Professional Management Report: Berkshire Hathaway Strategic Choices

This report provides a comprehensive analysis of Berkshire Hathaway, a prominent conglomerate, examining its strategic choices within the context of its macro and micro environments. The report begins with an identification of external threats and opportunities, utilizing PESTEL analysis to evaluate political, economic, social, technological, environmental, and legal factors impacting the company. It then analyzes Berkshire Hathaway's existing brand/product portfolio, exploring potential opportunities for divestment. A SWOT analysis summarizes the company's strengths, weaknesses, opportunities, and threats. The report further identifies and evaluates potential merger and acquisition targets, assessing their potential to mitigate risks and exploit opportunities. Strategic choices are critically evaluated using theories such as SAFe and NPV. Finally, the report concludes with recommendations based on the research and analysis.

Professional
Management Report

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Identification of external threats and opportunities/challenges faced by the chosen firm in the
context of macro and micro environments..................................................................................1
Analyse existing brand/product portfolio and identify potential opportunities for Divestment
of existing activities or brand .....................................................................................................2
Summarise in a SWOT table and discuss...................................................................................3
Identify and evaluate possible merger or acquisition target(s) in order to mitigate threats,
exploit opportunities and strengths.............................................................................................3
Critically evaluate the strategic choices generated from the research and analysis by applying
SAFe and NVP or similar theories and financing of any deal....................................................5
Recommendation.........................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Professional management is a set of approaches used by an organization in managing the
affairs by professional people holding their positions at top and lower level management. It
requires specified qualifications, skills and competencies in a professional manager for
performing various activities of management (Empson, Cleaver and Allen, 2013). The company
chosen in this report is Berkshire Hathaway which is located in Nebraska, U.S. Further, the
report identifies external threats and opportunities/challenges faced by the entity from micro and
macro environment followed by a SWOT. Along with this, evaluation of possible merger or
acquisition for lowering down threats and exploration of opportunities and strengths. Lastly,
strategic choices so obtained are analysed through application of number of theories to reach to a
conclusion.
MAIN BODY
Identification of external threats and opportunities/challenges faced by the chosen firm in the
context of macro and micro environments
Berkshire Hathaway is a conglomerate and holding company which is controlled by
Warren Buffett who is one of the best financial advisor and investor. The company is doing well
in it business due to which the price of its stock has gone up. However, external business
environment has threats as well as opportunities which have been analysed through PESTEL as
provide below:
Political factors: Company's profits have gone higher because of favourable taxation
rates in last few years. This made the it invest more into R&D. The policies and plans are
formulated by considering interest of various stakeholders. Furthermore, it has followed all the
regulations in true spirit (PESTEL Analysis of Berkshire Hathaway, 2019).
Economic factors: It has opportunities as liberalization has increased in past years by
which it can invest in more avenues. It can explore opportunities in infrastructure which has been
given importance by government of different countries. Along with this, it should be more
careful in conducting its business when there is fluctuations in business cycle.
Social factors: The income inequality is a major drawback for its business not only US
but in other parts of the world. It should make investment in those fields which will uplift the
society. It can increase it investment in public services and expand its business in those areas.
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Technological factors: Advancement in technologies are taking place with great speed
such as introduction of 5G which can be used by Berkshire Hathaway to improve its customers'
experience and quality of services. However, there is a threat to IPR which should be duly
registered so as to increase investment.
Environmental factors: Berkshire Hathaway takes environmental laws and rules very
seriously so that it can comply with them. It can leverage the trends in renewable technology
sector. It should include environmental factors in its strategies.
Legal factors: Business law being the prime legislation which is adhered by Berkshire
Hathaway along with other norms of trade unions, WTO etc. In addition to this, compliance with
employment and data protection laws are also its main objectives to avoid legal obligations.
Analyse existing brand/product portfolio and identify potential opportunities for Divestment of
existing activities or brand
Berkshire Hathaway has many successful brands in its brand portfolio which includes
Geico, Berkshire Hathaway Home Service of America, Dairy Queen, Brooks, BNSF Railway,
Clayton Homes and many more. These are all profit making companies making good revenues
annually. Berkshire Hathaway can have number of opportunities by making strategies for getting
positive results (Fich, Nguyen and Officer, 2018). Since, these entities have already made place
in US and other countries by marking a strong position in the market, investors often look to
invest in them. The best brands which can be put forward by Berkshire Hathaway are Geico
which covers 22million motor vehicles under insurance policies which has contributed in its
success. Apart from this, Dairy Queen can be suggested by the company which has grown
tremendously over the years and has restaurants in more than 20 countries.
Divestment refers to process of disposing off or selling subsidiary assets, investments or
divisions for increasing value of parent company. The other term for this divestiture. It could be
done for more than one reasons which can be financial, social or political goals. The company is
considering the proposal to sell its number of entities which are non-revenue generating
organizations. The motive of taking this step is to make the positions of the parent and other
corporations strong in order to survive the cut-throat competition. The CEO is taking high risks
through this proposal. The brands are PetroChina, Applied Underwriters and some other
organizations as well. This is mitigate the risks which can occur in economic recession. Also,
these are not making adequate profit, therefore, the money that will be realised can be used in
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something more productive. It will increase its investment in avenues which will provide high
return. The only weakness which may faced by it is losing some shares from U.S. Also,
government of US ad other countries may not allow this due to instability in economy.
Summarise in a SWOT table and discuss
After analysing the PESTEL and proposal of Divestment, strengths, weaknesses,
opportunities and threats have been provided through SWOT analysis which is as follows:
Strengths
 It has strong financial position along
with competitive advantage.
 Variety of brands and business
portfolio is large to choose from.
 It has done major acquisitions in the
past which have proved to be
successful (SWOT analysis of Berkshire
Hathaway, 2019).
Weaknesses
 It follows decentralised organizational
structure in which decision making is in
the hands of Warren Buffet only.
 There are some acquisitions which have
caused huge loss to Berkshire
Hathaway.
Opportunities
 It has opportunities to make more
acquisitions.
 Increased investment can be made in
developing economies.
 Technological investment is also a
chance for multiplying its income.
Threats
 Regulations and legislations change
very rapidly which are important to
comply with without a miss.
 There exist huge competition in all the
markets.
 High fluctuations in economy can
significantly affect its business.
Identify and evaluate possible merger or acquisition target(s) in order to mitigate threats, exploit
opportunities and strengths
Merger and acquisitions (M&As) are the ways through which assets of two more
companies are consolidated in order to increase synergy. This is done to have higher growth and
to gain competitive advantages resulting in increased market share and expand economies of
scale. It is a part of strategic management of any business to influence the industry in which it
operates. Berkshire Hathaway is planning to invest in 5 big companies as a deal of M&A and for
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this purpose, the company has an estimated funds of $116billion. It a long term objective and the
target companies are Illinois Tool Works, Campbell Soup, division of General Electric,
AmeriSourceBergen and Southwest Airlines.
All of these M&As may give positive outcomes and some may even result in negative.
Among these, the most riskiest M&A would be General Electric as the amount of investment is
huge and there is no certainty what would be outcomes of this deal. This will be an elephant
sized acquisition. Berkshire Hathaway will form a synergy and economies of scale. The market
share and customer base will be increased resulting in more profit and sales. The opportunities
that which Berkshire Hathaway will be able to expand its business in different countries without
have to build its own place of business. This will save the cost and tax which can be used in
other revenue generating activities. Competitive advantage will be huge because there stocks and
shares of all the entities will be owned by Berkshire Hathaway. However, there might be
weaknesses in if there are huge fluctuations in economy. This may impact its financial position
which may further hinder its growth and profitability (Brand Portfolio of Berkshire Hathaway,
2019).
On coming to competitive advantage and strategic capabilities, when resources of all the
companies will be utilised in a merged form then there will enhanced efficiency. This will
further, attract candidates from diverse background which will make its workforce stronger. For
analysing the position of Berkshire Hathaway, a competitive analysis along with guide price
range is used. The main competitors of Berkshire Hathaway are BlackRock, The Carlyle Group,
Thomsa Wilson and many others, who are giving tough competition to the firm. Guide price
range refers to marketing figure which is disclosed to buyers to let them know the worth of a
property. This may not be the final price for selling or bidding. It can be shown in individual
price or range of prices. Price guide range of Illinois Tool Works$56.2billion, Campbell Soup
$13.4billion, division of General Electric for $123billion, AmeriSourceBergen for $22billion and
Southwest Airlines. These amounts will be negotiated so that $116billion an invested wisely.
Its competitors are also making huge investment through M&As and takeovers in order to
make a strong position in the market. In order sustain in the long run by giving tough
competition, strategies of competitors can be analysed and adopted. This is the best way in which
objectives can be achieved without affecting the profits (Bender, 2013).
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Critically evaluate the strategic choices generated from the research and analysis by applying
SAFe and NVP or similar theories and financing of any deal
Berkshire Hathaway is owned by one of the top and most risk taking investors, Warren
Buffett. He is know for his knowledge in the fields of investment and finance. The company
believes that money can be invested by analysing all the avenues. There are theories which can
be applied by the company to ascertain advantages and disadvantages of the deal which can arise
in future. The theories are:
NPV: It stands for Net Present Value which is the difference between present value of
cash inflows and preset values of cash outflows for a particular time span. With the application
of this method, the budget and initial investment will be obtained. According to available
proposal, this method will be applied so as to obtain the amount that is generated by a project or
investment. This is usually applied by investors which takes into consideration the inflation and
income from alternatives investments. Berkshire Hathaway may use this for each company to
know the investment it need to make in initial stage. This will not block the whole funds and it
can be utilised wisely. The prospective company which has the highest risks should be dropped
from the list (BEKMEZCİ, 2013).
SAFe theory: This theory is in-depth in nature in which an investor go through history of
entities which are included in the deal of M&A. Documents like financial statements ad other
records should be examined. Furthermore, a due diligence will be conducted in order to know
whether it has disclosed every details or not. Followed by assessment of outcomes that have
obtained from analysis. At last, the price quoted by the seller will be negotiated by buyer which
is Berkshire Hathaway. This is completely based on expectations which it has for this M&A.
It can convince investors both residents and non residents to invest in the company. This
is the prime way through which funds can be raised. The other sources should also be evaluated
and accessed in which the cost for raising is low.
Recommendation
Berkshrine Hathaway has proved that most of its decisions have provide it profit.
Similarly, the prospective deal will generate revenue because of historical data have been
inspected deeply. Along with this, there will be more than one strengths in the form combined
resources, increased access to capital, synergy, economies of scale, increased customer base and
market share and many more. Also, this will improve competitiveness in the market and revenue
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will be multiplied. Furthermore, stock prices are assumed to go up which indirectly balance
economic fluctuations.
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REFERENCES
Books & Journals:
Empson, L., Cleaver, I. and Allen, J., 2013. Managing partners and management professionals:
Institutional work dyads in professional partnerships. Journal of Management Studies.
50(5). pp.808-844.
Fich, E.M., Nguyen, T. and Officer, M., 2018. Large wealth creation in mergers and
acquisitions. Financial Management. 47(4). pp.953-991.
BEKMEZCİ, M., 2013. Taking Competitive Advantage By Business Model Innovation. Journal
of Management & Economics. 20(1).
Bender, R., 2013. Corporate financial strategy. Routledge.
Online:
PESTEL Analysis of Berkshire Hathaway. 2109. [Online]. Available
through:<https://pdf.marketpublishers.com/bac_swot/berkshire_hathaway_inc_swot_an
alysis_bac.pdf>.
Brand Portfolio of Berkshire Hathaway. 2019. [Online]. Available
through:<https://www.visualcapitalist.com/warren-buffett-empire-giant-chart/>.
SWOT analysis of Berkshire Hathaway. 2019. [Online]. Available
through:<https://sites.google.com/site/berkshirehathawaybus100cole/swot-analysis>.
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