Hexcel Turnaround Case Study Solution
Abstract
The case illustrates the deadlock presented to Berge’s- the new CEO of the Hexcel Company, appointed at the place of Lee. The company offers aeronautical services and products to the US government along with its expansion in different market through electronics and aerospace parts offerings in Russian market. Since the company has faced a major turn down and economic downsizing in the previous years and has recently stabilized itself, a quick decision has to be made by bergs in securing the financial position of the company. Since the incident of “twin tower” has a direct impact on the company’s future profitability, Berges has to devise a plan of strategies to overcome the losses that will incur in the balance sheet of 2002.Also, he is against downsizing the company that will drive away the job of many employees, which can be utilized in future for the growth of the company.
Keywords: Leadership, Financial Crisis, Economic Downturn, Twin tower
Background
Hexcel Corporation started the business by initially offering the products to military aircrafts. It received the first project in 1940 from the US military, after which the company diverged its focus towards serving the military equipment and materials to the US government. Hexcel remain to be the first company that offered light weighted structural equipment’s and parts that could be used in place of Aluminum and steel. Since these parts incur additional cost, the offering of Hexcel ream popular among the US government due to cost effectiveness.
The company cut off its medical and ski business later in the years to focus its concentration on the US military. However, the economic downturn broke out which reduced the spending of US government on military equipment’s causing the order drop from 135 to 75 pieces, making company loss grate amount of cash flow in the market, which made it to file for bankruptcy, However, in 1995, the company gain regain its market position by paying off all its creditors in full and starting the business from scratch.
In doing so, the company adopted the strategy of acquisition and mergers to acquire and increase its footprint in the aeronautical industry. Hexcel served the business through 4 SBUs namely Fiber, composites, reinforcements and engineer materials .All these SBUs served as somewhat related to aeronautical industry.However, in the current scenario, since Lee has left the company after his death due to kidney cancer, Berges has to decide, whether to continue all the 4 sbus or a mix of Sbu shall be developed in order to gain the market position in the economic downturn period.
CAUSES OF FAILURE
The company failed to maintain its revenues and profitability throughout the portfolio due to fooling reasons.
1- Since after the joining of Berges, the incident of twin tower emerged, which directed the blames towards the engineering products offered by the Hexcel, as the reason of airplane drop off. This created sudden chaos in the market, as it will make people reluctant to fly in commercial airplanes due to sudden incident. Also, since the blame remain in the account of Hexcel, it cancelled many of the future contracts and disguised the existing customers, posing the threat of low sales in 2002.
2- The company lacked to integrate the functions and operational control of all four units/Sbus. This created an ambiguous picture of performance of each Sbu, making the company to sit in complacent condition. However, when the stock market crashed in Russia, the company faced the challenge to manage the electronics sbu and hence lead to shutting it down.
3- The company also failed to maintain its one brand strategy for all its SBUS and failed to consolidate the functions, which could have offered it’s the competitive advantage of maintaining cost leadership in the market. Since the economic downturn lead to cut off in spending, the consolidation of process would have enabled the company to manage its supply chain accordingly, which would have again effected the cost structure of the company’s offerings.
4- The complacent position of Berges also lead to the failure, because he believed that the company is performing well, which hindered the acceptance of the facts on time.
This lead to delay in designing the right fit fort the company and hence caused the company to face the ultimate consequence in future.
Nature of crisis
The Hexcel has been one of leading manufacturers of the composite parts of aerospace to the many of its contractors in the United States and throughout the world. Meanwhile, the company had experienced the major ups and down in its history due to many problems in the market. However, the declining market demands and declining demand for the commercial aircraft, and fighter jets has greatly affected the company. On the other hand, it can be determined that there were many complications and complexities to understand the market position and market trends to respond with appropriate actions. Since, there were many problems that company was facing individually, and industry as well.
Economic Crisis
The deep financial crisis in the Europe had affected the company very negatively because the company found itself in the cash strapped condition, and could not find the appropriate way for the financing itself. On the other hand, these crisis continued for many years that company experienced a worst time. Because, it also filed for the bankruptcy protection since, it was in cash strapped position and could not meet with its obligations to the creditors. Indeed, the reasons was not only the economic recession, but also reduced demand for the company’s products.
Indeed, the company’s new CEO in 1994 focused on the selling out the company’s assets, and manufacturing plants to help its operations, and stimulate the manufacturing process again to meet with the obligations to the creditors. Meanwhile, the during the time period of 1991-1995 there were war around the world such as war in Afghanistan, gulf war that had affected the demand for the commercial airplanes worldwide that had created very complex conditions for the whole industry. Meanwhile, the Hexcel emerged from the bankruptcy and paid to its creditors in full...............
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