Right from the beginning, GE was perpetually developing efficient products through research and innovation. GE leadership has developed effective and viable internal business growth plans that had to be modified from time to time due to mergers and acquisitions in order to maintain the competitive advantage in front of the increased competition. In 1879 was founded Thomson-Houston Company which was a direct competitor to Edison's business organization.
Mergers and acquisition of smaller competitors and patents rights detained by the these two business organization made almost impossible for either of these organization to develop, launch and produce new complete electrical products only with their personal technologies. In consequences in 1892 these business organization receive financial help from JP Morgan to form the General Electric Company (General Electric Company, 2008).
General Electric's leadership did not have always in the agenda only the business process of mergers and acquisitions of another business organization. In 1970, the leadership of GE took the strategic business decision to sell to Honeywell, the GE's computer division. This strategic business decision offered to GE the opportunity to withdraw from the computer industry in order to maintain GE's business focus on entertainment products like network television. Presently, General Electric is the main owner of NBC Universal (General Electric Company, 2008).
At the beginning of 2001, GE's leadership took the strategic business decision to implement a working capital management system by a successfully converting the accounts payable process to be fully automated. In May 2001, GE's leadership has communicated that almost 70% of calls were coming from GE's internal managers enquiring about the vendor's status payment and 20% from external vendors' enquiries. In addition, the administrative cost were high because GE's staffs were using almost half of their time in order to match the invoices of the shipping receipts and purchase orders.
The new automated system has furnished the business advantage to increase the staffs' productivity and to reduce the costs. The cost savings was oriented toward business plans like mergers and acquisitions that represent long-term opportunities. In 2001, General Electric announced acquisitions that totalize nearly $23 billion. "We added new platforms in Power, Medical and Industrial Systems. The Telemundo acquisition by NBC will extend our reach in the fast growing Spanish language segment in the United States," (General Electric, 2001, p. 1).
Through effective and efficient leadership knowledge, skills and abilities (KSAs) in working capital management and viable strategic business plans GE demonstrated the capability to grow the business by effectively manage the working capital to take advantage of the external business opportunities and to make investment in development of innovative and efficient products. GE annual report for 2001 state: Cash from operating activities grew to $17. 2 billion, up 12% from 2000. Excluding progress collections, cash was $13. 8 billion, up 13% from 2000. Operating margin
expanded to 19. 6% from the previous year's comparable 18. 9%; return on average total capital remained at 27%, (General Electric, 2001, p. 1). Valeriu Alin Bargan - Regions Bank Regions Bank was created in 1971 under the name of First Alabama Bancshares Inc. This bank was open in 40 locations, which totalize 543 million dollars in assets. Regions bank was founded by three main banks "First National Bank of Huntsville, chartered in 1856, the First National Bank of Montgomery, opened in 1871, and the Exchange Security Bank of Birmingham," (Regions, 2009, p. 1).
Regions Bank had managed efficiently the assets and the back could double the assets to over 1. 2 billion dollars by the end of 1974. To accomplish this competitive business position on the marker, Regions Bank took the opportunity to acquire the banks that were in the Regions Bank's expanding area. In 1986, the government has voted an interstate banking bill, which permitted the banks from Alabama to buy out states banks. This banking law has offered to Regions Bank the business opportunities to extend the bank's market share in six more American states like Tennessee, Georgia, South Carolina, Louisiana, Texas and Arkansas.
In 1987, Regions became the first bank in Alabama to provide customers with direct access to their account information via a computerized telephone inquiry service. Telephone banking continues to offer customers convenience today. By calling 1-800- REGIONS customers have access to automated account data and assistance from financial professionals, (Regions, 2009, p. 1). In the past 20 years, the tremendous technology revolution has furnished the technical opportunity of linking the telephone communication networks with the computers.
This technical development and opportunity has offered the possibility of an essential banking development. This banking development is the creation and launching of the automated teller machines (ATMs) for the banking industry. Taking advantage of the business opportunities that the computers, telephones and ATMs offered, Regions bank could extend and manage more efficiently the cash budgeting process - how much cash goes in and out to any potential customers. In 1981, the bank established a statewide network of ATMs known as The Right Place banking machines.
With one of the most extensive ATM networks in the state, the bank played a key role in the organization of a statewide-shared automated teller machine network, which went on line in April 1986, (Regions, 2009, p. 1). In the last 30 years, Regions Bank had the enormous business opportunity to increase its assets due to numerous mergers that also offered to the Regions bank to manage and extend the cash budgeting process to much more customers. In 30 years, Regions Bank was capable to attain $100 billion in deposits and to increase the assets from 543 million in 1971 to more then 140 billion in 2006.
Because of its effective and efficient cash budgeting process (cash in and out) Regions Financial Corporation could attain one of the top 10 spots in the United States' banking industry. Gina Robinson - Dell Computers The purpose of this writing is to discuss working capital concepts as relating to cash flows and cash conversion cycles, and to present an example, which demonstrates the significance of effective management in maintaining practices that sustain and promote profitability.
Critical to the example is the topic of inventory management, the balance between growth and operational practice with respect to profitability, and the importance of tracking and managing cash flows. Dell Computers is one of the fastest growing companies in the computer industry, with sales in 1997 rising to a hefty 42% more than the next largest competitor (Compaq) does. Return on Dell's invested capital reached 167%, a figure, which translated into 10 times that of the industry's average.
One reason for such an astounding success rate was the company's innovative structuring that focused on maintaining low inventory levels and operating on an extremely abbreviated cash conversion cycle. In the words of the firm's founder, "The basic idea was to eliminate the middle man..... build relationships with suppliers, (and) reduce inventories," (Fisher, 1998, p. 1). By moving away from the traditional system of holding large inventories from which sales could later be made, Dell began a program of building products to order, and maintaining only 12 days of shelved inventory.
The company was able to assemble, test, pack, and install software in just eight hours from the time an order was received... a fast delivery system, which gave the company a competitive edge against the industry giants such as IBM, Hewlett-Packard, and Compaq. Because Dell bought components on a just-in-time basis, and retail customers often paid Dell more quickly than paying other suppliers, cash flow was positive, profits rose, and growth became the number one focus. Unfortunately, the growth was so rapid that operational practices such as price changing could not be managed. Inventory became glutted, capital
became tied up and unable to be used, cash flows slowed, and Dell discovered the importance of working strategies. The Chief Financial Officer, Thomas Meredith, defined the problem in the following quote: "Any one strength used to excess becomes a weakness. We stumbled because we were singularly focused on growth to the detriment of profitability and liquidity," (Fisher, 1998, p. 1). Mr. Meredith's goal was to reduce inventory and refocus the company on the cash conversion cycle. As with Dell, the sports manufacturer in the course scenario is facing a critical cash flow problem.
While different in cause and origin, and predicted to be more temporary, Lawrence's cash flow crisis in accounts receivable creates a similar result... an extended cash conversion cycle and a shortage of cash that if not properly managed, can prove costly to the company's bottom line and produce long range effects on customer relationships. In this instance, Lawrence's answer to the cash flow problem will not be found on inventory shelves, but rather in short term financing methods that will provide temporary revenue for continued operations. However, like Dell, Lawrence's focus is on long-range profitability.
The cost of addressing the present cash flow problem will be measured by the long-term effect of implementing the best solution. Gina Robinson - Chrysler Corporation The purpose of this segment of the paper is to point out the impact, which cash flow decisions can have upon broader aspects of a company's value. As the course scenario company (Lawrence Sports) prepares to make a critical financial decision in dealing with a negative cash flow, a benchmark situation in the Chrysler Corporation is offered in order to demonstrate the critical nature of such a decision.
Following a recent history of serious financial difficulties, Chrysler Corporation has continued on a path of attempted corrective measures in order to side step the deeper concerns of bankruptcy and corporate collapse. Having enjoyed a position of strength within the industry since conception in 1925, the organization met global competition and economic downturns that have consistently challenged the company's leadership and resulted in the slow and methodical deterioration of an industry giant.
From failed attempts at global expansion, to changes in product lines, infusions of loans, and multiple merger projects, efforts have not proved sufficient to remove the existing risks inherent in a weakened economy that continues to endanger Chrysler's cash flows. James Joyner reported a cash flow crisis in his article Chrysler Cash flow Crisis that appeared on the online journal Outside the Beltway in June 9, 2008. The company's response was to make a declaration that the firm would begin taking 5% off all purchase orders and would extend payment terms from 45 days to 60 days...
even stating that the new approach would include not only future purchases, but would be applied to existing orders. In such a unilateral decision, Chrysler's suppliers would no doubt find themselves in the same position as Lawrence Sports by having to deal with their own cash flow changes upon sudden and unexpected shortfalls. Chrysler's stand worked toward correcting immediate deficits in cash, but was soon met by less favorable results. Shortly thereafter, Moody lowered Chrysler's outlook from stable to negative and affirmed a weakened rating (B3) on probability of default, an erosion which ultimately stressed Chrysler's liquidity profile.
Standard and Poor also placed Chrysler on CreditWatch with yet further negative implications (Farago, 2008). Strategies for correcting cash problems can impact more than the inflow and outflow pattern as Robert Dent, an account manager for Lawrence Sports, is aware. Protecting future business can sometimes mean absorbing temporary losses in order to guarantee future gains. Protecting a firm's reputation can ultimately impact corporate value, ability to make future loans, and customer loyalty and market share.
Such benchmarking examples as Chrysler Corporation can only increase Lawrence's concerns regarding the chosen strategy for dealing with a valued customer's financial difficulties. While Lawrence's immediate decision will address cash flow problems, concerns that are more extensive cannot be disregarded. Conclusion Working capital management is an important tool in measuring a company's operational and financial effectiveness within its existing market or industry. The important part of the management of the working capital includes the company's strategies in how to operate in various environments.
Determining the best options for finance for a company can literally be a predetermination of a company's growth or success in a specific industry. Improving the working capital of a company must be a constant work effort in order to remain leaders in industries and in order to maintain those positions throughout the operations and the company's existence. Generic benchmarking is performed to reveal how the different companies in similar situations have overcome hiccups within their company that could be used as a good preventative maintenance tool for Lawrence Sports.
Many of the company's that were benchmarked in this paper revealed that the same measures are taken within them that should be done for Lawrence Sports as well, in order to remain ahead of the race. The similar situations are helpful in aiding and guiding a company in decision making processes much like a method of seeing the experience through that particular company being benchmarked. The combined strategies presented are like a blueprint in aiding Lawrence Sports in determining a particular route to take in accomplishing the company goals.