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Unformatted text preview: and CEB. If these synergies didn’t work out as expected then the deal could end up with a negative outcome with much higher probability due to the premium. Second, the premium demonstrates that they strongly believed they could improve sales at CEB as they did with FTI. In this way they may not have accounted for risk enough in their financial analysis. The evaluation process could have been improved by better incorporating into the financial model the other alternatives. Understandably, this would have been difficult because of the lack of information on many of these alternatives. Additionally, their evaluation process desires a more formal sensitivity analysis of the uncertainties in the model is desired. By March 2007 Robert and Dianne had established that the acquisition of CEB was the best choice among the alternatives identified for obtaining breakout growth for FTI. Thus they established a clear long‐term vision that FTI should grow via geographic acquisitions. Despite all of the potential shortcomings I described above, I still believe that at the time Robert and Dianne made a good decision. Their process may not have been as formal or quantitative as that used in decision analysis, but they still considered well all decision process and decision content aspects that comprise a good decision. Given their lack of man‐power and time, they were effective with their efforts. Step 4: Commitment to Plan and Implement Before closing the deal with CEB, Robert and Diane planned extensively how they would integrate CEB into their business. They planned to hire a branch manager who could oversee the new facility and drive sales. Further, they developed working plans for how to realize fully the synergies between FTI and CEB. They also planned to keep the previous owner on the payroll for as long as possible to mitigate the uncertainty of customer’s leaving due to the change in ownership. These were all great ideas. Implementation went well, but was slightly hindered because they missed an important observation in their due diligence: the CEB price book with its volume tiers was just for show because in reality all customers received special pricing. This made a pricing synergy difficult to achieve at first. An oversight like this is understandably difficult to catch, but may have been prevented by bringing in an experienced advisor to help in analyzing the condition of CEB. Rob and Dianne showed strong commitment to the task of integrating CEB with FTI. So far they have achieved several milestones, including implementing the COGS synergy almost completely and being 80% done with the integration of CEB’s price book with FTI’s. One of the main requirements recently identified was the necessity of hiring high quality people in the customer service department. The importance of people in an organization is paramount, but not just in finding the right people. Rob and Dianne need to consider whether or not they are promoting an environment where team learning is taking place. Employees should be placed into an environment where they do not behave defensively and instead promote mutual understanding by balancing advocacy with inquiry. Conclusion The outcome of the decision made by Robert and Dianne to acquire Central Edgebanding in order to achieve breakout growth for their company Frama‐Tech has thus far proven very favorable. Sales for the year 2007 are going to be over 20% greater due to the acquisition and the remote location is expected to pay itself off and begin adding to the profitability of FTI within only a few years. Robert and Dianne are happy with their decision and optimistic about the future of FTI. They desire to continue their breakout growth plan by adding 2 more locations, preferable through acquisition, in order to effectively be able to distribute edgebanding across the entire United States. Figure 2: Decision Quality Assessment. The decision for achieving breakout growth for FTI is judged based on the 6 decision content elements. Overall the decision quality for FTI’s strategic growth phase was high. This paper concludes with a short explanation justifying the ranking for each of the six decision content categories of Figure 2. Frame – The decision makers established a frame that was somewhat limited its scope by not allowing for more radical means of achieving breakout growth. This may have caused them to miss an important alternative. However, their frame did result in them focusing on the most realistic and best alternatives. Values – FTI had a clearly defined set of value preferences that made it easy to evaluate the trade‐offs implicit in their alternatives. However, they might consider being less rigid here, which would allow alternatives that were not given much consideration to be analyzed more in‐depth. Alternatives – A lower rating is given here because there existed a number of alternatives which did not appear to be fully fleshed out. This was primarily the result of strict value preferences and a limited scope. But the most important alternatives were considered given the limited resource available. Information – A good rating is deserved here because the decision makers did well considering the high cost of obtaining additional information. Although the financial model took care of the most important uncertainties, it did not incorporate some the difficult to quantify uncertainties or any of the other alternatives. Reasoning – They did well with the tools at their disposal, but a more robust sensitivity analysis would have improved this rating. Commitment – Operations is a strong point for our decision makers they enacted a very smooth acquisition....
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This document was uploaded on 02/17/2014.
- Winter '14