Punjab College of Technical Education

ASSIGNMENT ON CASE STUDY

Submitted To: Submitted By:

Mr. V.P Mishra Gagandeep Kaur

M.B.A 2B

This case study, presented to us, is of a diversified company Sargon Corporation. Jack Marlowe,

President Sargon Corporation, is grappling with the most intractable problem he has ever dealt while

in the company. The problems he is facing are as below;

1. What to do about Arcell Corporation, its household-appliances unit?

2. What to do about Charlie Crescent, Arcell’s president?

Sargon is counting on Arcell to provide a lion’s share of the money for the company’s investment in

future. Marlowe has made it clear that company wants Arcell to run lean and mean and every time

Crescent has said that he understands. He keeps wanting to plow his profits back into Arcell.

Some facts about the company;

a) Sargon Corporation is a diversified manufacturer of brake systems, components for

telecommunications equipment and voice recognition systems, and its recent acquisition;

manufacturer of routers and hubs for corporate network.

b) Sargon was formerly a small defense contractor but due to contraction of profits in the said

business, it diversified into household appliances (early 1970s)to break systems to components for

telecommunications equipment( Hestnes launched in 1983)to voice recognition systems for the

security industry ( a 1989 acquisition).

c) Charlie Crescent took over the Appliances unit two years earlier and soon after the takeover

started a major consolidation and cost cutting drive that raised the operating margins from 2% to 7%.

d) Sargon recently acquired Cyberam, a maker of routers and hubs for corporate networks. The deal

met with virtually no applauds outside Sargon headquarters.

Alternatives

Marlowe should stop playing the balanced-portfolio game. He should stop expecting all of Sargon’s

mature businesses to act simply as cash generators and all of its new businesses to grow quickly

When Crescent wants to invest more into new products, new facilities and new markets, Marlowe

and Hestnes should not turn down the proposal just because their other businesses need cash. Rather,

they should encourage and support the investment if the proposals are sound.

if Marlowe is convinced that the new investments will lead to greater margins there is no reason why

Sargon should not invest in Arcell. But on the other hand if Marlowe decides that Crescent is over

optimistic about what can be achieved, he should clearly explain to the Arcell management why they

will not be getting the funding they want.

Right now Marlowe is probably unsure about the quality of Arcell’s investment proposals. If so, he

needs to invest some time with the business in order to form an opinion. Also, Marlowe must

persuade Hestnes to reconsider Sargon’s corporate level strategy.

Hestnes’s judgement is clouded by his preference for high-tech products and by the fact that Arcell

was established before his appointment as chairman of Sargon. Right now Marlowe and Hestnes are

considering Crescent as the problem rather than considering Sargon functions vis-à-vis its business

sectors’ roles and goals.

First, he needs to decide what type of company he wants to see Sargon to be moulding into? Does he

want to mould it into a pure portfolio company, whose primary purpose is generating cash by buying

and selling businesses? In that case they need to remove themselves from managerial issues at the

division. Or do they want Sargon to be a value

added parent, making whole greater than the sum of its parts by managing the organization’s core

competencies and creating synergies among its various divisions?

What do they want to extract out of Arcell? Are they planning to drain Arcell quickly and sell it later

or invest in it and milk it over time? They need to decide that even if Arcell is a cash cow for Sargon

why can’t they invest in the cash cow and make it an engine for growth? For this to happen they need

to give Crescent more than 10 minutes in the meeting to understand completely the investment

proposals and if they find those good enough to meet the company’s investment criteria they why not

churn the requisite growth from here and not invest more time and money finding new businesses

that not even fit their current portfolio of companies. This would also help in reducing the current

tension between the two.

And even after the discussions if it turns out that Arcell really should be managed as a no-growth,

low-cost operation then if Crescent then refuses to recognize that this is the best strategy for the unit

– and he must be given every opportunity to argue that growth is the correct option – replacing him

becomes a possibility. Having said that, after seeing the track record of Crescent, replacing him

would be to sacrifice to a misguided corporate strategy someone who might be a great manager.

They should think about the intrinsic benefit of the company’s different business and they could find

out how Sargon as a corporate parent can add the most value to each of them.

Collective Bargaining can be one alternative

Selling up of one unit for getting funds can be one of the options