Massey-Furguson, 1980 Answers Hbs Case Study
1. Summary of Massey-Ferguson’s 1971-176 Goals, Strategy and Risk/Return profile
Goals/Strategy:
• Focus on small tractors, combine harvesters and industrial machinery
• Exploit markets outside North America and Western Europe
• Dealing directly with governments and public institutions
• Central production of diesel engines in UK
Risk/Return profile:
• Empire Building; engaging in potential negative NPV investments
• Expanding potentially unprofitable divisions (ambitious program of expanding operations)
• Potentially pay too much for acquisitions (ambitious program of acquiring assets; e.g. purchasing Hanomag)
• Make unnecessary capital expenditures (high debt-to-equity ratio)
• Possible hire of unnecessary employees
• Overconfidence; New opportunities are better off than they actually are
• Free cash flow hypothesis
• Continue to invest in projects that should be cancelled
• Limited Diversification
• Due to strength in negotiating deals with governments versus vulnerability to political distress in 70’s in Iran, Pakistan, Libya and Poland.
2. On which assumptions were goals, strategy and related risk/return policy based?
• Exchange Rate stability (higher UK pound)
• Stable cost of goods sold (Diesel Engines in UK)
• Political stability in relation to countries in developing countries
• Continued economic growth
• Limited volatility in cash flows
• Customer’s ability to make the principal payments
• Stable or declining interest rates
3. How were the goals, strategies compared to those of the competition? Massey-Ferguson Deere & Co Int. Harvester
Regions Strong outside North America and Europe Focus on North America Focus on North America
Production Lack of alignment, e.g. diesel engine production only in UK Concentrated to North American market Concentrated to North American market
Farm and industrial machinery Strong in small tractors and combine harvesters on NA market Strong in larger tractors Strong in larger tractors
4. Would you agree that MF
Goals/Strategy:
• Focus on small tractors, combine harvesters and industrial machinery
• Exploit markets outside North America and Western Europe
• Dealing directly with governments and public institutions
• Central production of diesel engines in UK
Risk/Return profile:
• Empire Building; engaging in potential negative NPV investments
• Expanding potentially unprofitable divisions (ambitious program of expanding operations)
• Potentially pay too much for acquisitions (ambitious program of acquiring assets; e.g. purchasing Hanomag)
• Make unnecessary capital expenditures (high debt-to-equity ratio)
• Possible hire of unnecessary employees
• Overconfidence; New opportunities are better off than they actually are
• Free cash flow hypothesis
• Continue to invest in projects that should be cancelled
• Limited Diversification
• Due to strength in negotiating deals with governments versus vulnerability to political distress in 70’s in Iran, Pakistan, Libya and Poland.
2. On which assumptions were goals, strategy and related risk/return policy based?
• Exchange Rate stability (higher UK pound)
• Stable cost of goods sold (Diesel Engines in UK)
• Political stability in relation to countries in developing countries
• Continued economic growth
• Limited volatility in cash flows
• Customer’s ability to make the principal payments
• Stable or declining interest rates
3. How were the goals, strategies compared to those of the competition? Massey-Ferguson Deere & Co Int. Harvester
Regions Strong outside North America and Europe Focus on North America Focus on North America
Production Lack of alignment, e.g. diesel engine production only in UK Concentrated to North American market Concentrated to North American market
Farm and industrial machinery Strong in small tractors and combine harvesters on NA market Strong in larger tractors Strong in larger tractors
4. Would you agree that MF