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Cooper Industries’ main corporate strategy is broad diversification through M&A. Cooper Industries acquired firms in order to lessen its dependence on cyclical natural gas industry and to exhibit stable earnings.
Cooper Industries acquired firms that had stable earning, a broad customer base and proven manufacturing operations using well-known technologies. Cooper Industries had a good corporate level strategy of diversification. Copper Industries acquired both related and non-related businesses. As a result, Cooper Industries could exhibit stable earnings.
Threats of its original industry
Cooper’s strengths :
In order to refrain from possible threats and maximize its strengths, Cooper chose to diversify its business both in size and scope.
By diversification, Cooper could achieve:
Overall, Cooper’s corporate level strategy can be regarded as good because it adds value in various ways.
Cooper could gain market power and economies of scope by related diversification
By related diversification and vertical integration, Cooper could reduce costs of primary goods and support activities below competitive level. Cooper could also develop and exploit economies of scope by:
Cooper also created value by:
Presidents who manage each division : Electrical and Electronic, Commercial and Industrial and Compression and Drilling. Central control over corporate policy but delegated day-to-day operating decisions to each operating unit. Senior management is composed of former operators so that it knew what were good decisions to make. Cooper maintained a strong union-avoidance policy.
Executives were paid salaries based on the Hay system. Their bonuses were 20~40 percent of base salaries. Division managers had a bonus determined by Corporate Administration and EVP’s discretion. Key managers were granted stock options.
When Cooper acquired a firm, administration adjusted pay scales to the same as other Cooper divisions. Cooper also adopted its standard benefits for medical insurance and pensions for new acquisitions.
Evaluation was based on Management Development and Planning MD&P evaluated organizational effectiveness and individual strengths and weaknesses by focusing on the performance of key managers. Employees were reviewed by their supervisors.
Each EVP conducted annual reviews of all managers in the division. MD&P uncovered existing or potential management gaps and identified people worthy of promotion. It also distinguished candidates for interdivisional transfers, which is a key resource for Cooper Industry.
Champion was doing automotive industry, which was profitable business and related to Cooper’s businesses. Champion had a strategic fit with Cooper’s long term plans such as diversification. Champion Spark Plugs fits well with Cooper’s acquisition guidelines for Diversification. Stable earnings and earning patterns that are countercyclical to those Cooper had. (Slight decrease in sales, however, occurred annually) Although Champion suffered from declines in sales, Champion was recognized worldwide and was a market leader in the spark plug market. Champion had an internationally recognized brand name.
Overall, Champion was suffering from declining demands in spark plug market at the time of the takeover battle. Champion was trying to penetrate the automotive tool business in spite of its poor technology level. So, in order for both Champion and Cooper to make more profits, Cooper should acquire Champion. Champion and Cooper can both satisfy each other’s needs. While Champion can use Cooper’s experience and skilled labor to penetrate the automotive tool business, Cooper can use Champion’s world-widely recognized brand name to explore overseas markets.
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