Strategic Management Plan for Parker Hannifin Corporation

Executive Summary

Parker Hannifin's growth and success has, since the company's beginning, largely been driven by its acquisitions, and the current global economic situation presents an opportune time to continue this strategy. Maintaining its current solid base of operations in the aerospace industry through ongoing military contracts and its firm position as a leader of hydraulic and fluid control systems to civilian firms will provide adequate capital and security for new acquisition ventures. The general devaluation of most firms as the world's economy slowly climbs out of a recession will allow Parker Hannifin Corporation to acquire smaller firms at a discount, expanding its worldwide operations and positioning itself for even faster growth once the economy recovers and demand increases.

Company Background

In 1918, Parker Appliance Company opened its doors as a manufacturer of brakes for automobiles, of which over one million were produced in Detroit and other automotive industrial centers that year (St. James Press, 2000). Art Parker had invented a pneumatic brake booster, which led to the founding of his company and a modest entrance into the automotive market. Since that time, Parker and its acquisitions — the first of which, Hannifin, came in 1957 — has remained focused on motion-control systems, though its operations have branched out to include projects in eight broad technology fields: Fluid Connectors, Instrumentation, Filtration, Hydraulics, Automation, Climate & Industrial Controls, Sealing and Shielding, and Aerospace (St. James Press, 2000).

In 1924, Parker entered the aviation industry, securing long-term contracts with Douglas Aircraft Company (later McDonnell-Douglas, now merged with Boeing) and Robert Gross of Lockheed, establishing a firm hold in the aerospace industry while the field was still in its infancy (St. James Press, 2000). World War II saw the massive expansion of operations and profits, and new management following Parker's death at the end of the war led to the culture of acquisition that has marked the company to this day (St. James Press, 2000). The company's customers are manufacturing firms in a variety of industries, and the broad reach of the company's technologies and innovations has been a large part of the successful growth strategy it has employed.

Mission and Vision

Though the company does not publish a specific mission or values statement, a statement to investors can be construed as such: "Parker is committed to delivering value to our shareholders only in a manner that secures the trust and respect of all of our investors, customers and employees and the communities where we operate" (Washkewicz, 2009). Essentially, the company's mission is to remain the world's largest producer and innovator of motion and control technologies, and by maintaining high ethical and quality standards it has been able to consistently maintain and enlarge this position through global confidence in its products and actions. Its growth operations would be severely hampered, especially internationally, by a lack of confidence or negative perceptions regarding stewardship and ethics.

SWOT Analysis and Strategic Goals

SWOT — a simple acronym standing for Strengths, Weaknesses, Opportunities, and Threats — is one of the most commonly used analytical tools in business. Incredibly simple and straightforward in both its design and its revelations, it is one of the most useful first steps management can take in developing a specific strategy. It can help determine market needs, show relative position to competitors, and provide a basic picture of a company's health and potential (AIT, 2008). It does make certain basic assumptions, including some prediction of future events based on current situations and past patterns, but if properly constructed these assumptions are not detrimental to the process.

The strengths and weaknesses referred to in the SWOT acronym are internal features of the company. Parker Hannifin's great strengths are its size — both in diversity of operations and in market share — which have allowed it to weather several financial storms, including the most recent recession (St. James Press, 2000; Yahoo Finance, 2010). Some of Parker Hannifin's operations, however, have suffered more than others during the downturn; the same breadth of enterprise that has served as a strength can — and has — turned into a weakness through the corporation's carrying of non-essential and unprofitable elements through the economic downturn (PR Web, 2010). Parker Hannifin has already begun to shed some of these operations to distributors, streamlining its still-expansive industry portfolio (PR Web, 2010).

In the next three years, Parker Hannifin should continue to shed its least profitable enterprises while acquiring direct competitors where possible. In the first year, a review of all eight technology sectors of the company should be conducted. Goals include complete analysis of expenditures and profits in each sector, market analysis and future growth projections, and a review of manufacturing and distribution processes; acquisition processes in identified areas should also begin as soon as possible. The second year should see action taken in these areas, with each sector being streamlined toward its most profitable endeavors with the greatest growth potential. Profit margins should increase as a result. The third year should see the completion of a major acquisition period, while the streamlining of actual operations is finalized.

Just as the strengths and weaknesses are internal components of a SWOT analysis, the opportunities and threats are external market and industry factors. In many cases these are closely related, and Parker Hannifin's current situation is no exception. Its opportunities and threats would be markedly different if its strengths and weaknesses were not what they are. As it stands, Parker Hannifin is well positioned to take advantage of struggling companies still emerging from the economic downturn; the general market decline has not had as large an effect on Parker Hannifin, creating a significant opportunity for growth (Yahoo Finance, 2010). There remains a threat from innovation driven by small companies, however, which Parker Hannifin must address in its strategy.

Other strategic goals for the next three-year period include a larger percentage of market share in chosen fields of operation and increased research and development activities to fuel internal innovation. This will enable the company to take the fullest possible advantage of current economic opportunities while addressing its most significant threat through pre-emptive innovation and progress. Market share increases should result from acquisitions beginning in the first year, as well as expanded marketing efforts in the second year as industry growth returns following the recession. Both should accelerate in the third year. Research and development funding secured in the first year should begin delivering new products in the second year, with market availability by year three.

The SWOT analysis reveals that Parker Hannifin could increase its profitability through growth in market share, provided it honestly and efficiently addresses its less-profitable operations and lagging innovation relative to some smaller rivals. This can be incorporated into the company's existing growth strategy of acquisition, which can allow Parker Hannifin to absorb innovations and increase market share by subsuming competitors, while also providing greater capital resources to drive internal innovation, operations growth, and marketing ventures as needed. This will further entrench Parker Hannifin's position as the global leader in motion control industries.