Sewing Corporate Divestiture Management

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

E-Book, Englisch, 266 Seiten, eBook

Jan-Hendrik Sewing makes a significant contribution to opening the black box of current divestiture decision-making. He uses detailed case studies, including numerous interviews with corporate executives and experts from management consulting, private equity, and investment banking. The author develops a conceptual framework to identify remedies to behavioral pathologies and their origins. The study highlights multiple techniques for pursuing divestitures proactively and formulates best-practice recommendations.



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

Zielgruppe

Research

Autoren/Hrsg.

Sewing, Jan-Hendrik

Inhaltsverzeichnis

1;Foreword;5
2;Preface;6
3;Overview of Contents;7
4;Table of Contents;8
5;List of Figures;13
6;List of Tables;15
7;List of Abbreviations;16
8;1 Introduction;18
8.1;1.1 Problem statement;18
8.1.1;1.1.1 Changing market conditions;18
8.1.2;1.1.2 Management challenges;20
8.2;1.2 Relevant previous research on divestitures, and research gap;22
8.2.1;1.2.1 Origins and misconceptions;22
8.2.2;1.2.2 Theoretical background;24
8.2.3;1.2.3 Divestiture research streams;24
8.2.3.1;1.2.3.1 Antecedents;25
8.2.3.2;1.2.3.2 Outcomes;29
8.2.3.3;1.2.3.3 Decision and process management;31
8.2.4;1.2.4 Conceptual studies and dissertations on divestiture;34
8.2.5;1.2.5 Managerial research;39
8.3;1.3 Objective and research questions;41
8.4;1.4 Research design and structure;43
9;2 Foundations for understanding the divestiture phenomenon under analysis;45
9.1;2.1 Definition and scope of the term;45
9.2;2.2 Change in meaning of divestitures;48
9.2.1;2.2.1 Extent of real divestiture activity;48
9.2.2;2.2.2 Divestitures as an epiphenomenon of the diversification trend;50
9.2.3;2.2.3 Divestitures during the era of corporate restructuring;50
9.2.4;2.2.4 Divestitures in the late nineties;51
9.2.5;2.2.5 Evolution of divestiture practice;51
9.3;2.3 Divestiture as a potential strategic option;52
9.3.1;2.3.1 Motives for divestiture;52
9.3.2;2.3.2 Barriers to divestiture;55
9.3.2.1;2.3.2.1 Economic and structural barriers;55
9.3.2.2;2.3.2.2 Strategic barriers;56
9.3.2.3;2.3.2.3 Managerial barriers;57
9.3.3;2.3.3 Divestiture for corporate development;58
9.4;2.4 Value creation as the goal;59
9.4.1;2.4.1 Divestiture’s sources of corporate value creation;59
9.4.2;2.4.2 Proactive divestiture decisions;62
9.4.2.1;2.4.2.1 Reconfiguration in the business life cycle;62
9.4.2.2;2.4.2.2 Indicators of proactiveness in divestiture decision-making;64
9.4.2.3;2.4.2.3 Rationality in divestiture decision-making;66
10;3 Prescriptive design of divestiture decision-making;68
10.1;3.1 Basic model for rational, logical decision-making;68
10.1.1;3.1.1 Target-setting for divestitures;70
10.1.2;3.1.2 Decision-planning for divestitures;72
10.1.2.1;3.1.2.1 Resource situation;72
10.1.2.2;3.1.2.2 External and internal environment;72
10.1.2.3;3.1.2.3 Alternative modes of divestiture;73
10.1.2.4;3.1.2.4 Alternative modes for continuation;74
10.2;3.2 Organizational design elements for divestiture decisions;75
10.2.1;3.2.1 Process;75
10.2.2;3.2.2 Actors;78
10.2.2.1;3.2.2.1 Management of the divestiture unit;79
10.2.2.2;3.2.2.2 Higher-level management;80
10.2.2.3;3.2.2.3 Staff and central functions;81
10.2.3;3.2.3 Decision models;82
10.2.3.1;3.2.3.1 Capital budgeting models;83
10.2.3.2;3.2.3.2 Multiples and market timing models;85
10.2.3.3;3.2.3.3 Portfolio matrices;89
10.2.3.4;3.2.3.4 Scoring models;119
10.2.4;3.2.4 Information systems and steering mechanisms;121
10.2.4.1;3.2.4.1 Management Information Systems;121
10.2.4.2;3.2.4.2 Key performance indicators and incentive systems;122
10.2.5;3.2.5 Divestiture flexibility in strategy, structure, and culture;123
10.2.5.1;3.2.5.1 Leeway to act;123
10.2.5.2;3.2.5.2 Willingness to act;124
10.2.5.3;3.2.5.3 Capacity to act;125
11;4 Behavioral and institutional factors influencing divesture decisions in practice;126
11.1;4.1 Behavioral Decision-Making;126
11.1.1;4.1.1 Theoretical foundations;127
11.1.2;4.1.2 Selected behavioral factors influencing divestiture decisions – decision-making pathologies;129
11.1.2.1;4.1.2.1 Inappropriate information demand;131
11.1.2.2;4.1.2.2 Confirmation bias;131
11.1.2.3;4.1.2.3 Single-outcome calculation;131
11.1.2.4;4.1.2.4 Satisficing;132
11.1.2.5;4.1.2.5 Sense of failure and emotional pain;132
11.1.2.6;4.1.2.6 Escalation of commitment and the sunk-cost fallacy;133
11.2;4.2 New Institutionalism;134
11.2.1;4.2.1 Theoretical foundations;135
11.2.1.1;4.2.1.1 Different theory perspectives explaining potential increasing homogeneity of organizational fields;135
11.2.1.2;4.2.1.2 The finewfl Institionalism;136
11.2.1.3;4.2.1.3 Institutionalization and institutional isomorphism;137
11.2.1.4;4.2.1.4 Embeddedness;139
11.2.1.5;4.2.1.5 Determinants of institutionalization patterns;140
11.2.2;4.2.2 The German institutional context for publicly listed companies;144
11.2.2.1;4.2.2.1 German versus Anglo-Saxon corporate governance system;144
11.2.2.2;4.2.2.2 Evolution towards the Anglo-Saxon corporate governance system?;145
11.2.2.3;4.2.2.3 Implications of German tax law changes in 2000?;147
11.2.3;4.2.3 Selected institutional factors influencing the organization of divestiture decision-making;147
11.2.3.1;4.2.3.1 Capital market pressures;149
11.2.3.2;4.2.3.2 Sociopolitical pressures;150
11.2.3.3;4.2.3.3 Anglo-Saxon management practice spillovers;151
11.2.3.4;4.2.3.4 Top management consultant recommendations;152
11.2.3.5;4.2.3.5 Peer company practice spillovers;152
11.2.3.6;4.2.3.6 Learnings from related experience;152
12;5 Consolidation of conceptual and theoretical elements into a framework;154
13;6 Empirical study in diversified DAX-30 companies;156
13.1;6.1 Logical course of action;156
13.2;6.2 Case study preparation;157
13.3;6.3 Determination of case companies;158
13.3.1;6.3.1 Definition of the unit of analysis;158
13.3.2;6.3.2 Selection of case companies;159
13.4;6.4 Data collection methodology;166
13.4.1;6.4.1 Interviews;167
13.4.1.1;6.4.1.1 Choice of interviewee;167
13.4.1.2;6.4.1.2 Interview process;168
13.4.1.3;6.4.1.3 Structure of the interviews;168
13.4.2;6.4.2 Additional data from case companies;169
13.4.3;6.4.3 Secondary data;170
13.5;6.5 Data analysis;170
14;7 Findings from the empirical study and refinement of the framework;172
14.1;7.1 Divestiture attitude and approach;174
14.1.1;7.1.1 Mindset shift: divestiture considerations becoming a holistic board-level routine for value creation;174
14.1.2;7.1.2 High importance of few (new) top managers for driving change in portfolio culture;176
14.1.3;7.1.3 Increasing strategic portfolio steering with cash- and value-based key performance indicators and incentives;177
14.1.4;7.1.4 Increasing efforts for making divestitures more fact-based and less emotional;179
14.1.5;7.1.5 Consideration of divestiture constraints from public listing;180
14.1.6;7.1.6 Interpretation: Reducing behavioral limitations for divestiture decision-making– attitude & approach;182
14.2;7.2 Divestiture decision-making procedures, analyses & tools;183
14.2.1;7.2.1 Increasing proactive triggers for divestiture but multiple barriers;183
14.2.2;7.2.2 Systematic top-down, multi-step corporate portfolio review procedure;186
14.2.3;7.2.3 Further procedures, analyses, and tools contributing to portfolio management and potential divestiture decisions;190
14.2.4;7.2.4 Interpretation: Reducing behavioral limitations for divestiture decision-making– procedures, analyses and tools;193
14.3;7.3 Divestiture decision-making structures;195
14.3.1;7.3.1 Corporate Strategy as owner for preparing divestiture decisions, and dedicated portfolio management groups;195
14.3.2;7.3.2 Differing philosophies for division of portfolio management value chain and divestiture tasks between Corporate Strategy and M&A;196
14.3.3;7.3.3 Professionalization of staff functions, especially Investor Relations;198
14.3.4;7.3.4 Interpretation: Reducing behavioral limitations for divestiture decision-making-structures;199
14.4;7.4 Divestiture decision frameworks;201
14.4.1;7.4.1 Similar goals and historical development of new professional business portfolio management frameworks;201
14.4.2;7.4.2 Differing prescription and guidance efforts by Corporate Strategy for operational businesses;201
14.4.3;7.4.3 Relatively similar foundations, basic and new perspectives for frameworks;202
14.4.4;7.4.4 Differing structures, aggregation logic, and strategic implications of frameworks;203
14.4.5;7.4.5 Increasing attempts at anticipating execution risks;211
14.4.6;7.4.6 Interpretation: Reducing behavioral limitations for divestiture decision-making– frameworks;211
14.5;7.5 Interpretation: Proposed factors explaining similarities and differences in organizing divestiture decision-making;215
14.5.1;7.5.1 Institutional factors supporting similarities;215
14.5.1.1;7.5.1.1 Capital market pressures;217
14.5.1.2;7.5.1.2 Sociopolitical pressures;219
14.5.1.3;7.5.1.3 Anglo-Saxon management practice spillovers;220
14.5.1.4;7.5.1.4 Top management consultant recommendations;221
14.5.1.5;7.5.1.5 Peer company practice spillovers;222
14.5.1.6;7.5.1.6 Learnings from related experience;222
14.5.2;7.5.2 Organizational factors supporting differences;223
14.5.2.1;7.5.2.1 Shareholder and capital structure;223
14.5.2.2;7.5.2.2 Organizational management model;225
14.5.2.3;7.5.2.3 Corporate heritage;227
14.5.2.4;7.5.2.4 Corporate strategic priorities and targets;228
14.5.2.5;7.5.2.5 Non-differentiating factors;228
14.5.3;7.5.3 Empirical refinement of the framework for organizing divestiture decision-making;229
14.6;7.6 Best practices for organizing proactive divestiture decision-making;233
14.6.1;7.6.1 Developing and anchoring a value focus;234
14.6.1.1;7.6.1.1 Top management dedication to strategy and portfolio management;234
14.6.1.2;7.6.1.2 Value management philosophy with aligned KPIs & incentives;234
14.6.2;7.6.2 Organizing physical manifestation of portfolio management;235
14.6.2.1;7.6.2.1 Regular process;235
14.6.2.2;7.6.2.2 Dedicated responsibilities;236
14.6.3;7.6.3 Enabling continuous action on portfolio opportunities;237
14.6.3.1;7.6.3.1 Leveraging knowledge;237
14.6.3.2;7.6.3.2 Agile toolset;239
15;8 Conclusion;241
15.1;8.1 Summary and recapitulation of the research project;241
15.1.1;8.1.1 Summary;241
15.1.2;8.1.2 Recapitulation of the basis for the study;242
15.1.3;8.1.3 Recapitulation of the empirical findings from the study;245
15.1.4;8.1.4 Recapitulation of explanations for the empirical findings;249
15.2;8.2 Contribution, limitations, and directions for further research;251
16;Appendices;255
16.1;A.1 Divestiture transaction analyses;255
16.2;A.2 Details for shareholder structure analysis;258
16.3;A.3 Project Exposé for interviewees;260
16.4;A.4 Initial Interview Guide;262
17;References;267

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

2 Foundations for understanding the divestiture phenomenon under analysis (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.