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?
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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
Look at the
history of M&S
from 1884 to
present
◦ 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

How has it changed?
What were the key internal
and external factors
contributing towards the
changes?
Gain competitive advantage
◦ Economies of scale
◦ Market development
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

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:
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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
◦ 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
+
+
AB
A
B
+
=
◦ 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
+
=
A
A
B
+
+
BUSS4.7 Internal Causes
External Growth

Remember a process can be
within the primary, secondary
or tertiary sector – not just a
production process
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
End of process e.g. retailer
BUSS4.7 Internal Causes
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
End of process e.g retailer
BUSS4.7 Internal Causes
External Growth
TUI merge with First
Choice
Porsche and VW to merge
Corus accepts takeover bid
High Court clears P&O’s
takeover
Little Chef “takeover” talks
Watch these 2 video clips
In each case identify the
objectives of the mergers,
the advantages and any
potential disadvantages
Identify the different
reasons for and
approaches to these
takeovers
Why might the
Government intervene
to disallow a takeover?
BUSS4.7 Internal Causes
Reasons for External Growth

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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
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
How might other
stakeholders be affected by
retrenchment?
 Orders
◦ Community
 Jobs
BUSS4.7 Internal Causes
New owners / leaders

New owners or leaders may be the result
of
◦
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
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 / leaders

Why might new owners or leaders want
to make changes?
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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
Poor Business Performance
Do nothing?
Make Changes?
What do you think the likely
outcome will be?
Success?
Ownership?
Structure?
Strategy?
Processes?
Failure?
Why might it be easier to
implement change if it is in
response to poor business
performance?
BUSS4.7 Internal Causes
What changes can be made?
What do you think the likely
outcome will be?
Success?
Failure?
Activity – Know your terminology

Work out what each
term should be and
then write a clue to
help others solve the
anagrams
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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