Short-term vs Long-term Objectives



Running header: STRATEGIC MANAGEMENT

Strategic Management: How Walden Can Help Able Corporation

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Walden Corporation

Walden International proposed an interest in acquiring Able Corporation. Walden International is a large multinational conglomerate and focuses on short-term, quarterly results, while Able Corporation focuses on long-term strategic objectives, such as market strategy. Walden uses the valuation of increased profits and sales, against historical quarterly data, to retain its current investors and attract new investment opportunities. Walden quickly reengineers and consolidates the common functions of acquired companies into its administrative services and offers a record 35 years of quarterly increases; however, other corporate objectives do not align with Walden’s current short-term goals. Able Corporation must understand the reason for the short-term objectives and how to adopt Walden International’s organizational structure and management practices to adhere to Walden objectives while achieving its own long-term goals. The paper examines Walden’s usage of head count control, inventory management, inventory turnover, and days sales outstanding and how Able Corporation can adopt these principles in the merger of these two companies without losing its corporate identity.

Short-term Objectives versus Long-term Goals

When a firm acquires another firm, differences arise as to how to incorporate the strategic goals to where both companies profit from the acquisition. To address the conflict arising from the different strategic objective usage and implementation, Able Corporation needs to understand the importance of using short-term objectives in obtaining long-term achievements.

Short-term objectives assist a company in the implementation of its strategy in three ways, according to Pearce and Robinson (2005, p. 288). Short-term objectives provide functional roles for long-term objectives, such as an action plan to indentify core stakeholders in the objectives and a link to long-term objectives. The link to long-term objectives is important for Able Corporation because the company needs to understand that finance and marketing will assist both Able and Walden in achieving the short-term financial goals of Walden while moving Able Corporation toward increased market share. The synergy will diminish the dysfunctional conflict currently plaguing the relationship between Walden International and Able Corporation in that Walden’s short-term objectives of profitability and increased sales will benefit Able Corporation in the sales and marketing of its core products.

Walden International must understand the issues currently facing Able Corporation, with respect to valuation and market share, and incorporate a strategy to achieve Able Corporation’s long-term goals. Walden International’s current strategy of satisfying the short-term objectives of profitability and sales cannot be maintained indefinitely because economic downturns will test this strategy of focusing solely on profits, sales, and shareholder satisfaction. Able Corporation can use short-term objectives to increase current profitability while examining its market share and valuation issues while Walden International can design a long-term plan to incorporate resources into Able Corporation to assist Able in achieving its long-term desire of competitive advantage.

Strategic Control

“Strategic control is concerned with tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustments” (Pearce and Robinson, 2005, p. 366). Walden International controls its current strategy of increased profitability, increased sales, and shareholder satisfaction by using metrics to identify the tasks required to maintain such standards within the organization; however, Able Corporation needs to understand how to use metrics to identify its long-term goals and align such goals with the short-term objectives defined by Walden Corporation, such as head count control and inventory management. Able Corporation could learn from the inventory management techniques employed at Walden Corporation to move its inventory faster than current inventory turnover rates, in addition to streamlining its inventory management techniques.

Inventory turnover ratios provide information to a company as to the amount of time it takes the company to move inventory from warehouses and sales floors to consumers. To calculate the ratio involves dividing sales by inventory or cost of goods sold (COGS) by inventory. “A low turnover rate implies poor sales and, therefore, excess inventory” while high ratios indicate strong sales or ineffective buying practices, according to Investopedia (2009). Walden International understands the need to remain strong in profits and sales in a quarter and Able Corporation should use this ratio to define where its controls are lacking in moving inventory in a timely fashion.

Head count control is another method of controlling functional tasks and translates these successes into comprehensive objective achievement. Able Corporation currently suffers from the inability to control its human resources and must understand the successful use of such a metric by Walden International. Able Corporation does not incorporate employees who can identify and attain organizational objectives and must use head count control to not only control hiring but also incorporate employees who possess the necessary qualifications, thus streamlining financial needs and strengthening the corporate structure. Walden International already implemented this functional task and Able Corporation would benefit from the adoption of such tasks to achieve its long-term objectives, such as improved customer service and product valuation.

The final method of measurement and control involves the use of days’ sales outstanding, or DSO. The DSO is a “measure of the average number of days that a company takes to collect revenue after a sale has been made” (Investopedia, 2009). The lower the DSO number the better for a company because the company is effectively receiving payments from its customers. Selling products to customers on credit and taking longer to collect the money for such charges is the reason for a high DSO. As Walden International understands the needs to remain liquid and this involves controlling its accounts receivables. Able Corporation may not understand the necessity for DSO and this may be hurting the company financially because Able Corporation cannot make use the cash freed in the collection of money from customers. Looking at the DSO quarterly will allow Able to effectively manage its collections from customers and restructure its collections policy to align with Walden’s standards.

In Review: Synergy between Walden and Able

Examining how to align short-term, functional objectives and tasks with long-term strategies must be defined by understanding the synergy between both types of objectives. Walden understands the need to attain short-term goals of profitability and sales, thereby appeasing its shareholders, but Able does not understand such business strategy. Able Corporation will benefit from adopting Walden’s structure while working toward satisfying the demands of quarterly achievements. Adopting the structure will allow Able to identify its current issues with head count control, inventory management, inventory turnover, and days sales outstanding. When Able Corporation can control its current financial problems, it can assist Walden in meeting its shareholder expectations while moving toward its initial long-term strategy of increased market share and competitive advantage.

References

Gomez-Mejia, L.R., & Balkin, D.B. (2002). Management (1st Ed.). New York: McGraw-Hill/Irwin.

Investopedia. (2009). Days Sales Outstanding – DSO. Retrieved January 9, 2009, from the Web site:

Investopedia. (2009). Inventory Turnover. Retrieved January 9, 2009, from the Web site:

Pearce, J.A., & Robinson, R.B. (2005). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill/Irwin.

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