Abstract: The case centres around the dilemma faced by the CFO of a small company regarding the shaping of its future operations. The company is doing well but must decide on its future courses of action. The choices are plain expansion of the lines presently being pursued, related diversification to strengthen the value-chain, unrelated diversification to bring down the portfolio risk, taking big strides into new areas as real options, or just consolidate on present gains. The protagonist of the case is a conservative manager wanting to pursue strategies based on the merits of the company rather than following a role model. The top management, on the other hand, are highly impressed with the growth achieved by ITC and its strategies of diversification and going into new areas. The emulation of a big company goes to the extent of trying to follow ITC in every financial and strategic aspect.
The case is intended for a Management Program with emphasis on financial strategy, although several aspects in the case relate to Business Strategy and Competitive Advantage as well. The case affords scope for students to approach this from many different angles – financial analysis, conservatism, diversification under CAPM, value-addition to shareholders and measurement of potential risk.
1. Review strategies for companies which are successful, but which desire to go to the next level
2. Understand key concepts of strategy in management – diversification, measurement of risk, and value creation.
3. Understanding and criticising the uses and demerits of conventional systems of analysis like Common-sized statements and plain ratio analysis
4. Replication of portfolios – which is what a true emulation of another company comes to, what are the key value drivers and factors in such decisions.
5. Real Options – when, how and why? Can all companies afford this?
6. Managerial bias about diversification- why many successful companies do not diversify, why many companies diversify with great success.
7. Core competence revisited.