1. In this topic you will learn about:
Managing Change Internal Causes of Change
You might merge with another organisation, but two drunks don’t make a sensible person.
Gary Hamel
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).
Can you think of a real life example of each?
BUSS4.7 Internal Causes

2. 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

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

4. 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.
Internal contraction
Delayering
Closing down unprofitable elements
External contraction
Selling off elements of the business
BUSS4.7 Internal Causes

5. 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
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

6. 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 AB A B
+++
+=+ A A B
+++
+=+
BUSS4.7 Internal Causes

7. 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. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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?

15. 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

16. 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