A Large Forest Products Company: Making $1 Billion Profit From Selling At The Right Time
For this project, the central question was: What strategy can ensure a business unit creates value without endangering the sustainability of the core business?
In the mid-1990s, the senior leadership of a large forest products company needed to determine what to do with its emerging electronic publishing business. Originally acquired out of an interest in a printing technique, the unit experienced fast growth in sales, but was quite far away from the parent company’s core business: electronic information was technology; the parent company’s expertise was paper. The future of the electronic information market and the potential of the subsidiary appeared highly uncertain.
Jim McGrane, Senior Director of Strategy at the parent company, knew IAF – AFA’s parent non-profit company – for its previous work with the Information Industry Association. He hired AFA to explore strategic options for the electronic information business.
AFA started by leading the team through the development of four alternative scenarios based on the identification of key drivers of change and the exploration of areas of uncertainty across the business spectrum. Business themes that appeared viable across all scenarios were identified during a series of workshops. As the project unfolded, the senior management realized what would be needed for the electronic publishing unit to be successful. The stories outlined in the scenarios made them discern that over the next 20 years, the collection, standardization and distribution of content would be commoditized. As a result, the only way for the business unit to succeed was to develop a significant intellectual added value. This strategy would require significant investments from the parent company.
Fully aware of the level of investment required, the leadership decided not to invest. Instead, they decided to re-focus their core business. In December 1994, the subsidiary was sold for USD 1.5 billion. Jim McGrane remembers this operation as selling “at the right time for the maximum value” – selling later would have been reactive; selling an information technologies business earlier in the mid-1990s would have been too soon for the market.
In your company, how do you make your investment decisions? How do you know when is the right time to make a strategic business move? Do you look at the broader, longer-term market picture?
“Futures helped us understand that to be successful, to compete, the business fundamentally needed to add more value.”
Jim McGrane, former Senior Director of Strategy
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