The key to growth is to have a strong core foundation

Three signs of imminent fall

Only one in four acquisitions succeed in creating shareholder value, says Mr Chris Zook, author of Unstoppable (Harvard Business School Press, May 2007), citing a seven-year study conducted by Bain & Company, a global business and strategy consulting firm.

He gives, as examples, large, "big bang" transforming acquisitions like the one between AOL and Time Warner, and the one by Daimler Benz of Chrysler, which had an exceptionally bad track record, with a success ratio of much less than 10 per cent.

"Certainly, bold deals give a company a sense of power and confidence at the moment of acquisition," adds Mr Zook, in a recent interaction with Business Line over the email. "But the record of eroded balance sheets or tarnished careers is not conducive to either. This is like playing the lottery and calling it your growth strategy."

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Maintain positive margins and carry minimum inventory

Hedging to manage price risks

The RBI decision to allow consumers to hedge non-ferrous metals and fuel oil on international exchanges has opened a window of opportunity to several Indian companies that consume them on a large scale, as they can now realign pricing, procurement and inventory strategies and address price risk management, according to Mr Hemal Shah, Associate Director, Risk Advisory Services (RAS), Ernst & Young.

Speaking to Business Line on the dynamics of hedging and how companies can strategise and manage risk more proactively, he said: “The increased volatility in the non-ferrous metal markets in the last few years has clearly illu strated the need for effective pricing mechanisms and hedging tools within the industry.”

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