The Position of STAR within the Vos Groep
An internal fit analysis
Graduation Project
Rijksuniversiteit Groningen, August 2004
Author: A.W.J. Geerts
Student number: 1062670
Supervisors: Postma, Dr. Th.J.B.M.
Neuijen, Dr. B.
The author is responsible for the contents of this graduation report; the copyright is deposited by the author.
Preface
In December 2003 the Vos Groep assigned me with the task of analyzing the current and future position of STAR Fiber Glass Systems B.V. within the group. At first I got the impression that this was a relatively easy business problem. First STAR was an operating company that was not able to make a profit for a few years. Second the operations of STAR seemed to be very different from the core business of the group. And finally the Vos Groep headquarters was unwilling to invest in STAR, because they observed no potential for this company. Based on these facts the solution seemed very obvious: STAR has to leave the Vos Groep and a new business partner has to be found. However obvious the solution, I believed that the problem still deserved a thorough analysis in order to draw the right
conclusions. Well, six months of research at the Vos Groep has amounted to this report. And in the light of my early conclusion regarding the problem, the conclusions of this report are quite remarkable.
First I would like to thank the management of the Vos Groep headquarters for assigning me this research project. Mr. Vos (General Manager) and Mr. Snijders (financial manager) were always available to provide me with the information needed for my project. More importantly they were able to deepen my own thoughts regarding the research problem.
Second I would like to thank the employees of STAR Fiber Glass Systems, Alrik, Freddy, Jouke, Marieke and Wilfried, for welcoming me in the organization. Every employee was willing to invest some valuable time in the project. At any given time they were prepared to answer my questions or listen to my ideas on certain subjects. I would like to give a special thanks to Gerard Busser (manager of STAR) who was my supervisor during my internship at the company.
Third I would like to thank the management of the VMC division, Mr. Davio and Mr.
Valkenier, for enabling the analysis within the VMC division. Additionally I would like to thank all of the VMC managers that returned their questionnaire. The information gathered from these questionnaires has been of great importance for the research.
And finally, but certainly not least, I would like to thank my supervisors from the
Rijksuniversiteit Groningen: Mr. Postma and Mr. Neuijen. They played an important role in the actual research process by giving a scientific view on the research problem. I especially appreciate the constructive criticism that they gave me. As a result of this the quality and validity of the research was enhanced.
Due to the contribution of all these people I was able to execute and complete the research project. I hope that this research will contribute to the decision making within the Vos Groep.
Arnoud Geerts
Executive Summary
Research Topic
This report is the result of a research project, which is aimed at analyzing the current and future position of STAR Fiberglass Systems within the Vos Groep. The position of STAR is examined by executing a organizational fit analysis on the corporate- and business unit-level between STAR and the Vos Groep. Based on this analysis recommendations are made with regard to the portfolio and/or strategic alignment decisions recommended in this situation.
The research was based on the following research question:
“How to develop and apply a diagnosis-instrument for making portfolio and/or strategic alignment decisions based on the current dynamic of fit, at corporate and business unit level,
between the Vos Groep and STAR?”
In this research the corporate-level fit is established by analyzing the relevant characteristics of the Vos Groep headquarters and STAR. The characteristics under analysis are: Parenting Style, Mental Maps, Environment, Structure, Strategy, and People & Skills. At the business unit level the amount of fit between STAR and the VMC division (headquarters & operating companies) was analyzed by using the same characteristics as at the corporate-level. The building division of the Vos Groep is not integrated in this research because their activities are too different from those of STAR.
Corporate-level fit
The Vos Groep has adopted the portfolio manager style, which is aimed at controlling a large group of companies by using financial measures. On the contrary STAR needs a parent company that has adopted the synergy manager style. A synergy manager attempts to create synergy effects between the operating companies under its control. STAR needs to receive more support from the headquarters, because they are too small and vulnerable to survive on their own. As a result of this misfit between parenting style and business needs, the dynamic of fit can be defined as a misfit. Due to the fact that a portfolio manager only uses financial performance standards as a control instrument, there is no need for any form of congruency between the subsidiary and the headquarters. Therefore further analysis regarding the corporate-level fit is not necessary. Thus the total dynamic of corporate-level fit can be defined as a misfit, because the portfolio parenting style of the Vos Groep does not fit the business needs of STAR.
Business unit-level fit
The headquarters of the VMC division has adopted the synergy manager style, and therefore fits the business needs of STAR. The VMC headquarters can offer the support that is needed by STAR. There are no significant differences between the managers’ mental maps of STAR and the VMC companies. Therefore there is a tight fit on the variable mental maps. The environments of STAR and the VMC companies are more or less different, so there is a situation of minimal fit. STAR is mainly active in the European on-shore industry on behalf of the oil & gas industry. VMC is also active in the oil & gas industry, but they are focused on the Dutch off-shore industry. However, there is a potential for creating a tight fit on the variable environment, because the industries are complementary to each other. The variables structure and strategy both have a tight fit at the business unit-level. The same levels of centralization, formalization, and normative integration are present in the structure relationship between STAR and the Vos Groep headquarters, as in the structure relationship between the VMC management and its subsidiaries. The strategy style of STAR fits within the VMC division, because the VMC headquarters controls a diverse set of operating companies with different strategy styles. The most important skills of STAR and the VMC division differ from each other. There are especially large differences between the
internationalization skills at the business unit-level. STAR constantly attempts to expand their operations internationally. The operating companies of the VMC division recognize the
importance of internationalization, but they do not have the right skills for achieving
international expansion. So currently there is a minimal fit between STAR and VMC on the people & skills variable, but there is potential for creating a tight fit if the internationalization skills of STAR can be incorporated in the VMC division. Adding all dynamics of fit on these characteristics together leads to the conclusion that the total dynamic of business unit-level fit can be defined as a tight fit.
Total dynamic of fit
Combining both corporate-level and the business unit-level fit leads to the conclusion that the total dynamic of fit between STAR and the Vos Groep can be typified as minimal. As a result of this both portfolio decisions and strategic alignment decisions should, most preferably, be made in order to change the current position of STAR.
Strategic alignment and portfolio decisions
The first decision that is recommended is a strategic alignment decision that stems from the corporate-level analysis. Sufficient financial performance is demanded by the headquarters, but STAR has not been able to reach these results for several years. As a result of this STAR should be reorganized. First the housing and labor costs should to be minimized. The housing costs can be lowered substantially by sharing the current STAR office with another Vos Groep company. This is possible because there is much excess office-space for STAR.
The labor costs will be lowered because the manager and first mechanic of STAR are retiring in 2005, and these functions will not be filled again. Preferably the workshop activities should be discontinued, because they produce high costs, high risks, and relatively low additional value. The remaining mechanic of STAR should execute the on-site supervision and training function, but this is only a part-time activity. Therefore he should also perform activities for other Vos Groep companies.
Second a portfolio decision should to be taken because the current position of STAR within the group is not optimal. Currently STAR is directly controlled by the Vos Groep
headquarters, which is unable to offer sufficient support. Additionally STAR’s current position is very isolated. Therefore STAR should be transferred to the VMC division, because there is a tight fit with this division. Most ideally STAR is placed under direct control of the VMC headquarters. Especially the commercial manager of VMC will be able to offer sufficient (commercial) support. Within the division STAR should be placed in the supply & services department, because there are international trading companies (VWS and VPS) present in this department similar to STAR. Synergies between these three companies should be utilized for the entire division. Especially the internationalization skills of these companies can be of great importance for internationalizing the entire division, if these skills are exploited.
Finally STAR should to be strategically aligned to the VMC division. The synergies between the environments of STAR and the VMC companies should be utilized. The environment of STAR is complementary to the environment of VMC. By incorporating STAR in the division market expansion can be achieved. Next to the current focus on the off-shore industry the VMC division could additionally expand their activities within the on-shore industry.
Additionally the internationalization skills of STAR, VWS, and VPS should be incorporated in the entire division. Internationalization should become a way of doing business for VMC, instead of a skill next to doing business.
Contents
Preface ___________________________________________________________________ iv Executive Summary_________________________________________________________ v 1 Introduction ___________________________________________________________ 8
1.1 History Vos Groep ________________________________________________________________ 8 1.2 Profile __________________________________________________________________________ 9 1.3 Objectives & strategy _____________________________________________________________ 9 1.4 Core Business __________________________________________________________________ 10
2 Research plan _________________________________________________________ 11
2.1 Introduction ____________________________________________________________________ 11 2.2 Problem analysis ________________________________________________________________ 11 2.2.1 STAR Fiberglass Systems B.V.______________________________________________ 11 2.3 Problem definition _______________________________________________________________ 13 2.3.1 Research objective _________________________________________________________ 13 2.3.2 Research question__________________________________________________________ 13 2.3.3 Sub questions______________________________________________________________ 13 2.5 Research model _________________________________________________________________ 17 2.6 Research method________________________________________________________________ 18 2.7 Limiting conditions ______________________________________________________________ 18
3 Diagnosis instrument ___________________________________________________ 19
3.1 Introduction ____________________________________________________________________ 19 3.2 Corporate-level fit _______________________________________________________________ 19 3.2.1 Parenting style_____________________________________________________________ 20 3.2.2 The mental maps___________________________________________________________ 23 3.2.3 Environment_______________________________________________________________ 25 3.2.4 Structure__________________________________________________________________ 26 3.2.5 Strategy___________________________________________________________________ 28 3.2.6 People & Skills_____________________________________________________________ 31 3.2.7 Dynamic of corporate-level fit ________________________________________________ 32 3.3 Business unit-level fit ____________________________________________________________ 33 3.3.1 Parenting Style_____________________________________________________________ 34 3.3.2 Mental Maps_______________________________________________________________ 34 3.3.3 Environment_______________________________________________________________ 34 3.3.4 Structure__________________________________________________________________ 36 3.3.5 Strategy___________________________________________________________________ 37 3.3.6 People & Skills_____________________________________________________________ 37 3.3.7 Dynamic of business unit-level fit _____________________________________________ 38 3.4 Total dynamic of fit ______________________________________________________________ 39 3.5 Portfolio decisions ______________________________________________________________ 40 3.6 Strategic alignment decisions _____________________________________________________ 42 3.7 Summary ______________________________________________________________________ 43
4 Corporate-level Fit _____________________________________________________ 44
4.1 Introduction ____________________________________________________________________ 44 4.2 Parenting Style _________________________________________________________________ 44 4.2.1 Vos Groep headquarters ____________________________________________________ 44 4.2.2 Business Needs____________________________________________________________ 45
4.2.3 Dynamic of fit______________________________________________________________ 45
5 Business Unit-level Fit__________________________________________________ 46
5.1 Introduction ____________________________________________________________________ 46 5.2 Parenting Style _________________________________________________________________ 46 5.2.1 VMC Headquarters _________________________________________________________ 46 5.2.2 Business Needs____________________________________________________________ 48 5.2.3 Dynamic of fit______________________________________________________________ 48 5.3 Mental Maps ____________________________________________________________________ 48 5.3.1 Mental Map of STAR________________________________________________________ 48 5.3.2 Mental Map of VMC companies ______________________________________________ 49 5.3.3 Dynamic of fit______________________________________________________________ 50 5.4 Environment____________________________________________________________________ 50 5.4.1 Environmental complexity____________________________________________________ 50 5.4.2 Local Subsidiary resources __________________________________________________ 52 5.4.3 Industry analysis ___________________________________________________________ 52 5.4.4 Dynamic of fit______________________________________________________________ 55 5.5 Structure_______________________________________________________________________ 55 5.5.1 Structure STAR-Vos Groep relationship _______________________________________ 55 5.5.2 VMC structure relationship___________________________________________________ 56 5.5.3 Dynamic of fit______________________________________________________________ 57 5.6 Strategy _______________________________________________________________________ 58 5.6.1 Strategy style STAR ________________________________________________________ 58 5.6.2 Strategy style VMC _________________________________________________________ 58 5.6.3 Dynamic of fit______________________________________________________________ 58 5.7 People & Skills__________________________________________________________________ 58 5.7.1 Core functions _____________________________________________________________ 59 5.7.2 Skills needed from headquarters______________________________________________ 59 5.7.3 Internationalization skills_____________________________________________________ 60 5.7.4 Dynamic of fit______________________________________________________________ 61 5.8 Dynamic of Business Unit-level fit __________________________________________________ 61
6 Total dynamic of fit ____________________________________________________ 63
6.1 Introduction ____________________________________________________________________ 63 6.2 Corporate-level fit _______________________________________________________________ 63 6.3 Business unit-level fit ____________________________________________________________ 63 6.4 Dynamic of fit___________________________________________________________________ 63
7 Portfolio and Strategic alignment decisions _________________________________ 64
7.1 Introduction ____________________________________________________________________ 64 7.2 Portfolio analysis________________________________________________________________ 64 7.3 Portfolio and strategic alignment decisions __________________________________________ 65 7.3.1 Decision I: Restructuring STAR_______________________________________________ 66 7.3.2 Decision II: Changing STAR’s position_________________________________________ 68 7.3.3 Decision III: Aligning STAR with the VMC division. ______________________________ 70
8 Conclusions & Recommendations_________________________________________ 73 Final Thought ____________________________________________________________ 75 References _______________________________________________________________ 77 Appendixes_________________________________________ Error! Bookmark not defined.
1 Introduction
In order to place this research in a context it is important to describe some of the relevant aspects of the situation in which the project has taken place. These aspects are highlighted, in this chapter, by examining the history of the Vos Groep. In chapter two the content of the research will be given.
1.1 History Vos Groep
In 1903 bricklayer Hendricus Vos established a one-man construction company in Oldenzaal (NL). Until the Second World War the company didn’t experience many large changes in its operations, but this changed in 1942. In this year the BPM, currently known as the NAM, discovered gas in a farmland near De Lutte in the Netherlands. BPM approached Gerard Vos, son and successor of Hendricus, to build a wooden drilling rig in order to extract the gas from this well. Gerard accepted this challenge and subsequently the company undertook the project. The construction of this first rig was the beginning of the company’s involvement in the gas and oil industry alongside its construction activities. In the following two decades the company expanded its offshore activities around the globe. In 1967 the oil and gas activities of the company were combined into one operating company: Foxdrill. In the beginning of the seventies the Dutch government imposed strict regulations on drilling and extraction
concessions. As a result of this Foxdrill’s market rapidly diminished, and finally the company was sold in 1973 to a German drilling company.
Although the drilling activities of Vos belong to the past, the company remains active as a service company for oil and gas extraction companies in the Netherlands and abroad. In 1975 Dutch Northsea Services (DNS), currently part of Genius Vos, was acquired. DNS, a specialized company in the energy sector, focused on maintenance on behalf of the offshore- industry. Summarizing Vos changed its focus on executing offshore activities towards a focus on offering service for the offshore industry. This change of activities has been an important determinant for the company and forms the bases for the Vos Mechanical Contracting division.
Until the early nineties the company mainly focused on the developments within the offshore industry. This changed in 1991 as a result of a merger between Vos and the contractor Plegt.
This merger largely expanded the construction activities of Vos. From this merger the Plegt- Vos Bouwgroep was established, which formed the basis for the development of the Vos Bouwdivisie. Throughout the years Vos has also acquired non-related businesses, which are combined in a separate division (other operating companies). The current structure of the Vos Group is given in the organizational chart as seen below.
Vos Groep B.V.
Vos Bouwdivisie
B.V. Vos Mechanical
Contracting B.V. Other Operating
Companies
The top management of the Vos Groep is concentrated in the holding company, which is a relatively small organization. This holding company is controlled by a general manager, a financial manager, and the supporting staff. The building-division and the VMC-division have their own management teams, which report to the headquarters. The other operating
companies are directly controlled by the headquarters.
In conclusion the development and structure of the Vos Groep was largely determined by three events. First the establishment of a one-man building company by Hendricus Vos in 1903 formed the bases for the Vos Groep. Second, the company’s focus on providing service on behalf of the offshore industry formed the bases for the Vos Mechanical Contracting division. And finally the merger between Vos en Plegt in 1991 formed the bases for the Vos Bouwdivisie.
1.2 Profile
The Vos Groep is a group of companies that mainly focuses on construction, and contracting in the oil, gas, and manufacturing industry. The companies within the group are divided in three divisions: Vos Bouwdivisie, Vos Mechanical Contracting and Other Operating Companies (see Appendix I). The construction division is geographically divided in four regions within the Netherlands. These companies are active in property development, public building & general construction, house building and infrastructure & supplies. The
construction division is momentarily exclusively active on the Dutch market, but the division is planning to explore the surrounding markets (Germany and Belgium) in the upcoming years.
The VMC-division is mainly a service provider for the offshore industry and is mainly active in the field of oil and gas extraction. The activities of the mechanical contracting division consist out of industrial services & projects, maintenance & overhaul, and supply & services. The operating companies within maintenance & overhaul, and industrial services & projects, are principally active in the Netherlands, with some projects executed abroad. Within supply &
services the activities are relatively internationally oriented. The other, “non-related”,
activities of the Vos Group are divided in environmental consultancy, and trading & services.
Of these two only the trading & services companies are internationally active. All companies within Vos Groep operate independently. Each company is a specialist in its own sector but may benefit from the specialist “know how” of another company within the division or the group. The companies complement one another and work together, in flexible teams, for the completion of large, multi-disciplined projects1.
1.3 Objectives & strategy
The backbone of the Vos Groep is formed by the Vos Bouwdivisie and Vos Mechanical Contracting. Although there are almost no market synergies between these two divisions, the sharing of knowledge between both is stimulated and accordingly knowledge synergies are created. Another advantage that stems from the dual structure is the spreading of risks. If the results of, for example, the Vos Bouwdivisie are disappointing then these results can be compensated by the results of the other operating companies. This means that economic downturn in the market of one division does not necessarily lead to financial problems.
The main objective of the Vos Groep is creating value for its customers, for its employees, for society at large and for its shareholders. In order to fulfill this objective the company needs to be sufficiently profitable to ensure the continuity of the firm. Vos states that maximum
profitability can be reached if the customers of the company are satisfied. For its employees the Vos Groep aims at offering a safe, pleasurable and challenging working environment.
1 http://www.vosgroep.nl/algemeen.html/3
Throughout its history the Vos Groep has mainly been a capacity provider. This means that the group mainly focused on providing manpower for building and offshore activities. The market in which the group operates is conjuncture sensitive, and margins are tight during recessions. In order to overcome this vulnerable position the Vos Groep aims at shifting from a contractor to a service company. For the building division this means that they will try to solve housing problems (from initiative, to after-care of construction projects). Vos
Mechanical contracting aims at offering total-solutions (from engineering to turn-key contracts) to its costumers, including maintenance. This is all aimed at accompanying the costumers from the beginning of the project until the after-care and maintenance of these construction projects.
1.4 Core Business
In recent years the Vos Groep has developed from a diversified, flat, organization to a group with the two main activities: building and mechanical contracting. This means that a core the business for the entire Vos Groep was determined. By 2003 almost the entire group was adjusted to this core business. This was done by placing most of the operating companies into the two main divisions. Simultaneously some “non-related” operating companies were sold off, like for example Auto Vos B.V., which was a car dealership for Volkswagen. The non-related operating companies that were performing sufficiently were placed in the other operating companies division. In 2004 two non-related operating companies, VWS and VPS, were transferred to the VMC division. The management of the headquarters is now
considering what would be the best solution for the other non-related business within the Vos Groep. The management states that these operating companies can remain within the group if their performance is sufficient. In the next chapter the problems arising from this recent development will be elaborated.
2 Research plan
2.1 Introduction
The research plan is concerned with the formulation and clarification of the research topic and the research question, based on the literature provided by De Leeuw2. In the first
paragraph a problem analysis is given which presents an introduction into the research topic.
Directly flowing from this problem analysis the problem definition is presented in the second paragraph. In this paragraph the research objectives, the research questions and the sub questions are formulated. In the third paragraph the problem definition is visualized in the conceptual model. In the fourth paragraph the broad outline of the research is described in the research model. In the following paragraph the method in which the research is
conducted is presented. Finally the boundaries and delimitations of the research are discussed.
2.2 Problem analysis
As mentioned in the previous chapter the Vos Groep has recently formulated their core business, which is construction and mechanical contracting. Besides these two core activities of the Vos Groep there are “non-related” businesses within the group, which are Geofox- Lexmond B.V., STAR Fiber Glass Systems B.V., and Workfox B.V. The Vos Groep wishes to continue operating these companies only if they are profitable, and consume relatively little management effort of the headquarters. Geofox-Lexmond is a very profitable company and therefore it does not form any problem for the headquarters. The activities of Workfox match those of the operating companies in the Mechanical Contracting division, but the company is owned jointly, on equal basis, by Workships Groep B.V. and the Vos Groep. Therefore it would be difficult to place this company under the direct supervision of the Vos Mechanical Contracting division. The results of this company are excellent, so no problem is perceived by the headquarters. The results of the past two years of STAR Fiber Glass Systems (from now on STAR) have been disappointing. Therefore the headquarters has spent relatively much time controlling this operating company. Besides these disappointing results the headquarters perceives the activities of STAR as too distant from the core business of the group. Another problem with regard to STAR is the coming departure of the general manager and a service mechanic in 2005. For these reasons the Vos Groep states that decisions have to be taken with regard to the future of STAR, and therefore this research is conducted.
2.2.1 STAR Fiberglass Systems B.V.
STAR is an Oldenzaal (Netherlands) based company that is a distributor and service company for fiberglass pipes and related products3. The emphasis of STAR’s activities lies on trading fiberglass pipes for line-pipe and down-hole applications on behalf of the onshore and offshore industry. The company is active in the field of geothermal systems in the oil, water and gas industry, for which it supplies pipes under the “STAR” trademark. The manufacturing headquarters of STAR are based in San Antonio USA. The facility in Oldenzaal serves customers in Europe and Africa with assembly-threading-reconditioning- prefab and specialties4. STAR customers are major and independent oil companies, mining companies, waste disposers, refiners and producers of geothermal energy and producers of Spa water.
The operating company is relatively small with only six employees. First of all there is a
“general manager” who is also involved in sales activities. This manager can not be typified
2 De Leeuw, A.C.J., Bedrijfskundige Methodologie, Management van onderzoek, Assen: Van Gorcum, 2001, p. 85
3 www.fiberglasspipes.com
4 STAR Fiber Glass, Corrosion free
as a full general manager because he is directly controlled by the financial manager of the Vos Groep. The sales department consists out of two employees, which both have a relatively large market in geographical terms. One employee is responsible for the internal administration of the company. Finally STAR has a work-shop with two mechanics. These mechanics make alterations to existing fiberglass products out of the U.S.A. in order to make them more marketable, and they provide on-site supervision and training during projects.
Although the company is relatively small it is interesting for this research because of its internal and external complexity. Internal complexity is present, because the company executes all the functions (management, sales, administration, service, production) that a
“bigger” company would do. External complexity is caused due to the fact that STAR has to manage its relationship with STAR U.S.A. and the Vos Groep simultaneously. Another factor contributing to the complexity is the large geographical market of the company and
simultaneously a small consumer market.
This research aims at offering clear insights in the relationship between the Vos Groep and STAR Fiberglass Systems. Flowing from these insights conclusion regarding the current and future position of STAR are drawn. To analyze this position a diagnosis instrument is
developed, which focuses on the existing relationship. A diagnosis instrument is developed because it is suitable for a systematic, and structured, analysis of a business unit. The diagnosis instrument is tailor made for this specific organizational problem, because no suitable model was found in the business literature. The research focuses on the corporate level as well as on the business unit level. At the corporate level an analysis is made regarding the relationship between the Vos Groep’s headquarters and STAR. This analysis focuses on the amount of fit between the characteristics of the Vos Groep and the
characteristics of STAR. At the business unit-level the characteristics of STAR are compared to the characteristics of the VMC division (VMC headquarters & VMC operating companies), in order to establish the amount of fit at this level. The characteristics of STAR are compared to those of the VMC division, because preliminary research has shown that there are some significant congruencies between these two. For example the market, the oil & gas industry, in which STAR is active, seems relatively similar to the markets in which some operating companies of VMC are active. The Vos Bouwdivisie is not included in this analysis because their operations are dissimilar in comparison to those of STAR and VMC. Another reason for choosing VMC is the fact that the other non-related companies, VPS and VWS, are
transferred to this division. This could lead to the conclusion that STAR could be directed in the same direction.
In summary the problem analysis focuses on the current and future position of STAR within, or without, the Vos Groep. In this analysis especially the future position is important for both the Vos Groep and the employees of STAR, therefore all relevant solutions are considered.
These solutions are based on the results of the fit analysis, in order to produce a realistic picture. If for example STAR has no similarities to the Vos Groep or VMC then it would be unrealistic to keep STAR incorporated within the group. This option only seems possible when the performance of this operating company could be improved drastically. But in order to achieve this some strategic decisions need to be taken. If however the fit between STAR and Vos Groep is tight, then it would be unwise to sell this company. This means that two kinds of solutions are researched extensively. First a solution for STAR within the Vos Groep should be examined. Strategic decisions or portfolio decisions could be taken in order to improve the position and performance of STAR within the group, based on the fit analysis.
Second a solution without the Vos Groep needs to be examined. This means that portfolio decisions are made which result in the departure of STAR from the group.
The international aspect of this research stems from the method in which the research is conducted. During this research customers in France (Total and Gaz de France) and
Germany (Exxon-Mobil) were visited. This is important in order to get good information about the market in which the company is active. It also creates a ‘feel’ for the environment in
which STAR is active. Additionally the internationalization skills within the Vos Groep are analyzed.
2.3 Problem definition
In the previous paragraph the motive for the research is described. In this paragraph the research area will be more narrowly defined. First the objectives of the research will be given. Based upon the research objectives the research question is formulated, which forms the basis for the research. In order to give a coherent, systematic, answer to the research question several sub questions will be presented.
2.3.1 Research objective
The research objective is divided into multiple objectives:
To create a diagnosis instrument in order to analyze the amount of fit, at corporate and business unit level, between the Vos Groep and STAR Fiberglass Systems B.V.
To apply this diagnosis instrument to STAR.
To draw conclusions regarding the future position of STAR within or without the Vos Groep.
2.3.2 Research question
Abstracted from the research objectives the following research question is formulated:
How to develop and apply a diagnosis-instrument for making portfolio and/or strategic
alignment decisions based on the current dynamic of fit, at corporate and business unit level, between the Vos Groep and STAR?
2.3.3 Sub questions
By dividing the research question in sub questions a systematic solution to the research problem can be found. The first sub question relates to determining the dynamic of corporate level fit between the corporate parent and STAR. The second question assesses the amount of business unit level fit between the VMC division and STAR. From the corporate- and business unit- level analysis conclusions can be drawn whether organizational change or strategic change is mandatory. The fourth sub question aims at answering which strategic alignment or portfolio decisions should, most preferably, be taken in order to achieve a larger amount of fit with the Vos Groep or another partner.
The research will be based on the following sub questions:
What is the dynamic of fit at the corporate-level between the headquarters and STAR?
What is the dynamic of fit at the business unit-level between STAR and the VMC division?
How can the total dynamic of fit between the Vos Groep and STAR be defined?
Which strategic alignment decisions and/or portfolio decisions need to be taken based on the total dynamic of fit?
2.4 Conceptual model
Characteristics
The characteristics that are analyzed in this research are those of the headquarters, STAR and VMC. VMC is defined as the operating companies in this division as well as the
management of the division. This management is seen as a sort of “parent” for this division.
The characteristics under analysis are:
Parenting style vs. Business needs
Mental maps
Environment Structure Strategy
People & Skills
The exact contents of these characteristics are described in chapter 3 of this paper.
Corporate level fit
The characteristics of the Vos Groep headquarters, versus the characteristics of STAR are analyzed. First of all the parenting style that is provided by the Vos Groep should match the parenting style that is needed by STAR. The parenting style is the method by which the headquarters controls the operating companies within their group. Johnson & Scholes (2002) distinguish four different parenting styles: portfolio managers, restructurers, synergy
Figure 2: Conceptual model figure 1: Conceptual model Characteristics of
Vos Groep
Characteristics of STAR Fiberglass
Systems B.V.
Characteristics of VMC Corporate-level
FIT
Business unit-level FIT
Dynamics of FIT Minimal Fit
Misfit Tight Fit
Portfolio Decisions
Strategic Alignment
No changes required Early Tight Fit
Parenting style
Business needs
Parenting style
Business needs
managers, and parental developers. These styles have to fit the needs of STAR with regard to the corporate headquarters, in order to receive the most efficient support.
A second important characteristic in this analysis are the managements of STAR and the headquarters, which should have an efficient relationship with each other. Therefore it is relevant to analyze the mental maps of the managers. Mental maps are the frames of mind by which managers operate their business. These frames of mind are developed over a large number of years and are very hard to alter. For an efficient relationship between the Vos Groep and STAR there has to be a reasonable extent of alignment between the mental maps of the relevant managers. If there is alignment between the mental maps of the managers, than the coordination of STAR will be more efficient, and therefore the costs will be lowered.
Third the environments in which the Vos Groep and STAR are active are examined.
According to Nohria and Ghoshal (1997) the variables environmental complexity and local subsidiary resources are suitable for describing the environmental fit in the relationship between the headquarters and a subsidiary, in this research respectively the Vos Groep and STAR. For STAR and the Vos Groep it is ideal when the level of complexity of their
environments is relatively similar, because then it is possible for the headquarters to obtain clear insights in the activities of STAR. The level of resources that STAR obtains from their environment, including the Vos Groep, is a measure for their relative power towards the Vos Groep. Another aspect of the environment stems from the focus on the core business. The industry in which the Vos Groep whishes to be present has to be compared to the business in which STAR is active.
The structure of the relationship between the Vos Groep and STAR is another important contingency variable. The structure forms the basis of every relationship between
organizational entities. This characteristic is a basic contingency variable in the business literature.
Strategy is also a basic contingency variable that is described in the business literature. In this research two aspects of strategy are analyzed. First the diversification strategy of the Vos Groep, in other words the core business of the group. It has to be determined to what extend the operations of STAR fit the formulated core business of the group. Second the strategy style, such as prospector, analyzer, defender and reactor, which the headquarters and STAR have adopted, will be analyzed. In this analysis emphasis will be placed on the fit between these strategy styles.
The last characteristic that is analyzed at the corporate level is the people & skills variable.
The corporate headquarters offers expertise and skills to their operating companies. These expertise and skills have to fit the needs of the operating companies in order to create additional value. On the other hand it has to be analyzed whether STAR can offer certain skills and expertise which can be of additional value for the Vos Groep. Emphasis is placed on the internationalization skills present within STAR.
Business unit-level fit
The second relationship in the conceptual model is the level of fit at the business unit-level.
This relationship focuses on the extent of fit that STAR has with the VMC division. The business unit-level fit is established by analyzing exactly the same variables as at the corporate level. However there are some differences in the content of these characteristics.
First the characteristic parenting style is tested on the relationship between STAR and the VMC management. Second the variable environment is supplemented with a more extensive industry analysis. The relationship between the people & skills of STAR and VMC is
measured by the main functions present in the operating companies.
Dynamics of fit
The concepts of corporate-level fit and business unit-level fit are combined in order to determine the current total dynamic of fit between the Vos Groep (parent & other business units) and STAR. Miles & Snow5 formulate four dynamics of fit:
Misfit and failure
Minimal fit and survival
Tight fit and excellence
Early, tight fit and the hall of fame
Portfolio decisions & strategic alignment decisions
Based on the total dynamic of fit conclusions regarding eventual strategic alignment
decisions and/or portfolio decisions can be drawn. The relationship between these decisions and the total dynamic of fit is designed exclusively for this research. STAR has a misfit with the entire Vos Groep (headquarters and VMC division) when the corporate-level and
business unit-level fit are low. A low level of fit exists when none or just a few characteristics of STAR match the characteristics of the group. In a situation of misfit it is very difficult to make the transition to minimal or tight fit. On the contrary companies with misfit usually fall back compared to their competitors, which eventually leads to failure. The best option for an international operating company, that has a misfit with the Vos Groep, is finding a new business partner. This means that portfolio decisions have to be taken. Important in this situation is the quest for another business partner that does fit STAR, this will possibly result in better performance for STAR.
If the corporate-level and business unit-level fit are mediocre than STAR has a minimal fit with the Vos Groep. If STAR’s characteristics partly match the characteristics of the group there is a minimal fit. The conceptual model indicates that there are two types of possible actions in this case, which are usually taken simultaneously. A portfolio decision is taken that uses the preservation of STAR within the group as a starting point. In other words the current position of STAR within the group should to be changed. In order to successfully make this transition strategic alignment decisions, in order to abolish the misfits present, are mandatory in most cases.
When almost all characteristics of STAR and the group match each other then there is a tight fit. The existence of tight fit usually leads to above average returns and thus potential for competitive advantages. When there is a tight fit between a corporate parent and an
operating company, there are possibilities for the creating parenting advantages, which can lead to superior performance. For example a parent with superior market knowledge can transfer this knowledge to the business unit, which can result in competitive advantages. In the case of a tight fit there are two possible courses of action that can be made. If not all of the characteristics are matched strategic alignment decisions could be taken. But these decisions have to be weighted carefully because the potential benefits of the changes should exceed the costs. And special care has to be taken that a change in, for example, the
corporate-level fit does not lead to depreciation of the amount of business-level fit. If there are not any mismatches between the group and the business units then no changes have to be made.
If a company has a tight fit and simultaneously develops clever structures and processes to make new strategies work sooner than others, they often have a leading edge over their competitors. As a result of this leading edge companies are usually able to achieve more revenues than their competitors while using fewer resources6. Companies with these
5 Miles, R., Snow, C., Fit failure and the hall of fame, New York: The free press, 1994, p. 19.
6 Miles, R., Snow, C., Fit failure and the hall of fame, New York: The free press, 1994, p. 23.
qualities have an early tight fit and are usually the stars of their industries. When early tight fit exists no changes will be necessary.
2.5 Research model
The research model gives a broad view of the different research phases. More importantly the model gives clear insights regarding the relationships between the phases in the research.
In the first phase literature on achieving organizational fit has been analyzed. In doing this special attention was paid to the variables that needed to be analyzed in order to determine the amount of corporate level- and business unit level fit. Criteria for strategic alignment were drafted by studying the relevant literature. The portfolio management theory was studied for establishing criteria for determining the position of STAR within the group. Alongside this literature study experts within the Vos Groep (headquarters, VMC management, and STAR) were interviewed. These interviews focused on obtaining as much information as possible about the amount of corporate-level and business unit-level fit within the group. The internal database was used as an additional information source for determining the criteria for achieving fit.
Phase II of the research focused on providing a diagnosis instrument for assessing the current and future position of STAR within the group. This position was determined by examining the characteristics of STAR and the Vos Groep (headquarters & VMC) at the corporate- and business unit-level. Based on this analysis conclusion regarding the total dynamic of fit were drawn.
In phase III the results of implementing the diagnosis instrument were processed. Based on the information gathered recommendations were given regarding the strategic alignment- or portfolio decisions in this situation.
Figure 3: Research model Literature on corporate-level
fit
Literature on business unit-
level fit
Interviews with experts
Internal database
Diagnosis instrument
Characteristics of Vos Groep
STAR Fiberglass Systems B.V.
Conclusions &
recommendations for strategic alignment- or portfolio decisions
Phase I Phase II Phase III
Strategic alignment theory
Portfolio management
theory
2.6 Research method
The first step of the research was developing an organizational diagnosis-instrument for determining the position of STAR within Vos Groep based on a corporate- and business unit- level fit analysis. This instrument gives clear insights into the amount of corporate-level and business-unit level fit that STAR has with the group. The diagnosis instrument first focuses on the relationship between the characteristics of the headquarters and the characteristics of STAR. Second the diagnosis instrument is concerned with the relationship between the characteristics of STAR and the VMC division. The theoretical concepts for analyzing the characteristics were developed by studying the relevant business literature. Next measurable indicators for each of these characteristics were determined. These indicators clarify the range, which the characteristics can adopt. Finally these indicators were made measurable by designing checklists and questionnaires. The information needed for drafting such a diagnoses-instrument was gathered by desktop research of relevant literature. Literature used in this stage of research was: Goold, Alexander & Campbell (1994), Burton & Obel (1995), Miles & Snow (1994), Johnson & Scholes (2002) and Nohria & Ghoshal (1997).
Second the diagnosis-instrument was applied in a real life situation. To establish the amount of fit between STAR and the headquarters the relationships between the characteristics of both were analyzed. In-depth semi-structured interviews and desktop research were used for the gathering of information. In-depth, semi-structured interviews were used because of the relatively small amount of employees that needed to be interviewed. Therefore it was
possible to use this time consuming method of information gathering. Next to these methods of information gathering a questionnaire was designed in order to make the variables
measurable. This questionnaire focused on the corporate-level and business unit-level fit analysis. A questionnaire is most suitable in this situation in order to ensure the validity. For establishing the business unit-level fit between STAR and VMC a questionnaire was
designed. Alongside this questionnaire the management of VMC was interviewed.
In the third stage of the research recommendations regarding the eventual portfolio and/or strategic alignment decisions were designed. These decisions flow directly from the corporate- and business unit-level fit analysis.
2.7 Limiting conditions
The restrictions under which the research is conducted are:
The research is restricted to the European market for related industries.
The Vos Groep does not want to invest in STAR Fiber Glass B.V.
The timeframe of the research is six months.
The research will cover the internal context of the organization as well as the outside context of the organization.
3 Diagnosis instrument
3.1 Introduction
In the previous chapter the problem area and the research questions were defined. As a result of this the conceptual model was drafted. This conceptual model broadly visualizes the outset of the research. The relationship between the characteristics of the Vos Groep and STAR are important in order to establish the amount of corporate-level fit. The relationship between STAR and the VMC division is a measure for the amount of business unit-level fit.
These two levels of fit are subsequently combined into a total dynamic of fit. In this chapter the variables raised in the conceptual model will be analyzed to a greater extent. First these variables will be individually defined in detail. The indicators of these variables are
determined, which indicate the range that the variables can adopt. Second in order to enable conclusions to be made about the current state of these indicators questionnaires and checklists were drafted. Additionally a norm was attached to these indicators. The variables described in this chapter are corporate-level fit, business-level fit, dynamic of total fit, portfolio decisions and finally strategic alignment.
3.2 Corporate-level fit
In the business literature a great body of theory is formulated regarding the characteristics of the corporation that should be analyzed in a fit-analysis. Goold, Campbell and Alexander7 have formulated five related characteristics of the parent company:
The parent’s Mental Maps.
The parenting structures, systems, and processes.
Functions, central services, and resources.
People and Skills.
Decentralization contracts
For this research especially the mental maps, and people & skills are relevant. These variables are of importance for the Vos Groep because the company seems to be largely influenced by individual managers throughout its history. The parenting structures are also relevant in this context. First the parenting structures can be seen as the structure of the relationship between the parent and STAR. Second the parenting structures can be defined as the parenting style that is adopted. The level of decentralization within the Vos Groep is a measure for the decentralization contracts. This variable is included in the characteristics mental maps, and structure. The functions, central services, and resources of the Vos Groep are included in the structure analysis and the environmental analysis.
The parental characteristics described above need to be supplemented by other contingency factors, in order to adequately describe the relationship between the headquarters and STAR. Burton and Obel8 describe the following five contingency factors:
Strategy Size/ownership Technology Environment
Management preferences
Because the Vos Groep is intending to focus to a greater extend on their core business in the near future, the strategy of the parent company and STAR is important for this research. The strategy and operations of STAR have to fit the core business of the Vos Groep. The size
7 Goold, M., Campbell, A., Alexander, M., Corporate level strategy, John Wiley & Sons: New York, 1994, p. 18
8 Burton, R.M., Obel, B., Strategic organizational diagnosis and design, Kluwer Academic Publishers:
Boston, 1995, p. 10
and ownership, as an individual variable, of the Vos Groep is not relevant because the corporate parent will be compared to an individual business unit that is already in the group.
The size and ownership has no influence on the relationship between STAR and the headquarters. The corporate headquarters and STAR are not production companies so the variable technology is not relevant. For the Vos Groep the dynamics of their environment have been important for the company during its history. For example in 1973 the company had to sell off Foxdrill due to (legislative) pressures from the environment. The focus on the core business of the group, in order to stay competitive, is another example of environmental influence. This focus is given by developments in the competitor base. For STAR
environmental dynamics are influential, because the company is completely dependent on its customer base. Usually the turnover of STAR is determined by only a few big projects.
Management preferences are similar to the construct of mental maps.
In this research the characteristics raised by Goold, Campbell and Alexander (1994) are combined with the characteristics stated by Burton and Obel (1995). The former
characteristics focus on the corporate parent and little attention is paid to the characteristics of the business unit. Therefore their model is complemented by the contingency factors of Burton & Obel, which are more subsidiary oriented. Flowing from these two theoretical models the following characteristics will be analyzed in order to establish the corporate level fit:
The parenting style Mental Maps Environment Structure Strategy
People & skills 3.2.1 Parenting style
The first, and most important, corporate level characteristic is the fit between the parenting style of the Vos Groep and the business needs of STAR. The parenting style is the method by which the headquarters controls their operating companies. These styles can range from loosely controlled systems to tightly controlled cooperative systems. In the first case the headquarters can control a large group of different business units with only financial
measures. In the latter case the span of control of the headquarters is much smaller and the companies are controlled by offering unique expertise and creating synergies.
Johnson & Scholes (2002) state that there are four different styles that a corporate parent can adopt. The styles that the headquarters can implement are portfolio managers,
restructurers, synergy managers, and parental developers. The parenting style adopted by the Vos Groep will be measured by conducting semi-structured interviews and issuing a questionnaire (see appendix II). Similarly the business needs of STAR will be analyzed.
Portfolio managers
A portfolio manager is, in effect, a corporate parent acting as an agent on behalf of financial markets and shareholders with a view to enhancing the value attained from the various businesses in a more efficient or effective way than financial markets could9. They achieve this by acquiring undervalued companies. Activities of these companies that are not viable will be sold off or divested, in order to improve performance. Corporate parents that adopt this style usually have a large number of operating companies in their portfolio, while the headquarters is relatively small and low budget. Headquarters controls the business units by measuring their financial performance. The business units are promised high bonuses and
9 Johnson, G., Scholes, K., Exploring corporate strategy, 6th edition, Financial Times/Prentice Hall:
Harlow, 2002, p. 275
