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 YouTube Monty Python - Lingerie Robbery 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 BBC China airline buying local rival Both airlines made a loss last year China Eastern Airlines is to buy its smaller rival Shanghai Airlines, in an all-share deal set to be worth about 7bn yuan ($1bn; £637m). 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

Look at the history of M&S from 1884 to present 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 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? M&S http://corporate.marksandspencer.com/aboutus/ourhistory 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 Growth Internal 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 maintain BBC Tesco's new stores in the US Tesco is trying to break into the US, by opening six "Fresh & Easy" supermarkets in California. 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? 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 Growth Integration Merger Takeover The bringing together of two or more firms Merger When two or more firms agree to become integrated to form one firm under joint ownership An agreement Takeover When one firm gains control over another and becomes the owner, can be achieved by buying 51% of the shares Can be hostile AB A B +++ +=+ A A B +++ +=+ BUSS4.7 Internal Causes

Remember a process can be within the primary, secondary or tertiary sector – not just a production process External Growth External 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 BUSS4.7 Internal Causes

Growth through mergers and takeovers Start of process e.g. raw material VERTICAL Backward Vertical DIVERSIFICATION Unrelated business HORIZONTAL SAME STAGE IN THE PROCESS DIFFERENT STAGES IN THE PROCESS Forward Vertical BUSS4.7 Internal Causes End of process e.g. retailer

Activity – complete the diagram below based on the assumption that PJ Smoothies wants to expand through external growth Start of process e.g. raw material PJ Smoothies BUSS4.7 Internal Causes End of process e.g retailer

External Growth Watch these 2 video clips TUI merge with First Choice In each case identify the objectives of the mergers, the advantages and any potential disadvantages TUI merge with First Choice Porsche and VW to merge Identify the different reasons for and approaches to these takeovers Why might the Government intervene to disallow a takeover? BBC First Choice to merge with TUI First Choice will merge with the tourism division of Germany's TUI to form Europe's top tour operator. Carmakers Porsche and VW to merge The German luxury carmaker Porsche has announced a merger with its mass-market rival, Volkswagen, creating a European auto giant. Corus accepts takeover offer The Anglo-Dutch steel company Corus has accepted a �4.1bn takeover offer from Indian firm Tata Steel. High Court clears P&O's takeover Shipping and ports group P&O has had its �3.9bn takeover by Dubai Ports World approved by a High Court judge in London. Little Chef 'takeover talks' Roadside food retailer Little Chef is reported to be in takeover talks, less than 18 months after the business changed ownership. Corus accepts takeover bid High Court clears P&O’s takeover Little Chef “takeover” talks 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 Using some of the reasons given on the previous slide and your own ideas and research, print off and complete the grid below. Type of Integration Real business example Advantages Disadvantages Horizontal Forward Vertical Backward Vertical Diversification BUSS4.7 Internal Causes

How might other stakeholders be affected by 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

Why might new owners want to make changes? New owners / leaders New 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 BBC Tiscali sale: 'No cause for concern' Phone and internet customers with Tiscali are under new management in the UK. Its British business has been bought by Carphone Warehouse in a deal worth £236 million. Report: Who are Liverpool's new owners? BBC News' North America Business Correspondent Guto Harri gets background information on new Liverpool owners Tom Hicks and George Gillett. Why might new owners want to make changes? BUSS4.7 Internal Causes

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? You will learn more about the role of culture and leadership in BUSS4.9 and BUSS4.10 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? Ownership? Structure? Strategy? Processes? Success? Failure? Why might it be easier to implement change if it is in response to poor business performance? What do you think the likely outcome will be? BUSS4.7 Internal Causes Success? Failure?

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

Essay In 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? BUSS4.7 Internal Causes