Before 1979, in What Ways Did Beatrice’s Corporate Strategy Create Value?
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BEFORE 1979, IN WHAT WAYS DID BEATRICE’S CORPORATE STRATEGY CREATE VALUE?Born in 1891 as a wholesale produce dealer partnership (Haskell & Bosworth), Beatrice Companies soon (1894) entered the dairy processing industry, becoming “Beatrice Creamery Company” in 1897. Until 1940: dairy-related expansionDuring the first years (under the guidance of Haskell first, and William Ferguson then), Beatrice pursued an expansion strategy in the dairy industry. In those years, Beatrice acquired many small, close-to-customer (low-populated areas/countryside) and close to raw material sources creameries to expand rapidly. Such acquisitions have clear synergies, since they allowed Beatrice to expand rapidly (and avoid/buy competition), unifying many small realities who could share knowledge and know-how, and exploit economies of scale. With the election of Haskell nephew as CEO, Beatrice also started an expansion to the east coast, always through acquisitions (so to grow rapidly and exploit already existing knowledge). Moreover, they started a diversification inside the dairy industry (ice-cream): this diversification strategy points at exploiting knowledge and technologies that can be shared between all dairy products (for example refrigerating facilities). Pursuing an expansion and diversification strategy made sense in those years, since technology changes increased the minimum efficient plant size for all dairy products, and federal laws imposed the use of more sophisticated (and expensive) machinery. Beatrice exploited a single, well-recognized brand (Meadow Gold) to concentrate and leverage marketing efforts. In all acquisitions, Beatrice aimed at preserving the management of the acquired company, in order not to lose experienced management skills. However, behaving as an extremely decentralized entity (every acquired plant operated as an isolated unit and profit center), Beatrice failed to fully exploit economies of scale and knowledge-sharing, which were limited to marketing, research and quality control.
1940-1979: related and unrelated diversificationIn those years, Beatrice kept pursuing its expansion strategy in the dairy industry, through acquisitions following the population shift from Midwest to Southeast and Southwest. Moreover, Beatrice started an international expansion to Malaysia and Belgium. Due to problems with the FTC, and increasing competition intensification, Beatrice started a diversification strategy. Beatrice first diversified in the food industry, acquiring first a Chinese specialty foods company, and then a national manufacturer of candy bars; those acquisitions can have synergies rising from shared marketing efforts and consumer knowledge, as well as geographic presence and exploitation of refrigerated warehouse facilities. In 1952 Karnes succeeded Haskell as Beatrice’s president. With the acquisition of Bloomfield Industries in 1964, Beatrice started an aggressive unrelated diversification strategy, acquiring promising companies in high-growth industries. All the unrelated acquisitions done in those years have no clear synergies to exploit, and were driven only by the increasing margin pressure on the dairy industry. Moreover, acquisitions were conducted without actually integrating the acquired company in Beatrice, leaving the management and the administration system of the acquired company intact and fully responsible of the management of the company. So, everything remained the same, but now the company was owned by Beatrice, with no synergies’ exploitation. With the election of Rasmussen as CEO, the company’s unrelated diversification strategy continued with the acquisitions of Tropicana (which was overpaid, and posed serious distribution and competition issues) and Harman International Industries, a hi-fi equipment manufacturer. Also those acquisitions have no clear synergies, and were probably driven only by management’s magnificence desire and high observed margins in the acquired companies. Rasmussen also made some change to the administration, introducing a pyramid management structure in addition to the already existing one, increasing SG&A costs.