Managing change Other issues…

Recap  What is organic growth  Name me the different types of takeovers!

What is “Synergy”? The whole is greater than the sum of the individual parts

Two kinds of “synergy” Eliminate duplicated functions & services Better deals from suppliers Higher productivity & efficiency from shared assets Eliminate duplicated functions & services Better deals from suppliers Higher productivity & efficiency from shared assets Cost Savings Cross-selling to customers of both businesses Access to new distribution Brand extensions New geographic markets opened up Cross-selling to customers of both businesses Access to new distribution Brand extensions New geographic markets opened up Revenues

65% of all mergers fail to benefit shareholders  Due to poor implementation  Different cultures  Successful mergers take time to implement!

What is retrenchment? “To cut down or reduce something” “Tighten one's belt” “Use resources more carefully” “To cut down or reduce something” “Tighten one's belt” “Use resources more carefully”

 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 The downsizing of a business

What drives retrenchment?  Uncompetitive cost structure  Inadequate returns on investment  Poor competitive position  Financial distress  Market decline  Failed takeovers  Economic downturn  Change of ownership All of which indicate the need for strategic change

Methods of retrenchment  Reduced output & capacity  Freeze on recruitment & offering voluntary redundancies  Product & market withdrawals  Downsizing / rationalisation  Disposals of business units  De-mergers

Example of Retrenchment Starbucks rationalises its store portfolio in Australia – 2008 Poor competitive position there – hard to compete with existing coffee shop operators Strategic decision to focus investment on the US market

More retrenchment ITV plc disposes of website Friends Reunited (2009) for £25, some £150m less than it paid for the business Friends Reunited had a poor competitive position (v Facebook) Considered non-core by new ITV management

Another retrenchment! Burberry plc announces plans to cut operating costs by £50m p.a. Sewing factory in Rotherham closed – production transferred to another group factory Example of capacity rationalisation

Example (4) Economic downturn hits the IT services market Fujitsu makes 10% of its workforce redundant due to substantial declines in demand

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 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? You will learn more about the role of culture and leadership later

Poor business performance 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?

Future activity… or ‘cover work’! Create a ‘poster’ Use 2 A3 pages or 4 A4 sheets

Take one of these ‘current’ news issues, or one of your choice…..  Decide whether the company is following a shareholder or stakeholder strategy – explain your choice Porter’s Generic Strategy or Ansoff’s Matrix -  Using either Porter’s Generic Strategy or Ansoff’s Matrix - Decide which strategy they are following - explain your choice  Which stakeholders will be ‘most’ effective – need to look at TWO positive & TWO negative issues before making a final decision….  Identify whether there has been growth or retrenchment for this business. Explain ….?

Layout ideas…. Your news article Co name Stakeholder or shareholder Porter strategy Ansoff matrix Stakeholder effects… Type of Growth Or retrenchment

Choose your news story…  Tesco – food production…  ss/ stm ss/ stm  Cadbury’s Kraft takeover…  ss/ stm ss/ stm  ss/ stm ss/ stm  Google threatens to withdraw from China  ss/ stm ss/ stm  Man Utd raise £504m in bond issue  ss/ stm ss/ stm  BA – cutting costs & TU issues  Portsmouth FC  Blacks – effect of the recession  ss/ stm ss/ stm