Lonrho Plc Essay Example for Free

Lonrho Plc EssayAn evaluation of Lonrhos corporal strategy should start from the two briny key issues in what businesses the firm should compete and how corporate headquarter should manage those businesses. Lonrhos profile in 1996 included Agriculture, Sugar, General Trade, Hotels, Manufacturing, MiningRefining and MotorEquipment. The level of diversification was clearly amply and the firm was pursuing a un connect strategy, with less than 70% of revenues that came from the dominant business (Mining ) and without common relate between businesses. The corporation was divided into country groups or related business lines and each division had a top manager whose responsibilities were similar to those of a group CEO. So the headquarter control of these groups was not very ball and all important decisions were in the hands of Rowland, that used to follow his strategies without consulting the board. little Rowland wasnt a unclouded manager but an entrepreneur interested in doing deals, so he made no efforts to manage activities or to transfer core competences between different areas. The main interest was to find undervalued assets and try to throw a trend them profitable.Hence we can easily analyse the operational relatedness, since the firm didnt share either firsthand or support activities. Corporate relatedness needs a deeper analysis. All these businesses seem to be related by Rowlands huge experience in conducting affairs and by his effective skill in make relationships with African leaders, pursuing the policy of investment in people. But no more corporate-level competences were transferred among Lonrhos assets, maybe because businesses were too different and little did not want to move key people into pertly management positions.So from these evaluations, the natural conclusion is that Lonrhos corporate strategy is an unrelated diversification. In my doctrine the corporate level strategy in itself was good (exhibit 1 and 2 high revenues unti l 1991), but the way in which Rowland managed it was totally wrong. The main strength in its extreme diversification, was the reduction of the risk among the firms businesses. However, this is not enough to make the evaluation positive because there were also several negative aspects. start with corporate governance, the first big problem was the lack of power by boards members Tiny surrounded himself with yes-men and he, not the board, decided what to do in case of critical issues. So the entire gather was managed by a man who used to define himself as an entrepreneur and not a manager. anyways the level of control was low, if we consider that Lonrho was a big and really complex company. Moreover, and here we puzzle the wink big problem, among Tinys investments, several ones defected in economic rationality.For instance, he became interested in dirty money investments, still to gain prestige (that the company couldnt exploit primly because corporate relatedness was low) alth ough they may have been loss do. Finally, the firm was facing huge cash flow problems, due to large headquarters payroll, an incompetent dividend policy and Rowlands excessive lifestyle. All these issues contributed to destroy the level of revenues and profits over the years and conducted to the only practicable way an internal restructuring of assets.What future direction(s) should Lonrho take in terms of its corporate-level strategy? The two main options that Lonrho has for come out to the crisis are move in the direction of focusing the business, or continue as a conglomerate. Most important, the company must immediately start a corporate restructuring strategy. The main propose should be the limitation of losses, instead of the value and profitability creation. Lonrho could pursue this restructuring strategy some(prenominal) in related business lines and in country groups.For related business lines, hotel and general trade segments were cyclical, capital intensive and they w ere playing below average, so the firm should try to sell its remaining assets to early(a) companies. Regarding country groups, exhibit 2 shows that in United Kingdom, Europe and America, Lonrho was not doing well, so the board should find a way to render these areas. With this easier structure, now the firm has to take a definite position. i) A business focusing means that Lonrho leave behind concentrate only on one of the three businesses left.Sugar represented 6% of Lonrho revenues and 18% of in operation(p) profit in 1996, and despite low production costs and an access to a favourable tittup of markets, this seems the most suitable for being abandoned, just because is the smallest asset in the companys portfolio. Lonrho Africa is diversified both geographically and in business lines. With an operating profit of ? 52 millions, is a valuable segment, but with Tiny no longer in the picture, Lonrho do not have a real Africa specialist.Finally the mine segment is the most impo rtant asset for the firm, because represented 22% of 1996 revenue and 41% of operating profit. In my opinion, if the company has to make a choice, this could be the right market to sustain. Some investments are required for Ashanti goldfields in Ghana and to improve the export capacity of Duiker mining subsidiary in South Africa. However, if Lonrho leave alone be focused only on this business I think that it will have the types and levels of resources and capabilities needed. heretofore I do not think that this corporate strategy is the best. This strategy is mainly concerned with making choices among the last two alternatives. So the corporation would be constrained to relinquish the enormous promise of African continent, or the 41% of mining profit if it chooses to focus in Lonrho Africa. ii) The firm can continue as a conglomerate but for the reason said above, also in this case Lonrho should leave the incision market. Now we have two businesses left and I would like to make a comparison with the capital of Massachusetts Consulting Group chart.With this corporate strategy, the firm could use mining as a cash cow market, try to exploit the high percentage of the revenues that comes from the asset. Than it can use this cash flow in Lonrho Africa, a proper star market, with its enormous promise but also with a lot of investments needed. So with its management expertise, proficient skills and a respected name, mixed with new financial resources, Lonrho could undertake some projects in Africa that few other firms could. I think that these are the right actions that the firm should take in term of corporate strategy.