A five-year strategic plan
Mensa has been engaged with the various businesses, which include; packaging, forest products, energy and financial services businesses. There is a lot of change on multiple levels of the company which is necessary for Mensa to achieve profitability. This strategic plan will provide the correct direction to the business to achieve this goal. Mensa will need to implement a variety of different techniques in order to become a successful growing business. Without the changes outlined in this strategic plan, the company faces significant financial distress. Mensa’s Financial Services Business
This business provides insurance, mortgage loan, real state financial services and consultancy services to its customers. It was not a huge business but the management had done a good job with cash flow and profitability for the size of the business. They had proven their know how by selecting target markets and avoiding any serious head-to-head competition with competitors, this helped in creating a bright outlook for this section of Mensa’s business. Therefore, it will be better for the firm to expand this business.
I recommend increasing the size of the operation. In order to be able to increase the sales and returns within this sector, there needs to be capital investment. I agree with the outlook, the firm should invest $250,000,000 initially and could increase it to $300,000,000 in the following 5-7 years, with a decrease to $100,000,000 a year at that time. This will generate $200 million to $300 million for the business, at the end of the investment period. Although this will be a lot of upfront investment, the huge increase in profitability will be worth the money spent. Increasing the size of this sector of the business is a good move for the company, which will provide them with a significant amount of returns. Mensa’s Energy Business
Mensa energy division deals with the exploration, development and production of the oil and gas. Acquisition of EasyGas Energy was beneficial to the firm, as it was the sole supplier of natural gas to Florida. This business has strong position in some segments; the demand for oil and gas would be increased by next years, annual prices for oil and gas will also increase. The consultant felt that demand and supply picture is increasing and would be favorable for those firms that had developed the business earlier.
However, according to the consultant, it would not be favorable to invest more in exploration and production, so Mensa should expand this business through intensification strategy. As the production would peak from 2002 to 2010, they advised that their existing reserves and the land they own would only increase in value over time, even though Mensa could never grow to be competitive within this industry due to the size of their existing competitors. The Florida pipeline in this sector is a significant tool for improvement in profits, as the cash flow for this business was estimated to increase $100million to $300million in year 5. For exploration and production division, if divestment strategy is followed then the division could be sold for $1,560,000,000 at present and it will be increased up to $2,000,000,000 within 5 to 6 years. The profits would be increased by 8-10%, with a focus on building supplies of both oil and gas. Mensa’s packaging business
Mensa’s packaging business had three major markets; Food and Beverage, Specialty Packaging, and International. This sector was economically sensitive, as it was difficult to build any competitive advantage. This packaging business would be very expensive as customers’ required new technologies that led to higher charges while customers create serious pressure to reduce prices, and Mensa’s technology was already outdated. The consultant also felt that profitability would decline over the next several years in the packaging division, and would be negative $100,000,000 in year 6 and declining by 20% each year thereafter. With this being said, it is better to shut down this business. It would bring about $1,200,000,000 which is approximately 70% of book value. In this business, the potential for improvement was very low, due to the high customer demands and the fact that there wasn’t much the Mensa could do to gain a competitive advantage. Given that this is the case, it is in Mensa’s best interest to sell off the packaging portion of its company to save itself from future negative cash flows. Mensa’s forest product division
The forest product division of the Mensa has suffered poor preventive maintenance practices and inadequate training of the employees; this had a negative impact on production. The forest production division contains two plants, the paperboard and the timber plant. In the paperboard division, Mensa’s competitors were building new plants that would produce higher quality products at a lower cost.
This caused to decline in profitability and along with return on investment. The cash flows for this sector would go negative for next six years. Consultants felt that the range for negative cash flows would be $100,000,000 to $125,000,000. They also valued the company at $600,000,000 if it were to be sold today. In the timber plant, there was low level of price fluctuations due to the nine holdings which Mensa owned. This is a valuable asset for them.
Although the business had competitors in a large number and faced tough competition, there were chances to increase profits. The value of assets would increase by 20% over the next six years and then by 60% in the following ten years. As the firm has a good amount of holdings within this sector, which helps them resist large fluctuations in costs, it would be a good business move for them to remain within this sector at least as a timber holder. In order to continue to be successful at either plant, Mensa would need to increase employee training and maintenance standards, to reduce the negative impact on production. Recommendations
I recommend that Mensa utilizes a variety of strategies to help increase profitability. First of all, they need to expand their financial services division as this will generate large amounts of profits. This profitability created, will be used to invest in other divisions within Mensa. The energy sector of the company, will expand the Florida pipeline as this is a low investment dollar figure for the company, and has huge returns that will continue to increase over time as gas prices increase. This sector should also stop investment in exploration and production as it will create large negative cash flows for approximately the first nine years.
The packaging business is possibly the most detrimental division at Mensa. It has faced multiple problems and has negative cash flows, with this being said it is in Mensa’s best interest to dissolve this portion of the company. Forest product business includes different products and there is a need to apply stability strategy so to improve functional performance. There is a lot of training that needs to be conducted within this sector to increase production and therefore profitability.