Sewing Corporate Divestiture Management

Organizational Techniques for Proactive Divestiture Decision-Making
1. Auflage 2010
ISBN: 978-3-8349-8661-0
Verlag: Betriebswirtschaftlicher Verlag Gabler
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 266 Seiten, Web PDF

Reihe: Economics and Finance (R0)

Divestitures are of high managerial relevance at most corporations, independent of the degree of diversification, firm size, age and industry. The reasons for this are multiple: developments in the international M&A market, increasing dynamics in industry markets, capital market pressure, and the emergence of strong new types of investors. Despite their importance, divestiture decisions often seem to be made on a relatively unstructured and irrational basis and lack rigorous management routines, especially when compared to investments. Overall, corporations decide on divestitures either too late or not at all. This means that proceeds from divestitures in later life cycle stages of industry evolution tend to be significantly lower than they might have been. Economic and structural as well as strategic and managerial barriers are major reasons for the delay or even neglect of divestiture decisions. The scientific analysis of divestiture decision-making is in its very early stages. This study is a major step forward in the field. It demonstrates how divestiture decisions can be used as a strategic option to create value when they are approached in a proactive manner. Divestiture decision-making needs to be organized systematically to make this happen; this can be described comprehensively via three dimensions: actors, processes and supporting systems. Using comparative in-depth case analysis, Jan-Hendrik Sewing investigates divestiture decision-making at major international corporations, with a focus on behavioral issues. He derives patterns of decision-making, analyzes contextual factors influencing these patterns and formulates implications for managers.

Zielgruppe

Research

Autoren/Hrsg.

Sewing, Jan-Hendrik

Inhaltsverzeichnis

Foundations for understanding the divestiture phenomenon under analysis.- Prescriptive design of divestiture decision-making.- Behavioral and institutional factors influencing divesture decisions in practice.- Consolidation of conceptual and theoretical elements into a framework.- Empirical study in diversified DAX-30 companies.- Findings from the empirical study and refinement of the framework.- Conclusion.

Leseproben

(S. 28-29)

This chapter is intended to help sharpen understanding of the divestiture phenomenon dealt with in this project. What characterizes the specific divestiture option being analyzed? Are divestitures a relatively new phenomenon, and how did it evolve? Where do divestitures fit within strategic management, and what are the implications?

2.1 Definition and scope of the term

Trying to access the term via its impact, “divestiture” and “to divest” suggest the opposite of “investment” and “to invest”. When contemplated as a negative investment, divestitures cancel the financial and business impact of investments (cf. Wöhler 1981, p.8). However, definitions of investment vary in the literature (see, e.g., Eich 1978, p.828ff., Priewasser 1972, p.11-18). As this study neither aims to develop a general, binding definition of the term nor discuss all related concepts from previous literature, the focus here is on presenting a definition that sharpens the scope of analysis. Releasing financial and business resources can happen gradually, cashing out through the sales process, i.e., “partial divestiture”, or through a definite one-time act, potentially including the receipt of directly related proceeds, i.e., “residual divestiture” (cf. Wöhler 1981, p.16).

Although “cash-out” or “harvesting” strategies eventually have a divestiture effect, they do not focus on the disposal but on the optimization of future related cash-flows (cf. Harrigan 1989, p.40ff.). In practice, cash-out activities can thus also be found without final discrete decisions on respective market exits. The degree of strategic relevance is strongly related to the scope of the divestiture object itself. In the case of whole subsidiaries – business units, for instance – divestiture considerations are the responsibility of corporate management. Business portfolio matrices coined the term “divestiture strategy”, which stands for the disposal of businesses or strategic business entities (SBE) operating in specific markets (Duhaime/Patton 1980).

This characterization factors out the release of smaller assets, such as single plants or patents, or the sale of capital stakes and financial investments. Furthermore, divestitures could be partial or complete, the key difference being the resulting degree of change of ownership. To differentiate business unit disposals here from practices like franchising and outsourcing, the degree of sustainability and accrual of financial funds also need to be considered.In terms of underlying reason and logic for divestiture, voluntary and involuntary divestitures can be differentiated. In the latter case, a corporation can be forced to divest, typically for nationalization or regulatory reasons.

Voluntary decisions could take place in a proactive manner, seizing strategic opportunities, or reactively in the face of concrete problems or even crises. For this study the focus is on a) voluntary, residual divestiture decisions, including organizational entities like entire business units, divisions and segments, which can be b) permanently unbundled as self-dependent business entities under c) new ownership:

Über Autor(innen)

Dr. Jan-Hendrik Sewing finished his doctoral thesis at the Dortmund University of Technology, Chair for Strategic and International Management.