Week 2 DiscussionCOLLAPSE
Identifying and Balancing Risk and Reward
Name one of the biggest strategic risks and one of the biggest financial risks that you face in your business or industry, and briefly explain how each of these can impact your business. For one of these, provide your ideas on the steps your company should take to significantly mitigate these risks.
Post your initial response by Wednesday, midnight of your time zone, and reply to at least 2 of your classmates’ initial posts by Sunday, midnight of your time zone.
!st person to respond to
Csherri Sims RE: Week 2 DiscussionCOLLAPSE
Identifying and Balancing Risk and Reward
Name one of the biggest strategic risks and one of the biggest financial risks that you face in your business or industry, and briefly explain how each of these can impact your business. For one of these, provide your ideas on the steps your company should take to significantly mitigate these risks.
Last quarter in my JWI 540: Strategy class, our assignments were based on the company we work for or a company or business in our industry. I work in the school bus transportation industry, so I chose Blue Bird Corporation as the company I would use. In Assignment 2, I had to develop a game-winning strategy to gain the competitive advantage in my industry. My game-winning move was a merger with Traton Group/Navistar/IC Bus, the second-largest school bus manufacturer in North America, a company owned by Volvo that has a very lucrative international presence, and a company that has already partnered with another company to manufacture and successfully market a self-driving truck. The move would have been a game-changing move that would create a sustainable competitive advantage and would generate financially attractive growth.
A significant financial risk the company may encounter is a school district defaulting on a credit sale of a fleet of school buses. I have not come across information about a district doing so, but what if it happens? What if a district that purchased a fleet of 100 propane or electric buses, priced at $200,000+ each, failed to submit the necessary paperwork to qualify for federal funding of alternative fuel buses and defaults on the credit purchase? It is obvious a situation as this would not put the company in a favorable financial position. Of course, the buses could be returned, but at how much of a loss? Districts tend to custom-build their school buses to what their particular district’s needs are, and, depending on the design, the cost could be substantial to reconfigure the buses for resale.
One of the most significant risks involved in this merger is ensuring the required investments are executed efficiently because many mergers have failed due to the lack of doing so. One significant investment that would be required to implement this move is merging the technologies used on the buses of both manufacturers and ensuring those innovations are merged seamlessly on all school buses. It would not be necessary to hire more people because both manufacturers would retain their current employees, but it would be necessary to ensure all employees are trained to know the logistics of both types of buses. All mechanics would also have to be retrained to work on the various types these buses manufactured by both companies. It would also not be necessary to build new manufacturing plants, but expansions may be necessary for some areas. In the past, mergers have failed for many reasons including not knowing the motivations of the buyers and sellers, unrealistic expectations, hidden debt and financial instability, inaccurate financials, lack of communication, poor representation, and putting all eggs in one basket. In order to significantly mitigate these risks, Blue Bird Corporation would have to ensure to make the required investments mentioned prior and learn from the previous mistakes of other failed mergers to ensure those same mistakes are not made.
References
- Csherri Sims. 2022. JWI 540 Assignment 2
- https://www.blue-bird.com/
- https://salientvalue.com/9-reasons-why-mergers-fail-and-how-to-avoid-them/#:~:text=Basic%20reasons%20frequently%20cited%20for,of%20the%20M%2BA%20process.
2nd person to respond to
Thiago Andrade
Hello Professor JP and Classmates,
Name one of the biggest strategic risks and one of the biggest financial risks that you face in your business or industry, and briefly explain how each of these can impact your business. For one of these, provide your ideas on the steps your company should take to significantly mitigate these risks.
Halliburton is a multinational oil and gas service company with operations in more than 80 countries with different government regulations, political systems, and laws. As such, business and management worldwide are pretty complex. One of the most significant strategic risks ever taken by Halliburton was in 2014 when they decided to have a substantial acquisition to buy one of its largest competitors, Bake Hughes, the transaction valued at $34.6 billion. Unfortunately, after two years of negotiation with the department of justice, Halliburton failed and abandoned the deal. Moreover, Halliburton had to pay Baker Hughes a $3.5 billion breakup fee due to the agreement falling apart. I also experienced a major financial risk and failure back in 213 when I was working for Halliburton Brazil. Our department won the biggest contract in the globe ever seen, brought attention from many parts, and spread in the news, a milestone many people celebrated. Then, Halliburton started with massive investment and resources, hiring people and building new facilities and assets. In the end, it turned out that the customer changed its position and was no longer interested in drilling the number of wells claimed in the contract. It was a massive loss, downturn, and layoffs, almost shutting the doors. As part of any business, risks are present and will always occur eventually. The critical factor is how the manager deals with the risk, which means risk management practice. Risk must be identified, clarified, ranked, and monitored aggressively enough to ensure that management can take action within a reasonable period of time (1). Jack stated that assessing risk is challenging for every manager, and the risk-reward is pattern recognition (2). That all being said, Halliburton made wrong decisions and learned from its mistakes which matter most, being able to keep growing its revenue and stay competitive in the market.
Sincerely
Thiago Andrade
References:
- Bragg, Steven M. 2020. The CFO Guidebook, Fourth Edition.
- JWI 521. Week 2. Experts of Practice Videos.
- https://www.justice.gov/opa/pr/halliburton-and-baker-hughes-abandon-merger-after-department-justice-sued-block-deal#:~:text=May%201%2C%202016-,Halliburton%20and%20Baker%20Hughes%20Abandon%20Merger%20After%20Department%20of%20Justice,originally%20valued%20at%20%2434%20billion.
- https://www.cnbc.com/2016/05/01/halliburton-baker-hughes-set-to-terminate-35b-deal-source.html
- https://www.businesswire.com/news/home/20141117005433/en/Halliburton-and-Baker-Hughes-Reach-Agreement-to-Combine-in-Stock-and-Cash-Transaction-Valued-at-34.6-Billion
