Posted: August 4th, 2022
Palmetto was an early pioneer of personal data assistants (PDAs) and dominates that market space (in terms of market share) with its core product, the Palmetto Pidgy. Because this product category was entirely new to the market, Palmetto had to internally develop the hardware and software sides of the business, and today is both a manufacturer of PDAs and a programmer and licensor of its PDA operating system software. Recently however, the hand-held device maker’s performance has taken a dive as a result of slumping sales and costly inventory problems. Palmetto has also had difficulty coordinating its software and hardware businesses, in part due to the near absence of a coherent structure and the differing economics underlying the two. Specifically, hardware for PDAs is increasingly a cost-based business, while software is a highly differentiated one. While Palmetto is doing pretty well in both businesses, its own resource base does not allow it to compete any differently than that proscribed for other industry participants (i.e., competes on cost with hardware and features with software). In addition to these fundamental differences, new large entrants are entering both the equipment (e.g., Sony) and software (e.g., Microsoft) sides of its business, putting further pressure on margins. Management has decided that it is unable to focus on the complexities of each of these businesses so it is opting to break Palmetto into two separate, independent public companies – Pal, Inc. will be devoted to hardware and Mettolink, Inc. will be devoted to software. 1. (Refer to Case Scenario Palmetto) What basic structural form would you recommend for both Pal and Mettolink? What must each firm be careful to avoid with this structure? 2.How would the implementation of the selected structure (question 26) differ for Pal? 3. How would the implementation of the selected structure (question 26) differ for Mettolink?
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