How Firms Respond to Potential and Actual Changes
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Transcript of How Firms Respond to Potential and Actual Changes
How Firms Respond to Potential and Actual Changes
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Response to ChangeBusiness success depends on
how firms respond to potential and actual change
Responses to change will vary from short term actions to major changes in long term plans
Short term changes are known as tactical response
Long term changes are known as strategic
This section looks at strategic responses to change
Strategy is long termTactics are short termPutting Beckham on the pitch may be tacticalGetting a new goal keeper for the team would be strategic
Marketing Strategy Product Portfolio The response to change could be to
add to the portfolio or reduce it In times of recession a firm may
change an existing product to a lower cost version
Political change may bring the opportunity to break into a new market which could mean additions to the portfolio
India has just started to let foreign owned retail companies operate in India.
In 2008 they were not allowed however those businesses that were smart were making plans
India has let these businesses in but it decided to stop them buying existing Indian businesses so supermarkets will have to change plans and build their own stores and warehouses which will delay entry into the market
Marketing – Image shiftSome external
changes may need a change in corporate image
A UK company that is seeing increasing increases in global competition may decide to push the ‘Britishness’ of their brand
Examples of this are Burberry and Aston Martin
Financial Strategy Responding to changes usually requires cash Launching a new product or laying off people will need
cash How this cash is raised will depend on the current
gearing ratio (how much debt the company already has)
External change might lead to rationalisation (getting smaller)
This could mean selling fixed assets or the sale of a subsidiary company
Firms might want to protect their return on capital (ROCE)
Remember that investors like to see a good ROCE If you remove cash from the business by buying back
shares or returning cash to shareholders you can improve the return on capital without increasing profit
This reduction of the firm’s cash is quite risky You are making loans a higher proportion of capital
employed and increasing gearing Banks like Bear Stearns, Merrill Lynch and Lehman
brothers all spent billions buying back shares and all went bust in the financial meltdown in 2008!!
Stable finance for unstable times Some businesses are predictable and
stable Whether there is a boom, a slump, a
heatwave or a war people will keep spending their money at Tesco. They will keep buying brands like Ariel, Andrex, Marmite and McVitie
Others will always be affected by unstable times such as airlines, banks, restaurants etc
The only thing these businesses can do is keep liquidity high
At the moment with little confidence in the UK economy many UK businesses are hoarding cash just in case
Toyota has $10Bn of cash on its balance sheet – however deep the recession it will not be threatened with liquidation
Operations StrategyWhen change happens there are several strategies that Operations can use Update Facilities Consider a new location Subcontracting (contracting another
firm to do the work ) Nike and Gap tend to subcontract all of
their work They design and market the brand This could lead to quality problems and
issues of treating staff in an ethical way In 2007 Norfolk Turkey lost credibility
when it was found out that most of the turkeys came from eastern Europe.
Close facilities This decision can be expensive
Shutting down costs Redundancy costs
HR Strategy Really good workforce planning will
anticipate change ensuring that the firm has the right number of staff, with the right skills in the right places
This will be achieved through deciding on a long term approach to recruitment, using training and carefully shedding people
Retraining – may be able to adapt to change by retraining existing staff and keep staff very motivated
Flexibility – having staff with adaptable skills who embrace change Charles Handy (Business Management
Guru) said to keep a small permanent core of staff whose job it is to coordinate specialist contractors hired on fixed term contracts
Evaluation Sometimes it is worth not doing
anything and waiting to see what happens
In 2001 the dotcom boom drove many firms out of business as a result of their eagerness to respond rapidly to a perceived change that they had misjudged