Source: Modified from Tyco 2004 annual report
Product and Services
Through over 800 brands, Tyco sell more than 200,000 products and services. Some can be seen in daily life, other hidden in product of other companies. THC makes medical instrument, medical supplies, pharmaceuticals and chemicals. TFS manufactures fire detection and protection systems, breathing apparatus, access card systems, alarm system, anti-theft device and etc. TFS also provide installation, maintenance and monitoring services. TE is the world largest supplier of electronic components. Its products are used in computers, telecommunications equipment, automobile, aerospace applications, household appliance and others. TEPS sell full spectrum of industrial valves and flow control devices use to transport and control water, oil and gas, waste, chemical and other liquid. TPA products include packaging material, garment hangers, adhesive tapes, disposable dinnerware and etc. Refer Appendix 2 for list of Tyco brands.
History and Crisis
Tyco was founded in 1960 as a research laboratory and has grown tremendously since then. Prior to 2002, Tyco growth is achieved through aggressive mergers and acquisitions. In total Tyco has acquired more than 2000 companies. In 2002, Tyco faced a serious liquidity crisis and a scandal involving misappropriation of US$600 million fund by former CEO, Mr Dennis Kozlowski. The former CEO and CFO both are facing criminal charges for misappropriation of fund. This created a confidence crisis and nearly brought down the entire conglomerate. Tyco share which were traded in the US$50s in early 2002, dropped to US$8.25 by July 2002. The same month, Mr. Ed Breen was appointed as new CEO to steer Tyco out from crisis and into a new arena through a new strategic management.
Mission, Goals and Value
Mission
Mission statement defines the reason for existence of a company and essence of the business – “who we are and what we do” (Thompson, A.A. and Strickland, A.J. 2003). Tyco mission statement is as below:
“We will increase the value of our company and our global portfolio of diversified brands by exceeding customers’ expectations and achieving market leadership and operating excellence in every segment of our company.”
Goals
Goals Tyco seeks to achieve are categorized under the heading of Governance, Customers, People, Operating Excellence and Financial Results.
In governance Tyco refers to adherence to the highest standards of corporate governance by establishing processes and practices that promote and ensure integrity, compliance, and accountability. Tyco also strives to understand and exceed its customers’ needs and preferences so as to provide value.
Attract and retain employee with excellence and integrity is the people goal Tyco try to achieve. Tyco seeks achieve efficiency through excellence practices leverage on company-wide resources and lean measurements.
Finally, Tyco also aims to consistently achieve outstanding financial performance in revenues, earnings, cash flow and all other key financial metrics.
Value
Tyco has four core values forming the foundation of Tyco employees conduct. The four values are Integrity, Excellence, Teamwork and Accountability.
The integrity value demands the highest standards of individual and corporate integrity in Tyco. It requires Tyco and its employee to comply with all company policies and laws. In the value of excellence, Tyco employees continually challenge each other to improve products, processes, and themselves.
Tyco foster an environment that encourages innovation, creativity, and results through teamwork. The Accountability value demands Tyco employees to honour the commitments made, and take personal responsibility for all actions and results.
Competitive Advantage
Internal - Strength
Unlike other companies involved in financial scandal, Tyco has a solid operating foundation. Tyco operations continue to produce millions of products despite the financial scandal in 2002.
Most of Tyco product rank at the first or second in their respective industries. For instance, TE is the largest passive electronics manufacturer and TEPS is the world’s leading producer of valves, actuation and thermal control products. TFS is the world leader in fire protection and electronic security solutions. More than 80% of world top 100 retailers use TFS anti-theft system. THC also has about 75% of its products rank first or second in their respective market.
Tyco also enjoy a competitive advantage as it held patented rights for most of its products and services. This is mainly attribute to R&D effort performed in the past by segments like THC, TE and TFS.
Various famous brand names in respective industries also confer competitive advantage to Tyco. Tyco has may famous brand names such as ADT alarm systems, Sensormatic anti-theft system, AMP electronics components, Kendall healthcare product and others.
Internal - Weakness
Reputation harm caused by the scandal has significantly affected employee morale and productivity. The scandal even cause confidence crisis among customers, suppliers and investors. Lack of integration in the past caused Tyco units to operate in an unconsolidated manner and lead to inefficiency and duplication of works. Furthermore, many Tyco operations have weak financial and operational controls.
External Factors - Opportunity
Heighten global concern over security issues and new building fire protection code raise demand for TFS electronic security system and fire protection products. Population growth and stringent environment standards continue to also spur the demand for clean water and translate to continuous demand for TEPS flow controls and valves product. Aging population in many countries also favour healthcare product of THC. TE sales continue to grow as automotive, electronics, computer and telecommunications device industry expand.
External Factors - Threat
Changes in regulations and requirements in highly regulated industries such as healthcare, and fire and security continue to be one of the biggest threats to Tyco operations. These changes may cause the products to be obsolete or increase operating cost.
Hierarchical Strategies
There are different strategies at different hierarchy levels such as corporate, business and functional. Two-way interaction is required between two levels of strategy. Functional unit provides inputs (resources and capabilities information) to the business level, which in turn escalate the summarised information to corporate level. Based on the information, higher-level strategies can be based. Once the corporate strategy is developed, the business level and functional units translate it into more discrete action plans that each business segment or department must accomplish.
Corporate Strategy
Corporate strategy concerns with the selection of business in which the company should compete and the way cross-business activities will be integrated and managed. The strategy establishes investment priorities and steer resources into the most attractive business unit. (Thompson, A.A. and Strickland, A.J. 2003)
In 2002, Tyco had an annual lost of US$9 billion and faced a staggering US$11 billion of debts maturing the following year. Tyco most crucial corporate strategy is to preserve its existence. Couple with that, Tyco also faced lost of confidence from investors, customers, suppliers and its employees.
Tyco stops all merger and acquisition activities to preserve cash. It pulls cash from all segments to repay loans. Renegotiate repayment term of certain loans is also Tyco top corporate strategy. This is to gain breathing time for Tyco leadership to formulate and implement strategic management.
Tyco also shift strategy to organic growth. Tyco strategise to build upon the operation foundation and grow from within. In addition, business units that do not align with the core businesses are also divested.
Restoring confidence is the important corporate strategic for Tyco till today. To give Tyco a fresh and clean start, the entire board of directors and all 300 top managers were replaced. Many high profile and experienced corporate figures from other world-class companies like Motorola, GE, Honeywell, International Paper etc were brought in to lead the leaderships of Tyco.
Intense marketing campaigns were carried out to build corporate image. The campaigns promote Tyco solid operation fundamental and attempts to alienate Tyco from other scandals. The marketing helps to restore employee morale and prevented lost of operational staff. Sample of Tyco print ads listed in Appendix 3 and 4.
Integration of the decentralised business units is also a Tyco corporate strategy. Historically, Tyco business units were left alone with minimum interference. Such strategy created inefficiency and exposed Tyco to risks of inappropriate conduct. Tyco strategise to build the corporate office to provide controls and centralised support like governance, treasury, legal, and etc.
Promoting the highest standard of corporate governance and ethical conducts in Tyco is one of the corporate strategies. Tyco roll out ethical conduct programs across all segments and set up a Forensic Audit team to investigate fraud cases.
New strategic components like mission statement, goals, value and code of conduct are roll out to change the corporate culture. Tyco also change the remuneration packages from that driven by the number of acquisition and pure accounting figures to overall performance based compensation.
Tyco set a corporate strategy to focus on enhancing efficiency. Various initiatives are taken in the entire company across business segments to eradicate waste, improve efficiency and leverage of company resources. Refer to “Enhancement Practice” in next section for more detail.
Business Strategy
Business strategy refers to managerial game plan for a strategic business unit, a division, product line, or other profit centres that can be planned independently from the other business units of the firm. At this level, the strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage. (Thompson, A.A. and Strickland, A.J. 2003) All Tyco business segments develop its own business strategies to achieve sustainable competitive edge.
TFS revamp its business model to eliminate low cash flows sales. It streamlines operations globally and continues to develop its well-established brand name like ADT.
The business strategy of TE is to further increase efficiency and improves customer service. TE set up an e-commerce system that offers around-the-clock access to pricing, product availability and technical information. TE also continue expand its operation organically in growing markets such as China, Eastern Europe and Southeast Asia
THC business strategies are to improve product innovation and product mix. THC implements various programs to reduce operating expenses. THC plans to enhance customer service and product quality.
TEPS business strategies are to reduce its inventory holding worldwide so as to free up working capital. Finally, TPA is focusing on service innovation to identify customer needs and preference with plan to expand market share.
Functional Strategy
The functional strategy refers to managerial game plan for a particular functional, business process or department within a business such as finance, procurement, logistic, and human resources. (Thompson, A.A. and Strickland, A.J. 2003)
Tyco Finance department is setting up various processes to streamline financial and management reporting. Other functional strategy in Tyco Finance includes implementation of new and better operational and financial controls framework.
International purchasing organisations has been set up to consolidate sourcing requirement in various Tyco business unit. Adoption of common sourcing procedures is one of the functional strategies of Tyco Purchasing.
A centralised treasury department with offices in each region is created. The functional strategy of this department is to consolidate and maximise cash usage.
The functional strategies of centralised human resource department include implementation of various programs promoting Tyco mission statements, value, goals and code of ethical conduct.
Corporate governance team also has functional strategies that include despatching the newly set up internal audit teams to review and enforce corporate policies in Tyco operations globally.
Enhancement Practices
Tyco is pursuing efficiency enhancement in the entire corporation. Tyco set an ambitious objective to achieve US$3 billion saving by 2006 through operation excellence initiative like strategic sourcing, estate management, working capital efficiency and Six Sigma.
Strategic Sourcing
Tyco practised decentralized management in the past. Little effort is devoted to integrate business units and leverage on the size of the companies. Therefore, most Tyco units purchased materials and services individually at sub-optimal price. Currently, Tyco implement “one Tyco” sourcing strategic to take advantage of large purchasing requirement consolidated from various business units.
Real Estate Management
Historically, most Tyco units operate in different premises even they in located in the same city. This created waste and inefficiency. In 2003, Tyco takes efforts to reduce its real estate footprint and bring different operations to one common facility.
Working Capital
Tyco is also focusing on improving cash collections and inventory turnover to enhance cash flow. Under the old management, little effort was taken to ensure efficient use of company fund and capital. As such, significant amount of working capital were stuck in the account receivable and inventory.
Six-Sigma
With Six Sigma and lean operation programs, Tyco aims to eradicate waste, variability and defects. Tyco establishes training for company wide Six-Sigma programmes.
Recommendation
From information gathered shows that Tyco currently does not emphasise on Research and Development (R&D). Tyco operates in highly competitive with many world-class rivals like GE and Honeywell. Continuous research is crucial to ensure sustainable competitive advantage and leading position in its products. Further, the patented rights will expiry in the future, and thus will remove the barrier to competitive edge Tyco currently enjoy.
Tyco may consider consolidation of brand names. Currently Tyco has more than 800 brands for its 200,000 products. Some brands are well known and build goodwill but many others do not add value. Consolidation of brands and focus on a few prominent brands may help company to focus it financial results in certain brands that has potential.
Furthermore, campaign to promote corporate image should not be stopped. Tyco is one of the top Fortune 100 companies and makes many essential products, but it name is relatively unknown as compared to other corporation like GE, Honeywell and 3M. Thus effort to build Tyco brand equity should be continued.
Conclusion
Without a strategy the organisation is like a ship without a rudder, management gurus Joel Ross and Michael Kami said (Thompson, A.A. and Strickland, A.J. 2003). With proper strategy at different levels, the organisation will be steered to a direction the CEO and leadership teams intended. In Tyco International Inc, the corporate strategies are well planned, implemented and most importantly, supported and congruent by other strategies at business and functional level. Successful strategies planing have lead Tyco out of the spiral of extinction. Tyco is now generating annual free cash flow of US$ 3.2 billion and earned net profit of US$2.9 billion in 2004, as compared to a US$9 billion loss two years ago!
Reference:
-
Tyco world wide web retrieved on 25 December 2004.
-
Tyco Fire and Security world wide web retrieved on 30 December 2004
-
Tyco Healthcare world wide web retrieved on 30 December 2004
-
Tyco Electronic world wide web retrieved on 30 December 2004
-
Tyco Engineering Products and Services world wide web retrieved on 30 December 2004
- Tyco annual report for financial year 2002
- Tyco annual report for financial year 2003
- Tyco company newsletter: “Tyco News”, June 2003, April and May 2004 issue.
- Tyco company newsletter: “Tyco World”, July, August, Sept 2004 issue
-
Thompson, A.A. and Strickland, A.J. 2003, Strategic Management: Concepts and Cases, 13th edn, McGraw-Hill Irwin, Boston.
- Scott Kirsner, 2004, “One Tough Assignment”, Fast Company, September 2004 issue, Fast Company, US
- Euna Kwon Brossman, 2004, “At Tyco, A New Bottom Line”, U.S.1 November 10, 2004 issue, U.S.1, US.
-
Suzanne Vranica, 2004, “Tyco Aims to Put its Woes Behind it”, The Wall Street Journal, Dow Jones & Company, US. Retrieved on 23 December 2004 from world wide web
- Claudia H. Deutsch, 2004, “As Its Ex-bosses Await Their Fate, Tyco Continues Comeback”, The New York Times, March 22, 2004 issue, The New York Times Company, New York.
- Jyoti Thottam, 2004, “Can This Man Save Tyco?” Time Magazine, February 9, 2004 issue, Time Inc, New York.
Appendix 1: Tyco Presences
Select List of Tyco Presences:
Source:
Appendix 2: Tyco Brands
(Please refer to the attached PDF file)
Appendix 3: Tyco Ads 1
(Please refer to the attached PDF file)
Appendix 4: Tyco Ads 2
(Please refer to the attached PDF file)
