BUSS4.7 Internal Causes

Managing Change

Internal Causes of Change

It was the first takeover I had experienced. It wasn’t merely insensitive and unjust: it was rebellious in its consequences for

the company.Harold Evans

You might merge with another organisation, but two drunks don’t make a sensible person.

Gary Hamel

Adopt, adapt and improve!

BUSS4.7 Internal Causes

In this topic you will learn about:

Change in organisational size◦Mergers, takeovers, organic growth

and retrenchment

New owners/leaders

Poor business performance

Introductory case study

BUSS4.7 Internal Causes

What is change?Change occurs when a business alters

its structure, size or strategy to respond to internal or external influences

Change may be necessary to help a business meet its aims and objectives

Change creates opportunities and threats

Change should not be seen as bad but must be managed carefully to ensure a firm maintains or increases its competitiveness as a result of change

BUSS4.7 Internal Causes

Reasons for changeTo meet objectives

◦ Gain market share◦ Increase shareholders’ worth

Respond to external forces◦ Technological advancements◦ Political and legal changes◦ Consumer demand

Respond to internal forces◦ Employee pressures◦ Owners’ power

Gain competitive advantage◦ Economies of scale◦ Market development

Look at the history of M&S from 1884 to present

How has it changed?What were the key

internal and external factors contributing

towards the changes?

BUSS4.7 Internal Causes

Change in organisational size Businesses can both grow and contract Directors may have an objective of growth, this can

be achieved by:◦ Internal growth (Organic)

Opening new branches New product development inc. diversification

◦ External growth Mergers and takeovers

An objective of cost minimisation however may require the business to contract, this can be achieved by:◦ Internal contraction

Delayering Closing down unprofitable elements

◦ External contraction Selling off elements of the business

BUSS4.7 Internal Causes

Internal GrowthInternal or organic growth occurs

when a business expands in size by opening new stores, branches, functions or plants

This may be achieved within the UK or on a multinational scale

Can be time consuming but is a relatively low risk strategy

Control is easier to maintainWhat are the advantages to Tesco of internal growth?What are the risks associated with internal growth?

How would Ansoff view the opening of new stores by Tesco in the US?

BUSS4.7 Internal Causes

Revision time!Before learning more about growth

check your understanding of the following topics:◦Economies and Diseconomies of Scale◦ROCE◦Functional and corporate objectives◦Changing organisational structure◦Ansoff’s Matrix◦External influences on the business

environment

BUSS4.7 Internal Causes

External GrowthIntegration

◦The bringing together of two or more firmsMerger

◦When two or more firms agree to become integrated to form one firm under joint ownership

◦An agreementTakeover

◦When one firm gains control over another and becomes the owner, can be achieved by buying 51% of the shares

◦Can be hostile

A B

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BUSS4.7 Internal Causes

External GrowthExternal growth through mergers and

takeovers can take a number of forms◦2 firms at the same stage within a process

integrate 2 car manufacturers

◦2 firms at different stages within a process integrate A car manufacturer merges with a tyre supplier

◦2 unrelated firms integrate (a conglomerate) A car manufacturer merges with a bookstore

Remember a process can be within the primary, secondary or tertiary sector – not just a production process

BUSS4.7 Internal Causes

Growth through mergers and takeovers

HORIZONTAL

VERTICAL

DIVERSIFICATION

SAME STAGE IN THE PROCESS

DIFFERENT STAGES IN THE

PROCESS

Backward Vertical

Forward Vertical

End of process e.g. retailer

Start of process e.g. raw material

Unrelated business

BUSS4.7 Internal Causes

Activity – complete the diagram below based on the assumption that PJ Smoothies wants to expand through external growth

End of process e.g retailer

Start of process e.g. raw material

PJ Smoothi

es

BUSS4.7 Internal Causes

External Growth

TUI merge with First Choice

Porsche and VW to merge

Watch these 2 video clips

In each case identify the objectives of the

mergers, the advantages and any

potential disadvantages

Corus accepts takeover bid

High Court clears P&O’s takeover

Little Chef “takeover” talks

Identify the different reasons

for and approaches to

these takeoversWhy might the Government intervene to disallow a takeover?

BUSS4.7 Internal Causes

Reasons for External Growth Secure supplier Secure outlet Gain foothold Benefit from expertise Brand recognition Synergy

◦2 + 2 = 5◦That two firms joined together will be able

to achieve more than the sum of the two firms operating separately

Achieve corporate objectives

BUSS4.7 Internal Causes

Advantages and disadvantages of external growth

Type of Integration

Real business example

Advantages Disadvantages

Horizontal

Forward Vertical

Backward Vertical

Diversification

Using some of the reasons given on the previous slide and your own ideas and research, print off and complete the grid

below.

BUSS4.7 Internal Causes

Retrenchment The downsizing of a business Often necessary to increase competitiveness and

achieve an objective of cost minimisation Reducing the scale of an operation will affect

different stakeholders, e.g.◦ Employees

Delayering Redundancies

◦ Customers Closures Product withdrawals

◦ Suppliers Orders

◦ Community Jobs

How might other stakeholders be

affected by retrenchment?

BUSS4.7 Internal Causes

New owners / leadersNew owners or leaders may be the

result of ◦Takeover◦Merger (combined owners and leaders)◦Management Buy Out (MBO)◦Next Generation◦Newly Appointed Directors◦Flotation on the Stock Exchange

Whatever the cause they are likely to want to make changes Why might new

owners want to make changes?

BUSS4.7 Internal Causes

New owners / leadersWhy might new owners or

leaders want to make changes?◦Own vision or mission◦Change in corporate objectives◦Cultural differences◦Personal leadership style◦Make a difference – fresh ideas◦Self glorification?

You will learn more about the role of culture and leadership in BUSS4.9 and BUSS4.10

Poor business performance

BUSS4.7 Internal Causes

Poor Business Performance

Do nothing? Make Changes?

What do you think the likely outcome will be?

What changes can be made?

Success? Failure? Ownership?Structure?Strategy?Processes?

What do you think the likely outcome will be?

Success? Failure?

Why might it be easier to implement change if it is

in response to poor business performance?

BUSS4.7 Internal Causes

Activity – Know your terminology

Work out what each term should be and then write a clue to help others solve the anagrams

◦ Liar nth zoo◦ Entrench term◦ Catwalk cabdriver◦ Rang her text low◦ Award cover flirt◦ Whaling torrent◦ Art evoke◦ Tearing into◦ Germ re◦ A neglect room

BUSS4.7 Internal Causes

EssayIn recent years, Tui has merged with

First Choice ; Abbey, Alliance & Leicester and the savings business of Bradford & Bingley have been bought out by the Spanish banking giant Santander. With reference to these or any other mergers and takeovers you know, to what extent is growing through integration with other businesses the best way for a firm to increase its competitiveness?