Question

In 2001, the turnaround was largely complete. Minoli’s focus shifted to future growth. Minoli announced ambitious growth targets. What should Ducati do next? What strategic directions are available to Minoli in 2001? (financial perspective)

The Turnaround Program
Ducati was founded on July 4, 1926, when Antonio Cavalieri Ducati and his three sons established
one of the first Italian operations of radios and electrical components. In 1935 Ducati started
production at a new factory in Borgo Panigale, just outside Bologna, at the heart of what later became
the most extensive Italian mechanical district. Not until the post-war period did Ducati’s first
motorcycle appear. The bike, “il Cucciolo,” soon became a blockbuster. The 1950s witnessed the
introduction of a series of increasingly sophisticated and powerful bikes, and particularly the
appearance of Ducati’s technical signature: the Desmodromic valve distribution system. This
innovation, developed by the celebrated Ducati engineer Fabio Taglioni, was a sophisticated
mechanical system allowing the engine to achieve more revolutions per minute and greater “usable”
power. The Desmo system could still be found in 2001 on every motorcycle produced, representing
the soul of all Ducatis: the deep intoxicating noise made by the desmo engine was music to the ears of
purists.
Thanks to their technical superiority, Ducati motorcycles rapidly achieved success in the
international racing circuit. This success fueled growth throughout the sixties and the seventies, and
the development of a strong reputation in the performance segment of the motorcycle industry. In
1972, a Ducati 750 Super Sport prototype won a dramatic victory in the Imola 200cc race. This
motorcycle, which was configured with an L-shape desmo engine (two cylinders mounted at a 90-
degree angle) and a Formula Uno-derived tubular trestle frame, inspired the production of a new line
of larger displacement motorcycles that represented the stylistic and technical foundation of modern
Ducatis.

Despite the innovativeness and technical excellence of its product lines, Ducati’s fortunes declined
sharply in the early 1980’s, primarily due to the decision of its major shareholder at that time (IRI, a
State holding company) to refocus the company on products other than motorcycles. In 1985 IRI
decided to sell its motorcycle assets, and Cagiva, an Italian manufacturing conglomerate and
producer of small displacement motorcycles, acquired Ducati. Under Cagiva, Ducati suddenly
recovered its reputation for on and off-track excellence. An impressive series of victories in the
World Superbike Championship where, for the first time, a Ducati two-cylinder engine defeated a
four-cylinder engine produced by Japanese competitors, was paralleled by the introduction of a new
series of stunningly beautiful street performance bikes. However, towards the mid nineties, liquidity
problems at the larger Cagiva group deprived Ducati of the necessary working capital funding,
which, in turn, delayed its payment terms to some key suppliers, resulting in significant production
delays.
Ducati was one step from going bankrupt when, in September 1996, a majority stake in the
company was acquired by the Texas Pacific Group, an American private equity firm. Abel Halpern,
HBS ’93 and TPG partner was the driving force behind the deal. He had a passion for high-end,
“nichey” businesses, and was driven by the firm belief that Ducati had enormous potential that was
largely unexploited due to poor management. For this reason, he needed a first-class, highly
committed management team, and TPG appointed Halpern’s friend and former colleague at Bain &
Co., Federico Minoli, as CEO of Ducati.

Answer 1

Building a business is one thing, but pulling it back from the brink after it falls apart is a whole other undertaking. Federico Minoli, the CEO of Ducati needs to look at the positive approach and build certain strategies which will help Ducati to once again regain its market and Financial position.

Some businesses just need someone to come in and make big decisions to change course.

Below could be certain strategies which Minoli can apply in 2001

A finance strategy:

It’s not just the money
At the core of a business strategy is the finance strategy.

Every company needs a plan for financing its operations over the next several years reflecting its unique business model. Things to consider are:

*Required outside funding
*Funding schedule
*Sources of funds
*Cost of funds
*Tax minimization
*Cash flow from operations
And, it’s not just the money. Your company’s finance strategy also controls the following:

*Ownership of the company
*Control of the board
*Investments in R&D, plant and equipment, marketing
*Risk exposure to business changes
*Rate of growth
*Flexibility to act opportunistically

What you can do to improve your chances for success
Funding your company involves obligations and risks. Here are steps you can take to make your finance strategy a powerful tool for the company:

A finance strategy, and a financial plan, will be unique to each company. The strategy will reflect the economic dynamics of the business sector, the position of the company in that sector and where your company leadership wants to take the company.
Whether your company is big or small, think about your company’s financial plans over the coming two to five years. Be specific about the implications of alternative approaches and their risks.
Actually choose. Make a decision.
Include your core team members, your board and your outside advisers. Consulting support can help keep you honest about where you are going and what you are deciding.
Don’t run out of cash!
Cash is very expensive, particularly for young, high-risk companies. Find ways to get essential work done without paying cash for it.
Match equity sales to major step-ups in company valuation. Each incremental sale of company stock should be sufficient to pay for significant development progress. That could be a new-product introduction, clinical trials or company acquisition. Each development step such as these significantly reduces the risks for the next investors and materially increases the overall value of the company.

Taxes are a major strategic consideration. Location of operations, transfer pricing, off-shoring of cash, dividend policy and other factors will determine the firm’s tax liability.

To be successful, you must be excited about the potential for your company and what you and your team can accomplish for your customers and yourselves. You must also be good at playing the money game.