Republic of the Philippines

CAMARINES NORTE STATE COLLEGE

Graduate School
Daet, Camarines Norte

Redefining Flanagan Corporation after Failed Diversification

A CASE ANALYSIS

Submitted to:

DR. ANA B. DEL MUNDO

Professor

In partial fulfillment of the requirements in

ORGANIZATION & MANAGEMENT (MBA 201)

By

EMERSON ASIS DE LEMON

Master in Business Administration
1st SEM SY - 2018-2019
INTRODUCTION
 TABLE OF CONTENTS

CONTENTS Page
Title Page 1
Table of Contents 2
Introduction 3
Environmental Analysis 4-5
Problem Analysis 6-7
Problem Definition 8
Alternative Solutions 9
Recommended Solutions 9-10
Summary of Analysis 11
References 12

INTRODUCTION

Firms diversify when their objectives can no longer be adequately met

within the scope of their present operating environment. Growth can be seen
from the strategic objective of a firm moving beyond its current boundaries. If
a firm’s objectives cannot be achieved in the current market, diversification
may be the option to take (Howe 1986). If opportunities are presented to the

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firm in new market areas than accruing from its existing market then
diversification program may be undertaken to benefit from such opportunities
(Ansoff 1968).

Every business always reaches a market stagnation point during its

transition to a bigger organization. This is the time when its product portfolio
needs that little extra for further growth. Flanagan Corporation surely came up
with two choices: to remain focused or diversify. But in this case, the company
believe that this can both co-exist, instead, they keep their existing portfolio
and add up additional product line thru acquisition of other manufacturing
facilities.

It is at this point Flanagan Corporation suspect diversifying looks like

an appealing strategy. Diversification remains an unpredictable, high stakes
game, especially for startups. The challenge is, do they have the ability to
stimulate growth and expand business with this strategy? Is family’s expertise
in stews and casseroles will really translate into expertise in bakery & canned
products? In this study, we will investigate in detailed how Flanagan
Corporation took the dare of business diversification, the overall effects to the
company, the decisions they have made facing the demands of this
undertaking and the final outcome of their effort.

But the primary focus of this topic is the aftermath of Diversification.

We will identify the problem based on what was happened in the past to
correct it and not to happen anymore in the future, in the next attempt of trying
again, Diversify and Grow.

Never we will impose or suggest too many management literatures just

to recommend possible solutions to the new Chief Executive Officer of
Flanagan Corporation, He got what it takes of being the new chief of the
company. But rather, we will exclusively give recommendation limited only in
our findings on the real root cause of the problem, giving resolutions to it.

Environmental Analysis

I. General Environment

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 Flanagan Corporation, economically, manufacturing stews and
casseroles with its scope of National Operations can be considered a
stable firm. With capability of purchasing a National Bakery that might be
possibly previously owned/managed by the government, shows has a
good company reputation.

II. Operating Environment

Having presented that they dominated the market with 75% share,
undoubtedly competitors considered Flanagan Corporations as their major
rival to surpass. Popularity of the product emulate that the company has a
based of loyal customers. Standard wise, they got the reputation of having
the highest quality and unique ingredients to their products.

III. Internal Environment

Below is an analysis of internal environment of Flanagan

Corporation (Table 1) from the time company started operating from its
original owners, to period they diversified and until the time of deployment
of the new CEO, Mark Johnston.

Other aspect not clearly defined like the organization’s finances, I

presumed that Flanagan Corporations is holding a huge amount of funds
running, due to its coverage of operations nationally.

Table 1 – Internal Environmental Analysis

of Flanagan Corporation

Originally Diversification Current

Internal Factors
Implemented (New CEO)

Management
Flanagan Family Jim Austerland Mark Johnston
Operations
CEO CEO

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 Organizational Consumer Broad Focus Brand
Structure
Oriented Management
Approach Approach

Canned Stews Canned Stews, Frozen

Products
Frozen Vegetables Entrees,
Casseroles Bakery Products Canned
(additional) Vegetables

Sales/ Marketing
Nationwide Mass Regional Stringent goals
Market Approach on Production
Advertising & Profitability

Management/ Family run and Single Executive Total

Leadership Style
operated in each unit Responsibility
for groups or
line of products

The table shows the different environment of Flanagan Corporation

under different management/CEOs, the different approaches how they handle
the company and the strategies they introduced on products development,
sales and marketing and their leadership/management style implemented to
run the business.

Problem Analysis

We cannot define the major problem without knowing how it causes

was started. Identifying the real explanation of every symptoms of the problem
will lead us to the primary issue of the case.

Reasons why Flanagan Corporation failed in their Diversification

attempt.

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 1. The company move outside in their area of expertise which is the
stews and casseroles to bakery and canned vegetable products. They
diversified inadvertent without appropriate strategic considerations on
the risks, systems they will applied and company leadership since
there is another product line to look after.

2. Flanagan Corporation entered on what we called “Unrelated

Diversification” or moving away from other competencies. Literature
says, this strategy has the greater chance of problems emerging.

3. The former CEO did not handle properly the pressures from the key
employees and shareholders. This only means that the company failed
to resolve the issues and did not create or implement policies that will
address specific resolutions in case a certain problem arises.

As I analyze the whole situation, this case has three (3) phases, this
will clearly define the journey of Flanagan Corporation that will bring us into
realization on how are we going to solve the problem and recommend
solutions.

The problem now is the future, the new CEO started giving initial
decisions in coping up with the possible bad effect of failed diversification
happened to the company. (follow Table 2)

What was happened in the past is history, the new CEO laid down
already his initial solutions to the problem that company is facing, upon taking
responsibility as new CEO of Flanagan Corporation. Let us analyze also first
the possible reason why Johnston (CEO) put into effect the measures he
defined.

Table 3 – Inaugural Actions Mark Johnston Made in Response to

Flanagan’s vast problem upon his Takeover

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 Initial Solution of the New
CEO Probable Reason of the New CEO
(from table 2 – see Phase 3)

Setting up of new tough goals Johnston thought that the company has
for the company and taken no clear VMGO.
drastic steps in achieving it.

Closing of several factories. Company is not making a big enough

turnover and is incurring mounting debts;
expenses; overheads, employees’ wages,
production costs etc. If these aspects
outweigh the money coming in, the
business working at a loss. Or can make a
bad situation worse.

Cutting off 150 jobs out of the
corporate headquarters
The company needing to cut costs in
some way. This need could stem from
debts that have to be paid off or lack of
profits, as a result of a drop-in sales, or
loss of a line of credit.

Bakery division was sold. The product did not fit well with
Flanagan’s more successful product lines.

Limiting the use of technology, Cutting-edge technology is an ongoing

lessening the units to be
manage like the process of
heat process and frozen foods.
expense, as well as ongoing maintenance,
updates and training expenses. Should a
system failure occur, loss of revenue can
result due to loss of services rendered or
product production halted. Technology
also needs to be updated periodically,
requiring continued investment.

Problem Definition
If you are the CEO and upon your first days of assuming in the office,
making major decisions in the company as your first moves is really unusual.
This only means that the company is in big trouble. It will be on the total
overhauling of the company. A major fix will be done.

Table 4 – Major Problem Defined

Problem Evidences
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 1. Redefining(how’s) Flanagan
Corp. after the great effect of
failed diversification in different
aspects.
 Performance & Profits - Profits Declined
 Product lines - Other Product lines Stopped

 Employees & - Trauma and the negative

Shareholders reactions during diversification

period

 Technology & Process - CEO Limits its use.

2. Major Decision on continuing

- CEO shift strategy to focus on
the operation of Diversified
original products. He stopped
Product Lines or turning back
Diversifying.
in “Focus” Strategy.

Description of Solutions

Table 5 – Alternative Solutions

Descriptive
Solutions Strength Weakness

Solution 1 – Total  Stability  Market stagnation.

stoppage of unrelated  Optimized  Limited Vision.
diversification and focus operating  Low Profit
on the existing expenses. opportunity
competences of the

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company.

Solution 2 – Continue  helps to  can lead to a company

Diversifying of all product maximize the use over expanding into too
line. And just solve the of potentially many new directions.
individual issues of the underutilized  sectors of the Flanagan
different units resources will suffer due to
insufficient resources
 Chance for and lack of attention.
bigger profit.

RECOMMENDED SOLUTION

I. Description

Total stoppage of unrelated diversification and focus on the existing

competences of the company is the best solution I am recommending for
the meantime before doing the diversification.

As Flanagan business develops, widening product offering or range

of services is a natural progression. However, the priority before any
diversification should be to make the core business stable in terms of both
capital and resources. The core business is what would fund the
diversification for some time. If it is losing its steam and becoming
unviable, then your priority should be to shore it up rather that looking for
other options.

II. Justification

Although in many cases diversification can simply act as a way of

building on existing success, at other times it has proven imperative to a
company’s survival. Consumer trends can change drastically; new
technologies can spring out of nowhere to overhaul entire industries.

Size isn’t everything. It is not the only way for businesses to enter
untapped markets. Collaborating with firms that are already present in your
prospective industry is a less risky approach: Diversification for its own

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 sake is dangerous, but if you specialize and partner then you can get
pretty much the same benefits and be much more flexible than you
otherwise could have been.”

More focused companies are often easier to manage and possess

a clear, strategic goal – something that can be lacking with diversified
firms. One of the main reasons that diversification fails is because
businesses do not have the right strategy in place. We must think carefully
about what distinct resources or capabilities we can move between
different markets to give them a competitive advantage.

III. Implementation

The first step is to define your core business, and reapply the
definition of ‘Focus’ to it. Focus does not necessarily have to be about how
broad or narrow your business is; it has to do more with how every one of
your diverse capabilities tie together to create value to your company.
Bring focus into the way to diversify, and ensure they complement the core
business.

Secondly, an existing business requires significant amounts of

management’s time and energy. Hence it is essential that they look at the
team structure within. Even a well-established business can suffer if
resources are spread too thin. So, management teams must have not only
had the responsibility but must also be empowered to move things
forward.

SUMMARY OF ANALYSIS

Diversification should be a well-planned Strategical move and

should not exceed the budget of the existing company. The solution is
not diversification for diversification’s sake. The solution is controlled
and well-planned diversification and knowing your competition. Strong
brands depend on exploiting competitors’ weaknesses. Even during
tough times, stick with what you know.

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 Financial and business advisors agree that highly diversified
companies trade at discounts in the market, since a diversified company
is likely to have been diversified without appropriate strategic
considerations risks duplicating its systems, distracted company
leadership—since there is another company to look after— and
potentially even racing in the rat race against itself.

However, there are plenty of other good reasons for diversification, not
least by extending your range of goods or services you can either sell more
products to your existing customers or reach out to new markets. This can
supercharge your growth prospects. And perhaps the biggest reason for doing
it is to extend a brand reputation into other markets, with the knowledge that
one ‘winner’ could be the drop of snow that starts the avalanche, making your
business bigger than you ever imagined.

Should you diversify or focus? A note of caution. History tells us it’s not
advisable to consider diversification until your core business is stable and
profitable. If you’re still struggling to win orders and build a sales time for the
core product, there is a real danger that diversification will take your eye of the
ball.

The catalyst is often the realization that growth in the core business is
either slowing or set to slow, often because the market for a particular product
is becoming saturated.

The bottom-line is that the recipe for success lies in identifying your
strengths and competence and working with them. Both diversification and
focus are two sides of the same coin and have equally enough to contribute if
strategize right. The lessons that can be learned from a company’s
diversification moves can be significant. At the same time, there are important
questions a business needs to answer before deciding on the strategy to get
the hoped-for results.

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REFERENCES:

Markowitz, H.M., “Portfolio Selection: Efficient Diversification of Investments”,

Yale University Press, 1970; 2nd edn, Blackwell, Oxford, 1991

Markides, C., “Diversification, Refocusing and Economic Performance”, MIT

Press, 1995

Markides, C., “To Diversify or Not to Diversify”, Harvard Business Review,

November–December 1997

https://www.economist.com/news/2009/10/07/diversification

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