization?
According to
Thompson (1987). “Strategic Management is the process whereby managers
establish organizations objectives; develop strategies to achieve these
objectives in the light of all the relevant internal amid external
environmental circumstances”. So far the recent merger activity has mostly been
characterized by the sort of strategic management that experience suggests are
likely ~ create shareholders value.
Also in his
opinion, Wheelen (1989) defines “strategic management as (lie set of managerial
decisions and actions that determines the long run performance of an
organization. It includes strategic formulation, strategic implementation, and
evaluation and control”. He adds that most managers who studied strategic
management emphasised the monitoring and evaluation of
environmental opportunities and constraints in the light of the organization’s
strengths. and weaknesses. Ifezue (1999) sees strategic management as the
development of long run master-plans amid the strategies for the implementation
and survival and growth of the business organization.
Consequently, the
successful operation of any business organization such as a conglomerate cannot
be achieved without recourse to the Concept of strategic management.
This is because,
it is the pivot on which their success or failure revolves. Ifezue further
explains that many of today’s business managers made profits because they came
up with the right products at the right time and strategic thinking amid
planning. Many past formal strategic thinking amid planning and wise management
decisions carried these organizations where they stand in today’s business
environment. More amid more corporate organizations are turning to formal
planning system to guide their course of actions.
This research,
aims specifically at analyzing the impact of strategic management on mergers
and acquisition, and the alternative mode of growth on the size effect
resulting from the achieved growth. In other words, the research seeks to
determine whether mergers and acquisition on the one hand, and strategic
management direction and policies /strategies on the other are related. In the
second section of this study, we started by reviewing the relevant literatures
on strategy and management relationship formulation and implementation,
hierarchy, its historical development and prospects. We then link this to
existing research/literature on mergers and acquisition (expansion and growth)
on performance In the following section, the hypotheses would be tested and results confirming our hypotheses would be shown. Finally
summary, conclusions and recommendation for the study will be drawn and
suggestion avenues for further research made.
1.2 Statement of the Problem
Effective amid
efficient corporate decision making demands a thorough and intelligent
understanding of the various dimensions that impinge on corporate performance
and success. The various dimension concern question on how, what, where, when,
who whom and why of those cognate issues which if successfully managed, help in organization success, growth) merger
and acquisition and development.
In addition to
the relevant questions being asked decision have to be made in organization at
units amid functions, since efficiency altimetry determine corporate success,
growth amid development. Also important are those variables which are not under
the control of organizational efficiency and effectiveness. Therefore, there is
the need for conglomerate companies to have adequate understanding of these
relevaiit functions and variables the methods for their integration, and how
they can be determined, applied amid monitored for organizational survival,
growth and development.
The main problem
of this study is to access the roles of strategic management as tool in achieving
organizational objectives in conglomerate companies and the impact it has on
merger amid acquisitions,. Companies are floated to generate returns to her
shareholders (the growing use of shares, rather than cash, as payment in
acquisitions) regrettably, not only have most of these companies failed to
achieved there laudable objective, amid a good number of
them have not only found it difficult to maintain their status quo but gone to
the extent of foreclosure.
The emergence of
strict adherence to the concept strategic management is making it much easier
for firms to sell their non core businesses amid for corporate buyers to
offload quickly unwanted parts of their businesses. Increasingly, strategic
managers are continuously working for their firms to course up a target before
a deal is done, which increases the likelihood of success. (The Economist:
2005).
However
unsuccessful firms managers failed to appreciate the importance of chanting a
clear organizational course and being good managers. They backed the instinct
for strategic management thinking amid had ignored lesson implicit in the
saving that “when one had no idea of where one is going, then one cannot
realize that any road can lead there (Pearce 1991).
The discrepancies
in the operational ability of these firms help to identify the major problem
that strategic management is indispensable tool for the successful Duration of
such companies and it is in appreciation of roles/benefits inherent in
strategic management in conglomerates (with relation to mergers and
acquisitions informed the study on the subject matter).
1.3 Research
Questions
The following
research questions will be used to determine the state of strategic management
and its applicability, roles, potentials, benefits, problems and constraints
encountered in its implementation, the overall effects and impact when applied
to compare its overall impact on mergers and acquisitions amid performance
conglomerates.
1.
To what extent are the firms aware of the concept of the strategic
management in decision-making and the prospects and benefits?
2.
What is (lie impact of strategic management in achieving organizational
objectives?
3.
To what extent is strategic management relevant for the successful
performance of companies in Nigeria?
5.
How does the applicability of strategic management survival of companies
as a going concern?
5.
To what
extent does a firm performance relate to its size positively
6.
How does Nigerian environment make strategic management unnecessary for
the Nigerian firm irrespective of organization conservation?
7.
What
problem do firms encounter in the course of implementing strategic
decisions?
1.4 Objective
Of The Study
1.
To examine the relevance of strategic management in the successful
performance of firms in Nigeria.
2.
To determine the impact of strategic management in achieving
organization objectives, such as mergers and acquisition amid performance.
3.
To
ascertain the benefits deriving from strategic management.
4.
To establish that mergers amid acquisitions as a current mode of growth
and expansion.
5. To establish the problems,
which confront managers in the application of strategic management, amid to suggest recommendations on how these
problems could be tackled?
1.5 Hypothesis Of The Study
Though the
research will focus on mergers and acquisition that result in increasing the
size of the firm in its industry i.e. horizontal mergers amid acquisition.
Similarly the study will examine the fundamental concept of strategic manage
emit amid its impact on corporate objective of mergers and acquisitions. The
empirical setting for the study, selected conglomerates (Nestle Nigerian and
Lever brothers Plc.) were chosen because of the unambiguous size impact of most
mergers and acquisitions or alliances between incumbent firms.
Based on previous
literatures reviews, we formulated the following hypothesis for our study.
Hypothesis 1
Hi: Businesses which do
develop a formal strategic management system will be more effective in
achieving their objectives than those that do not.
Ho: Businesses which do not
develop a formal strategic management system will be more effective in achieving their objectives than those
that do.
Hypothesis 2
Hi: Mergers fail to come to
be amid fail after consummation more frequently for human reason than for
financial and managerial concepts and strategies.
Ho: Mergers fail to come to
be and fail after consummation more frequently for financial and managerial
concepts amid strategies than for human reason.
1.6 Limitation Of The Study
A review of related
literature like books journals, official reports etc do not only help our
understanding of the research problems. and formulation of the hypotheses and
it is also a vital source of data. However, in the course of this research, a
number of constraints were encountered.
First, the depth
of qualitative data to sift through for meaningful information ~testing
reliability valid validity of the data and unwillingness of persons concerned
to release data.
Second, the
paucity of indigenous literature as regards mergers and conclusions under the
Nigerian environment poses a problem to this research.
Finally and very
importantly, a major limiting factor lies in the apathy of Nigerian firms to
release necessary information relevant to their strategic management decision
plan. The prevalent suspicion which surrounds the researcher that lie may be
acting on behalf of their competitors complicates these finding, amid no doubt
question the accuracy of data obtained. Nevertheless, it must be noted that
this problem or issue of accuracy of research findings is a common problem.
Notwithstanding,
all these limitations and difficulties, it has been possible to carryout a
reasonable pleasing amid interesting research amid that the findings of the
research shall still remain valid.
1.7 Scope of the Study
The
scope of this study covers the concept of strategic management, definitions,
process, applications, history and criticisms. The focus will be on mergers and
acquisition as a growth strategy in strategic management, with particular
emphasis on Its size performance relationship.
1.8 Significance of the Study
As previously
mentioned, the forces of globalization and technological advancement have
weighty effects on the trends of modern business. Hence companies willing to be
of much impact must take tremendous steps in dealing with issues as they arise
and are foreseeable. A research of this nature could be significant for a
number or reasons:
1)
It will create and reinforce the need awareness of strategic management
as a management concept that companies should embrace in order to improve the
quality of decision-making.
2)
It will help companies identify strategic management as an important
mergers amid acquisition and improved performance.
3)
It will
highlight the roles of strategic management in Nigerian companies.
4)
It will help companies look into future amid reduce if possible
eliminate future uncertainty associated with the Nigerian business environment.
5)
It will help companies set up functional standards that will help in
bridging the performance gap in their awareness for the improvement amid
competition for the firm’s superiority.
7)
it will highlight the prospects of strategic management
8)
It will show how strategic management decision impact on mergers an
acquisition and whether mergers amid acquisitions impact on performance.
9)
It will
discuss strategic management process in the Nigerian environment.
10)
It will
contribute to body of knowledge amid leave room for future research work.
1.9 DEFINITION
OF RELEVANT TERMS
1) Management: The Direction of
human behaviour towards a particular goal or objective, or the control and
coordination of all activities within a business so as to work towards a
particular goal or objective. (Kate & Gubellini 1983)
2) Strategic Management: Is the
development and maintenance of viable relationship between the organisation and
environment through the development of corporate purpose, objective and goals,
growth strategies and business portfolio plans for organization’s wide
operations (Ifezue 1999).
3. Corporation: A form of business in which ownership is vested on
shares of stock and an owner’s liability is limited to his investment.
Corporations of formed under state laws (Kate & Gubellini 1983).
4)
Conglomerate: A Corporate merger of heterogeneous businesses which
retails autonomous operating control
in its various
division and is financially controlled at the top
executive level (Kate Gubellini 1983)
5) Merger: The combining of two
or more organizations into one. (Kate & Gubellini 1983)
6) Strategy: The determination
of the basic long term goals and objectives of an enterprise, amid the adoption
of causes of action and the allocation of resources necessary for carrying out
these goals. (Kate & Gubellini 1983)
7) Growth Strategies: “A growth
strategy is one that a firm pursues when it increases the level of its
objectives higher than an extrapolation of the past
level into the future(Glueck 1980).
8.) Competition: A market condition where there are very large members
of producers of a good who serve very large numbers of consumers. No producer
or consumer controls price here. (Kate & Gubellini 1983)
9) Benchmarking: A mark made on
something such as a post used as a point for measuring things.
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