proposal for diversification

proposal for diversification
Kepler Boilers Limited is a private sector manufacturing unit engaged in the production of boilers of medium size. Mr Ravi Prasad founded this company with two other field experts, namely, Rakesh and Rathore. All the three persons took up important responsibilities in the business with Ravi becoming the chairman-cum-managing director of the business. The company made a humble beginning in the business of producing and marketing of boilers nearly three decades ago. Today, it has secured a solid place in a highly volatile market. In spite of stiff competition from the established players in the market, it gradually expanded its business operations to reach this position.
Recently, Ravi mooted an idea of diversifying the operations of the business and entering entirely new business fields such as hotel and cement industry. The purpose behind this proposal was to diversify the investment, thereby reducing the industry-specific risks associated with the boiler industry. The proposal found immediate support from Rathore, the finance head. As the head of the finance department, he viewed Ravi”s proposal as a viable option for risk diversification and reduction.
However, this strategy was strongly opposed by Rakesh, the production head. He gave a detailed response to the chairman”s suggestion. He argued that the company was well-entrenched in the existing industry and any future investment ought to be in the known field only. Further, he cited the advanced age of the three founders, the complexity of the present-day businesses, the lack of continuous learning among members and the indifferent attitude of the company towards the management development programmes as the factors capable of affecting diversification proposal. He also questioned the ability of the top management in understanding the intricacies of the other business fields at present and also the organizational preparedness in ensuring a smooth transition in the existing business at the top levels in the event of top people moving to other businesses.
Rakesh stated emphatically that the organization should first facilitate all its managers at different levels of the management to attend external learning programmes in order to gain up-to-date knowledge about the developments in the external environments and the nuances of different businesses. He also suggested that the company should work with the leading business schools in the region to allow the managers to do long-term courses with these institutions. Finally, he stressed the need to develop succession plans for the top management, especially for the jobs critical to the stability of the business. Obviously, he sought the immediate attention of the management to these issues even while advising it to go slow on its diversification proposal.
The chairman appeared to be convinced by the arguments of the production chief and he decided to put his proposal on hold for some time. Instead, he instructed the HR department to develop a comprehensive plan of action for introducing management development programmes and also an effective succession management scheme. However, the finance head, Rathore, was unconvinced and repeatedly urged the management to go ahead with its diversification plans.
Questions for discussion
What is your opinion about the chairman”s proposal for diversification?
How would you deal with the situation if you were the chairman?
Between Rakesh and Rathore, whose stand is more convincing for you and why?
Do you have any alternative proposal for the situation?