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Ian

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3

Case: selling a division of a company

Good afternoon.

When giving a case like: our company is a juice producer and one of the divisions is not profitable. Should we sell this division?

How would you make the initial structure/framework ?

Thanks. I am looking forward to having your suggestions.

Good afternoon.

When giving a case like: our company is a juice producer and one of the divisions is not profitable. Should we sell this division?

How would you make the initial structure/framework ?

Thanks. I am looking forward to having your suggestions.

3 answers

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You need to think about the industry/business context, the company context, and the situationally/problem context. Only then can you create an appropriately tailored profitability breakdown.

In general, for determining profitability issues, you need to break down the problem into a tree/root-cause analysis and ask the highest level (but specific) questions first! In this way, you essentially move down the tree.

How do you identify where to look? Well, you need to look into whichever of the following 5 make the most sense based on where you are:

  1. What's the biggest? (i.e. largest piece of the pie...most likely to change the end result)
  2. What's changing the most? (I.e. could be driving the most and most likely to be fixable)
  3. What's the easiest to answer/eliminate? (i.e. quick win. Yes/No type of question that eliminates a lot of other things)
  4. What's the most different? (differences between companies, business units, products, geographies etc....difference = oopportunity)
  5. What's the most likely? (self-explanatory)

If you can't fix the profitability, you need to sell!

You need to think about the industry/business context, the company context, and the situationally/problem context. Only then can you create an appropriately tailored profitability breakdown.

In general, for determining profitability issues, you need to break down the problem into a tree/root-cause analysis and ask the highest level (but specific) questions first! In this way, you essentially move down the tree.

How do you identify where to look? Well, you need to look into whichever of the following 5 make the most sense based on where you are:

  1. What's the biggest? (i.e. largest piece of the pie...most likely to change the end result)
  2. What's changing the most? (I.e. could be driving the most and most likely to be fixable)
  3. What's the easiest to answer/eliminate? (i.e. quick win. Yes/No type of question that eliminates a lot of other things)
  4. What's the most different? (differences between companies, business units, products, geographies etc....difference = oopportunity)
  5. What's the most likely? (self-explanatory)

If you can't fix the profitability, you need to sell!

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Well, first of all, you should ask clarifying questions:

  • What is division doing? Is it serving any reasinably purpose, like a region/ category/ customer segment, etc? In this context you'll probably to have to understand not only this division, but the others as well
  • What are we optimizing for? Is the declared objective to maximize profit, profitbality, revenue, etc?

In absense of any other info, I'd probably go about this in two main blocks, each with a few sub-questions:

  • Should we sell the division?
    • Reason for underperformance?
    • Possibility of a turnaround?
    • Strategic relevance? (e.g. enabler for other divisions? Required to maintain customer relationships, etc..
  • Can we sell the division?
    • Is there an interested buyer out there?
    • Can they do more with the division than we can (i.e. are they willing to pay a good price, above the book value of assets)?

Well, first of all, you should ask clarifying questions:

  • What is division doing? Is it serving any reasinably purpose, like a region/ category/ customer segment, etc? In this context you'll probably to have to understand not only this division, but the others as well
  • What are we optimizing for? Is the declared objective to maximize profit, profitbality, revenue, etc?

In absense of any other info, I'd probably go about this in two main blocks, each with a few sub-questions:

  • Should we sell the division?
    • Reason for underperformance?
    • Possibility of a turnaround?
    • Strategic relevance? (e.g. enabler for other divisions? Required to maintain customer relationships, etc..
  • Can we sell the division?
    • Is there an interested buyer out there?
    • Can they do more with the division than we can (i.e. are they willing to pay a good price, above the book value of assets)?
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Hello!

Interesting case!

First of all, and super important, you need to ask clarifying questions.

I would try to figure out:

  1. What I would take out when selling:
    1. Financially/profit related
    2. Synergies lost
    3. Beyond economics (e.g., impact in brand, community, clients, etc.)
  2. What would it take to turn it arround

Hope it helps!

Cheers,

Clara

Hello!

Interesting case!

First of all, and super important, you need to ask clarifying questions.

I would try to figure out:

  1. What I would take out when selling:
    1. Financially/profit related
    2. Synergies lost
    3. Beyond economics (e.g., impact in brand, community, clients, etc.)
  2. What would it take to turn it arround

Hope it helps!

Cheers,

Clara

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