Case Study by: Hannah McArthy Published by the Harvard Business School Olam: On a New Course Case Study by: Hannah McArthy Published by the Harvard Business School

Assumptions Recommendations and implementations are made currently. Traditional risks (price, credit) are taken care of by a system already in place. Olam’s systematic approach is sufficient for human capital, it is not a major issue. Olam will continue to focus on sustainability and transparency. The company does not currently have a public relations department. Olam’s management structure is sufficient. Sunny Verghese has not put the shareholders interest in mind during his extensive purchase of fixed assets. Olam wants to focus on long-term shareholders, but has not been able to accomplish this goal. Olam is focused on fixing their fixed assets problem and will provide funds to do so.

Olam’s Problems Olam has a problem with cash flow; sales are not keeping up with expenses. Olam is an undertrader (long-run problem). The cause is their excessive investments (farms) or fixed assets. The new strategy opens Olam up to additional risks such as customer complaints and maintaning the corporate brand. Because of the above problems, Olam is having trouble with their shareholders. Too much net worth is tied up in fixed assets: profitability will suffer, firm will over-utilize debt. Undertrader: company’s sales have stopped growing, in the short-run the company is profitable, but in the long-run the company may not survive. Found this by conducting the trading ratio (net sales/net worth). 2012: 0.914793 2011: 1.162515 = small and decreasing

Recommendations Increase cash flow by analyzing investments (fixed assets) and the business portfolio. Manage strategy risk and external risk. Increase long-term shareholders.

Implementation Restrict further investment in fixed assets (avoid Hubris) until they review and update their current investment strategy in order to balance short-term and long-term investments. Divest non-core assets by establishing a dedicated team, which will help keep the core businesses that are worth more to shareholders. Create a risk management system tailored to reduce strategy risk. Create a public relations department to stay ahead of customer complaints and maintain the corporate brand. Favor long-term shareholders over short-term shareholders. Hubris may be developed after a person encounters a period of success. Corporate executives and traders overcome by hubris may become a liability for their firms. A manager might start making business decisions without fully thinking through the consequences, or a trader may begin taking on excessive risk. In many cases, people overcome by hubris will bring about their own downfall.

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