Lonrho Plc

1066 Words Oct 31st, 2008 5 Pages
An evaluation of Lonrho’s corporate strategy should start from the two main key issues: in what businesses the firm should compete and how corporate headquarter should manage those businesses.
Lonrho’s profile in 1996 included Agriculture, Sugar, General Trade, Hotels, Manufacturing, Mining&Refining and Motor&Equipment. The level of diversification was clearly high and the firm was pursuing a unrelated strategy, with less than 70% of revenues that came from the dominant business (Mining ) and without common links between businesses.
The corporation was divided into country groups or related business lines and each division had a top manager whose responsibilities were similar to those of a group CEO. So the headquarter control of these
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However, this is not enough to make the evaluation positive because there were also several negative aspects. Starting with corporate governance, the first big problem was the lack of power by board’s members: Tiny surrounded himself with “yes-men” and he, not the board, decided what to do in case of critical issues. So the entire conglomerate was managed by a man who used to define himself as an entrepreneur and not a manager. Besides the level of control was low, if we consider that Lonrho was a big and really complex company. Moreover, and here we have the second big problem, among Tiny’s investments, several ones defected in economic rationality. For instance, he became interested in trophy investments, only to gain prestige (that the company couldn’t exploit properly because corporate relatedness was low) although they may have been loss making. Finally, the firm was facing huge cash flow problems, due to large headquarters’ payroll, an inefficient dividend policy and Rowland’s excessive lifestyle. All these issues contributed to destroy the level of revenues and profits over the years and conducted to the only practicable way: an internal restructuring of assets. What future direction(s) should Lonrho take in terms of its corporate-level strategy? The two main options that Lonrho has for come out to the crisis are move in the direction of focusing the business, or continue as a conglomerate. Most important, the company

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