Greyhounds Businesses example essay topic

What were the critical incidents in Greyhound's growth and development over time? Greyhound was founded in 1914 and its first business was providing bus transportation for mine workers. After that the company continued to grow and expand its bus routes, by 1930 the name Greyhound Corporation was adopted and the running-dog logo, its unique brand sign, was introduced. The next 20 years Greyhound continued to acquire bus interests in order to consolidate routes either by purchase, stock swaps or mergers. By 1960 the company had substantially achieved its objective of operating a bus system that could carry passengers to most destinations throughout the States. In 1962, however the company was facing the prospect of increasingly limited opportunities to expand its route systems.

Since the successful bus operations were generating excess cash the board of directors to diversify into new operations. Over the year 1962 the company began to acquire other companies which turned the business into a conglomerate of different businesses. Greyhound diversified into transportation manufacturing as well as into equipment leasing and financial services. As a result by the end of 1963 Greyhound was operating in three major businesses: transportation, manufacturing and financial services.

In 1966 Gerry Trautman was appointed CEO and he continued the strategy of diversification through expansion and growth. From 1966 till 1970 Greyhound acquired more than thirty widely different companies and formed a new operating division, services: it specialized in managing transportation-related businesses such as duty free operations, building displays for exhibitions, aircraft servicing business, cruise ship lines, furniture moving, limousine service and the like. This diversification strategy was the basis for later on critical incidents which will be shown later. Trautman aim was to create a company conglomerate, so that each individual business unit was recession proofed and all were enhancing the financial strength of the holding company. The first major critical incident occurred through a big acquisition of Armour&Co in 1970. This company was a large conglomerate holding interests in food and consumer products.

Greyhound paid $400 million for a company which was operating primarily in the marginally profitable meat packing business. However, Armour also had interests also had interests in pharmaceuticals, cosmetics, and consumer products. After realizing he had overpaid for Armour Trautman, he sold a large part of the acquisition for $225 million and in 1977 he sold another piece which left over Armour's food operations and Armrour's Dial division which would emerge later on into Greyhound's Dial consumer products operating division. However, this acquisition brought to Greyhound new businesses which were not related to the original one and had problems of their own.

By 1978, Greyhound consisted of five operating divisions: transportation, bus manufacturing, food and consumer products, financial, and services / food services, this strategy was called "diversification within diversification". In 1978, Trautman engineered another major acquisition, moving into the private insurer business for residential mortgages. All these acquisitions were meant to make Greyhound more resistant to economic downturns. Another critical incident occurred when serious problems became apparent at armour when the food and consumer products operating division went from a profit of $22 million in 1979 to a loss of $1.7 million in 1980. In 1981, John Teets succeeded Gerry Trautman as CEO with the aim to manage Greyhound's diverse business so that he would be able to achieve 15 percent equity return. Teets was aware of problems with Armour due to its high production costs, the reluctance of union leadership and rank-and-file workers and the inability to successfully change its marketing orientation in order to compete efficiently.

Thus he sold the food company in 1983 which meant that Teets was chopping off nearly half of Greyhounds business. Realizing the threats by deregulation of the bus business and a stronger rivalry within the industry he decided in 1986, in an effort to save the bus line, to convert 120 company owned terminals to commission agencies, trimming a huge overhead burden. Nevertheless, due to problems with labour unions Teets sold the Greyhound Bus Line for $350 million chopping off another main part of the business an the roots of the company, which meant a critical incident in the Greyhound history. He as well sold Greyhound Capital Corporation reflecting the change in development of the company.

With the sell of all these business unit and several others Teets pursued a strategy of shedding businesses that seem to lack sufficient growth potential. As a result a critical incident occurred through the movement of a transportation company to a primarily consumer products company and service company by the end of 1988. In February 1990 the company name was changed into Greyhound Dial emphasizing the focus on consumer products, one year later the name was changed into the Dial Corporation, which followed a niche strategy avoiding going head-to-head with major competitors. What was the underlying corporate strategy behind the development of Greyhound's portfolio investments up until the time that Teets was appointed CEO?

Was Trautman correct to pursue this strategy? What were its advantages and pitfalls? The underlying corporate strategy behind the development of Greyhound's portfolio investments strategy was the so called strategy of "diversification within diversification". This means that the company's individual business units become recession proofed by moving into as many diversified fields as possible, while enhancing the financial strength of the holding company. This strategy was to gain value and obtain synergies with Greyhound's existing transportation activities.

The collection of businesses that that Trautman had assembled, some by acquisition, some by internal growth, and some by mergers was designed to make Greyhound more resistant to economic downturns. At the end of his strategy the portfolio consisted largely of transportation, bus manufacturing, food and consumer products, services / good services and financial operations. Together those five divisions were generating combined revenues of nearly $4.5 billion. The only flaw about this strategy was that Trautman was willing to take the risk of acquiring some companies that would be failures as long as the overall health of the company was strengthened. However, Greyhound became more and more distant from its core business; bus transportation. Trautman was correct to pursue that strategy to a certain extent.

To my mind he did a good job when he was acquiring bus transportation related or transportation related businesses in general allowing to derive synergy effects from these acquisition. Nevertheless, he committed the same mistake that many managers before and after him did; growing too aggressively and growing out of the companies core industry. At the end of his tenure the holding had nearly 50% of stakes in the food industry and a mere 20% in transportation. His idea was correct to the point where he left the terrain which was related to the core industry bringing a lot of problems to the company.

Due to the size of the holding and the many unrelated business where the management was lacking distinctive competencies structural problems occurred. Anyway, his strategy had the advantage of making the company not susceptible to demand fluctuations in the core business of bus transportation in the first place. If he would have pursued an industry related strategy in the long-run his vision of a company being recession-proofed would have become true. It also had the advantage that the company was able transfer its distinctive competencies to other industry related businesses, shaping its competitive edge. The pitfall was that he exaggerated his approach of recession proofed company by the means of diversifying the company into too many unrelated business no matter what the outcomes were just in order to grow. His main mistake was that he was rather looking for an opportunity to create value by any means rather than coordinating his objectives with synergy effects.

It as well had the effect that investors began to regard the company as a "colonial confection ware" company than a serious transportation business. In the aftermath I would say that his strategy made sense to the degree of diversifying it into industry related businesses. What environmental factors affected Greyhounds businesses? Could anything have been done to control for environmental factors?

In what ways did they distort the picture of Greyhound's performance? One of the environmental factors that affected the company positively were the high interest rates in the early 1980's enabling the financial services division to generate high profits. Another positive impact was the recession and energy crunch in 1979-1980 generating excess profits in the transport division due to the fact that people demand for cheap transportation such as buses increased. A negative impact on the bus business was generated by the deregulation of the bus transportation market, which was ratified by the House bill H.R. 3663. Greyhound Bus Lines had based its route systems on the competitive conditions that had existed in the earlier business environment. With the beginning of deregulated competition in the intercity bus business and declining passenger revenues resulting from the end of the energy crunch, Greyhound found itself paying wages and benefits that were from 30 to 50 percent higher than those paid by its competitors.

Furthermore, its chief competitor, Trailways, having negotiated significant wage concessions from the Amalgamated Transit Union, had immediately passed the savings on to customers in the form of lower fares which enforced the rivalry within the industry. Trailways' action was a frontal assault on Greyhound's most lucrative routes in an attempt to gain market share. Deregulation had brought about the emergence of lower-cost competitors in regional markets, competitors that were able to be responsive and flexible in pricing and in reacting.