In this topic you will learn about: Change in organisational size ◦ Mergers, takeovers, organic growth and retrenchment New owners/leaders Poor business performance BUSS4.7 Internal Causes You might merge with another organisation, but two drunks don’t make a sensible person. Gary Hamel Managing Change Internal Causes of Change Can you think of a real life example of each?

What does change for a business look like? 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 change To 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 BUSS4.7 Internal Causes How has it changed? What were the key internal and external factors contributing towards the changes? Look at the history of M&S from 1884 to present

Change 1 – Change in organisational size Businesses can both grow and contract Directors may have an objective of growth. How can this be achieved? ◦ Internal growth (Organic)  Opening new branches  New product development inc. diversification ◦ External growth  Mergers and takeovers Directors may have an objective of contracting in order to minimise costs. How can this be achieved? ◦ Internal contraction  Delayering  Closing down unprofitable elements ◦ External contraction  Selling off elements of the business BUSS4.7 Internal Causes

Internal Growth Internal or organic growth occurs when a business expands in size by opening new stores, branches, functions or plants Where can Tescos secure organic growth? ◦ This may be achieved within the UK or on a multinational scale What are the advantages and disadvantages of organic growth? ◦ Can be time consuming but is a relatively low risk strategy as control is easier to maintain BUSS4.7 Internal Causes What 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?

External Growth Integration ◦ The bringing together of two or more firms Merger – can you define it using the diagram? ◦ When two or more firms agree to become integrated to form one firm under joint ownership ◦ An agreement Takeover – can you define it using the diagram? ◦ When one firm gains control over another and becomes the owner, can be achieved by buying 51% of the shares ◦ Can be hostile BUSS4.7 Internal Causes AB BA +=++= =++=+ AB A

External Growth External growth through mergers and takeovers can take a number of forms ◦ 2 firms at the same stage within a process integrate. This is called Horizontal integration. Can you think of an example? ◦ 2 firms at different stages within a process integrate. This is called vertical integration. Can you think of an example? ◦ 2 unrelated firms integrate. This is called a conglomerate. Can you think of an example? BUSS4.7 Internal Causes Remember a process can be within the primary, secondary or tertiary sector – not just a production process

External Growth BUSS4.7 Internal Causes 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 takeovers Why might the Government intervene to disallow a takeover?

Quick recap 1 way a business might change size? 1 reason a business might want to grow? 1 example of internal (organic) growth? 1 example of external growth? What is the difference between vertical and horizontal integration? BUSS4.7 Internal Causes

Why might a firm seek a merger/takeover? Secure a supplier Secure an outlet Gain foothold in a new market Benefit from expertise Benefit from Brand recognition Synergy ◦ = 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 AdvantagesDisadvantages Horizontal Forward Vertical Backward Vertical Diversification BUSS4.7 Internal Causes Using some of the reasons given on the previous slide and your own ideas and research, print off and complete the grid below.

What is 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 BUSS4.7 Internal Causes How might other stakeholders be affected by retrenchment?

Why might the owners / leaders of a business change? ◦ Takeover ◦ Merger (combined owners and leaders) ◦ Next Generation ◦ Newly Appointed Directors Whatever the cause they are likely to want to make changes BUSS4.7 Internal Causes Why might new owners want to make changes?

New owners / leaders Why 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? BUSS4.7 Internal Causes You will learn more about the role of culture and leadership in BUSS4.9 and BUSS4.10

How can a business respond to 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?

In 2008 India’s biggest car maker Tata bought UK based Jaguar and Land Rover from Ford. By 2013 sales and profitability at the car maker have risen dramatically. To what extent do you think that improved profitability is the only important factor in judging the success of a takeover or merger? Justify your answer with reference to organisations and/or relevant examples of business activities that you know (40 marks) In 2013 Sony’s top management gave up bonuses due to poor business performance whilst Andrew Mason, CEO of Groupon, was fired. Poor business performance is often a trigger for change in an organisation. To what extent is internal change necessary due to the poor performance of a business? Justify your answer with reference to Sony, Groupon and/or any other organisations that you know (40 marks) 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