Bombardier transportation and the Adtranz Acquisition

1.

What is this case about (250 words)?

2.

What are the Key Success Factors of the railway equipment industry ?

3.

Draw a schematic representation of Bombardiers business portfolio before and after the Adtranz
acquisition. How critical is the European railway market for Bombardier? (From a business and a
corporate level perspective).

4.

Is Adtranz an attractive acquisition target for Bombardier? What are the arguments for and against?

5.

What should Lortie do with Adtranz? Integrate it ? Leave it as a stand alone? A mix? Justify. What
should be his focus in Europe in the next three years : growth or profit ? Justify.

6.

Propose an organizational structure for the Railway SBU of Bombardier. Justify.

Question 1
Bombardier transportation was one of three major operating groups of Montreal,
Canada-based Bombardier Inc, it was one of the worlds largest manufacturers of
passenger rail cars.
Adtranz, an European company belonging to DaimlerChrysler is the major player
in Europe in propulsion systems and train controls.
In order to expand BTs presence in the global rail equipment industry, especially
on European continent, BT considers that merging with Adtranz could enlarge its
key competencies and know-how and will allow BT to be more competitive on its
market. But this operation presents four main issues to be solved:
The size of the acquisition, Adtranz was approximately twice the size of BT.
The ability of BTs management to manage this acquisition, Lortie BTs COO
evaluated the capacity of its management to take care of the new acquisition,
and strategic priorities;
The structures of both companies are quite different: BT is organized on
geographic bases; Adtranz is organized by line of products. Those two
organization structures need to be compatible in order to run properly.
BT has to anticipate the possible opposition of EC to such concentration leading
to a monopolistic position on the market. Should BT starts to work actively on this
M&A operation? should it focus on top-line revenue growth or start to
immediately focus on bottom-line cost cutting?

Question 2
The most important KSF of the railway equipment industry is its size due to the
acquisitions. Those investments permit to Bombardier to be on several continents
and on several markets and that make the influence wider.
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Its diversification in terms of technologies enhances the efficiency. This also had
helped BBD to be efficient on many sectors such as aerospace or transportation
because it allowed it to master several technologies.
This industry is known for being able to innovate and constantly develop new
products. In such sector, technological responsiveness is a key element since it
indicates whether or not a company is competent. Having an extensive
experience and expertise is a strong advantage.
The reputation is also a KSF. Indeed the industry is known to ensure the
excellence of its products and also to be as efficient as possible in its core
functions (such as inventory, management control, assembly).
The ability to generate cash to finance other firms owned is a great KSF because
it contribute to the sustainability of firms. It provides a potential to raise profits
where it is less evident to have it.
In this industry negotiation with high authorities (and concessions as well) and
the ability to build partnership with locals actors contributes to its success. It
strengthens the credibility and power on the given territory. Having good
negotiation qualities prove that a firm can gain approval with legal and fair
maneuvers which is important for credibility and the image of the firm.
In this industry, customers can customize their orders thanks to tailor-made
products. Firms respond in an unique way to each customer requirements.
Having a dominant position is also a KSF in this industry because decisions can
be made without taking into account the reactions of competitors, suppliers or
customers. However, in this industry having a dominant position can cause
abuses because competition is reduced.
In terms of people management the railway equipment industry gives credit to
not replace existing staff when there is a merger. This is an asset because
existing staff can form the other ones on manufacturing methods and share best
practices. BBD named it tried and tested management approaches.

Question 3
Bombardiers business portfolio before the acquisition:

Low

High

Competitive Advantage
Medium
High

Medium
Industry Attractiveness

Low

Bombardiers business portfolio after the acquisition:

Low

High

Competitive Advantage
Medium
High

Medium
Industry Attractiveness

Low

In these two schematic representations we can see that the biggest business
group of Bombardier is the Aerospace group with a revenue of $8 126 M during
for year 2000. As Bombardier is the number one or two globally in the aerospace
industry, depending on which under group you are looking at, Bombardier is
considered to have a high competitive advantage. The industry attractiveness is
rather high, as it is a global industry with a turnover of many billions dollars, but
also with a high growth of about 5 % per year.
Recreational products has a revenue of $1 473 M in 2000 at Bombardier and
therefore the second smallest business group within the company. Also within this
industry Bombardier has a quite high competitive advantage as the company
reports to be number one or two globally depending on under category. As this
category has a small part of the total revenue of the company, and contribute
with an even smaller profit, the recreational group may be seen as having a
peripheral role and therefore not be prioritized by the top management, which
can be seen as a drawback. On the other hand, the industry appears very
appealing even if it does not has the same turnover as aerospace and
transportation, as the growth of the industry is 5,8 %.
The Capital group of Bombardier does not have a significant part of Bombardiers
total revenue, only $739 million in year 2000 and therefore the smallest group.
This is not an industry that is in the core of the company, but is still important to
financially support customers. This group has therefore the function to indirectly
support the other groups of the company. This is why the industry does not look
very interesting according to this matrix, but it still needs to exist.
The Transportation group has before the acquisition a revenue of $3 446 millions,
which makes it the second biggest group of Bombardier. As for industry
attractiveness, it has a global turnover of many millions but the growth is
relatively low compared to the other industries where Bombardier has business,
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as it is only 1,5 % and therefore makes it a less interesting industry. Bombardiers

competitive advantage is also not high, especially in Europe as they are only
fourth on this market in an industry where size is a key success factor.
After the acquisition of Adtranz, the transport group would increase the revenue
to $7 241 million, and they would then be the number one on both the European
and North American market which is an important competitive advantage.
Therefore Bombardiers competitive advantage is high after the acquisition. With
the acquisition, the center of gravity of Bombardiers business portfolio would be
moved from the center left of the matrix to the high left, which would be a better
balanced portfolio for Bombardier.
The European railway market is very important to Bombardier as there is
expected to be high future growth in this market, mainly because of the European
Union. The European Union has decided to invest in the railway network, as it is
the transportation solution that is best for the environment. In the early 2000s,
the European Commission ranked the high-speed train infrastructure in Europe as
its highest investment priority in the unions transportation infrastructure.

Question 4
Adtranz is an attractive acquisition target for the following reasons:
1. To help diversify the business portfolio of Bombardier. As a transportation
group, Bombardier positioned itself as a premium diversified company.
However, based on the Profits Before Taxed-Segmented by Division (Exhibit 1 in
page 20), we can conclude that the aerospace group took up to 60% of the
profits. Given this performance, probably people would recognize Bombardier as
an aerospace company rather than a business covering different businesses.
2. To become more globalized. According to the information in Exhibit 1, revenues
of Bombardier largely came from North America (Canada and United States),
accounting to more than 60% (estimation) in 2001. While when the joint venture
formed Adtranz, it was the largest rail service provider in the world with annual
sales volume of 4.5 billion. Because the sales of Adtranz had degraded over the
next years, DaimlerChrysler began to have an intention to sell Adtranz that
became non-core business. It provided a good opportunity to Bombardier to make
an acquisition.
3. Growing privatization of European Union rail industry. From Exhibit 3 you can
see that developed countries like France, Belgium and Spain had their privatized
railway. Comparing to competing the companies with affiliation to a country, it is
less difficult to compete those privatized companies. And Bombardier can
diversify the countries it planned to enter, helping reduce its investment risks.
Actually by now Bombardier has expanded its railway service business into 20
European countries
4. To increase technical competencies. In the case it is said that the acquisition
over Adtranz not only extend the portfolio of Bombardier, but increase the
competencies in propulsion system and train controls.
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Some risks are needed to assume if Bombardier decided to acquire Adtranz

1. Lengthy wait for the approval from EU Commission, normally at the stage of
acquisition, the parent company should organize to restructure, but since by that
moment Bombardier had not got the approval, the acquisition could fail.
Bombardier could waste a lot of time in conducting this movement.
2. Risk of being accused of monopoly, Adtranz was one of the four biggest railway
corporations in Europe, and Bombardier was the leader in North America. Actually
after this acquisition, Bombardier had become the largest railway service

Question 5
The company has several options. First, Adtranz can opt for integration. There are
advantages attached to this option, such as the ccapacity to adapt quickly, the
cover of more activities, the ad of competencies but also the association with the
brand image of BT which is very strong. Of course, it is complicated because the
two companies have opposite structures. For example, BT has five geographically
based operating units and only one market unit whereas Adtranz products
segment and functions.
Second, the company can chose to stay alone. Again, this choice implicates
different advantages such as a new know-how which will be a great benefit for
innovation, the fact that BT lacks expertise in propulsion systems (and Adtranz
can bring that to the company). But the two companies have no common culture
which will surely complicate the relations between employees. Moreover, the
question of the responsibilities is a tough one. Of course, corporate law frames
the allocation of responsibilities but we must take into account the negotiation
power or the companies.
Finally, Adtranzs future will mainly depend on a management choice.

Question 6
For the Railway SBU of Bombardier, we propose to use multidivisional structure.
Although its just a business unit in Bombardier, a large-scale diversified
enterprise, Railway SBU has a discrete marketing plan, analysis of competition
and marketing campaign and is responsible for its own profitability. Therefore, it
can set different divisions according to its own marketing strategy.
On the one hand, according to the document, there are a lot of variables in the
Railway SBU, especially concerning its product development, including the
materials being used (steel versus aluminum), the type of car being produced
(tramway, subway, intercity or high-speed rail) and the infrastructure interface
(track width). Whats more, as it mentioned in the document, In rail, each
customer had unique requirements and demanded tailor-made products. Generic
rail cars simply did not exist. Customer demand varied according to a wide range
of factors, including car size, weight, number of doors, propulsion system and so
on. Different technologies being used and different types of product being
produced means there are a lot of product lines in the Railway SBU and almost all
the products need to be customized according to different customer demands. In
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other words, product is the most important part of the whole SBU, and all the
marketing strategy is made based on it. Therefore, we propose to use product
-based structure. Under this structure, different functional activities of producing
and selling different products can be coordinated and cooperated by Division or
Product Manager. Whats more, this structure has more flexibility and helps
implement product differentiation. Meanwhile, the divisions are loose-coupled, so
its easy to produce customized products and sell or close the moribund division
without influencing others.
On the other hand, according to the strategic acquisition of Adtranz, BBD found
the European rail market attractive and Asia and South America primarily
utilized European engineering concepts and had a history of failing to develop
new technologies on their own. Also, the green movement and strong
government support signaled long-term growth in the demand for rail
transportation in Europe. All these facts meant that BBD would change its main
focus on rail transportation in Europe. As Europe is its main target market, we
think geographically based structure is not very suitable.
To sum up, the product-based structure is the most suitable one to meet the
Railway SUBs demand.