1. The Business Organisation - PowerPoint Presentation

Slide1

1. The Business Organisation

1.1 Expanding a Business

1.1 Expanding a Business

What do all these businesses have in common?

Cadbury The Cooperative O2 Santander Telefonica

Land Rover Abbey National Kraft Tata Somerfield

Can you match them into pairs? Slide2

Revisiting unit 1

In unit 1 you looked at new businesses that were just starting up, now you are moving on to look at established businesses as they grow in size.

What were the business objectives as new firms?

Why might a business set an objective of growth?

1.1 Expanding a Business

What businesses can you think of that are growing at the moment?Slide3

1.1 Expanding a Business

In this topic you will learn about:

Methods of expansion

Conflict between stakeholders

1.1 Expanding a BusinessSlide4

Benefits to a business of expanding

Increase sales

Increase profit

Higher market share

Lower average costs

Improved reputation

More employees

1.1 Expanding a Business

In pairs discuss each benefit and then add a sentence to explain each benefitSlide5

Risks to a business of expanding

Actions of competitors

Difficult to manage

Failure

Increase work load

Fall in quality

1.1 Expanding a Business

In pairs discuss each risk and then add a sentence to explain each riskSlide6

Team work

The local council has announced that a new housing estate will be built on land near to your school. It has given planning permission for 1000 new 3 and 4 bedroom homes.

This could have a big impact on the number of students applying for places at your school and the council has proposed that the school expands in size in order to accommodate this.

What are the benefits and risks of the school expanding?

Overall do you think this is good or bad for the school? Justify your answer.

1.1 Expanding a BusinessSlide7

Methods of Expansion

There are 2 main ways in which a business can expand:

Internal growth, also known as organicOpening new outletsFranchisesExternal growth, also known as inorganic

Mergers

Takeovers

1.1 Expanding a BusinessSlide8

Organic Growth

This is growth from within the business, it can be achieved by:

Opening new storesIncreasing product rangeMoving into new markets

Internet sales

1.1 Expanding a Business

What has Tesco done to achieve organic growth?Slide9

Organic Growth

Easy to manage due to familiarity

Often slow but steadyCan be financed from retained profit

Relatively low risk

Rate of growth and opportunities can be limited

1.1 Expanding a BusinessSlide10

2 Minute

Test - Revisiting unit 1

What is a franchise?What is the difference between a franchisee and franchisor?Name 3 franchises

State two benefits of setting up a franchise

State two disadvantages of setting up a franchise

EndSlide11

What or who am I?

Opened my 1

st store in Conneticut, USA, in 1965 by 17 year old Fred

DeLuca

In 1996 opened my 1

st

store in the UK, in Brighton

In 2002 I opened my 100

th

store in the UK and Ireland

In 2003 my 200

th

, 2005 my 500

th

and by 2007 my 1000

th

By 2006 I had more stores in the UK and Ireland

than

BK, KFC and Pizza Hut and by 2008 more than McDonalds

In 2009 I was voted as the No.1 franchise opportunity by Enterprise Magazine

I now have over 32000 outlets in 92 countries

I continue to grow with an average of 5 stores opened every week

1.1 Expanding a BusinessSlide12

Organic Growth by Franchise

Franchises are a popular way of achieving growth

BenefitsFranchisee provides finance to fund the growthWorkload is passed on to the franchisee

Highly motivated owners

Disadvantages

Potential loss of control/quality

Shared profits

Risk to brand image

1.1 Expanding a BusinessSlide13

UK’s No1 Franchise Opportunity

Visit the web site to find out more about franchise opportunities

Design an advert to go in a business magazine or newspaper to encourage entrepreneurs to consider this franchise opportunity

1.1 Expanding a BusinessSlide14

Organic Growth

Item A

Russ and his brother Greg run, Wheelies Ltd, a small chain of 4 tyre and exhaust centres in and around the city of Leicester. The business has built up a good reputation in the area with many loyal customers. Russ is keen to expand the business and suggests they look to open 2 new outlets one in

nearby

Loughborough and the other Coventry. Greg thinks that this will be expensive and is worried about the size of bank loan that would be needed to fund this growth. He suggests a better option would be to establish Wheelies Ltd as a

franchise

and advertise it in local papers as a franchise opportunity.

Question time

What is meant by

‘franchise

’? (2 marks)

Identify two possible reasons for Russ and Greg wanting to expand Wheelies Ltd. (2 marks)

Explain two benefits of introducing a franchise scheme to Wheelies Ltd. (5 marks)

1.1 Expanding a BusinessSlide15

External Growth

When businesses grow by integrating

(joining) with another business

This can be done via:

A Merger

The two businesses reach

an

agreement to join together and operate as one business

Tends to be of mutual benefit to both businesses

A Takeover

One business buys another business

Tends to be more hostile as the buying business is the main one to benefit

1.1 Expanding a BusinessSlide16

Mergers and Takeovers

(business integration)

Integration can take different formats depending upon whether the firms involved operate at the same or different stages of production

Horizontal Integration

Both firms operate at the same stage of the production process e.g. 2 banks

Vertical Integration

The firms operate at different stages of the production process e.g. A fashion manufacturer opens a fashion store

Diversification

The firms operate in different industries e.g. A car manufacturer integrates with a stationery retailer

1.1 Expanding a BusinessSlide17

Horizontal Integration

Operate at the same level

Gain market shareReduces the amount of competitionBigger and more powerful

Stronger negotiating power with suppliers

1.1 Expanding a BusinessSlide18

Vertical Integration

Backward Vertical

Firm is at an earlier stage in the production processSecures the supply of materials

Cuts out a middle layer

Can limit supplies to competitors

Forward Vertical

Firm is at a later stage in the production process

Secures an outlet for the products

Cuts out a middle layer

Can exclude competitors from that outlet

1.1 Expanding a Business

Backward

ForwardSlide19

Diversification

Operate within different industries

This can also be referred to as a

_ _ _ _ _ _ _ _ _ _ _ _

Helps to spread risk

What do the following brands all have in common?

Dolmio

Pedigree

Extra

Klix

1.1 Expanding a Business

Look what other brands and companies are all owned by one major UK BusinessSlide20

Disadvantages of mergers and takeovers

Takeovers can be very expensive

Difficult to control due to sizeDifferent business structures and practices to bring togetherOpposition from stakeholdersMay attract negative publicity, especially if results in job losses

Managers may lack experience

1.1 Expanding a BusinessSlide21

1.1 Expanding a Business

A manufacturer of soft drinks is considering merging with each of the following businesses, place each on the diagram below.

Aluminium Can Manufacturer Fruit Farmer Vending Machine Supplier

Confectionery Manufacturer A Competing Soft Drinks Manufacturer

Mobile Phone Retailer

Which option would you recommend? Justify your answerSlide22

External Growth

Item B

Greg has been looking at alternative ways in which he and Russ could expand Wheelies and has identified a similar sized firm, Tyres To Go, operating in the

nearby

City of Nottingham. He has suggested that the 2 garages meet to discuss the option of merging and operating as one business trading under the name, Wheelies and Tyres To Go. Russ is unsure

however,

and thinks this is a dangerous

move,

he is happy waiting to grow at a slower pace.

Question Time

What is meant by the term ‘merger’? (2 marks)

Is this an example of horizontal or vertical integration? Briefly explain your answer. (2 marks)

Explain two ways in which Wheelies could benefit from merging with Tyres To Go. (5 marks)

Recommend to Russ and Greg whether or not they should merge with Tyres To Go. Give reasons for your answer. (9 marks)

1.1 Expanding a BusinessSlide23

Revisiting unit 1 - Stakeholders

In unit 1 you looked at the impact of business actions on stakeholders. Now we want to look at how the expansion of a business impacts on stakeholders.

What is meant by the term stakeholder?

Draw a spider diagram to show who the stakeholders of a business are

Identify each stakeholder as internal or external

1.1 Expanding a BusinessSlide24

Stakeholders – Team activity

Reconsider the scenario given earlier in which the council had proposed the school expands to accommodate extra demand from a new housing estate.

Identify the stakeholders who would be affected by this decision

For each stakeholder explain how they would be affected and whether this is positive or negative

Place each stakeholder along this spectrum

1.1 Expanding a Business

Strongly in favour

Strongly againstSlide25

Stakeholders – Team activity cont.

Why might conflict exist between these stakeholders?

Identify 1 stakeholder from either side of the spectrum and explain the conflict

Choose 1 stakeholder from the strongly against side and write a letter to the local newspaper expressing their views

1.1 Expanding a Business

Strongly in favour

Strongly againstSlide26

Stakeholders

Stakeholders act in order to protect their own interests e.g.

JobsInvestment

Environment

Orders

Fair prices

However, conflict will often exist i.e. What is in the interest of one stakeholder may damage the interest of another

It may even be that one stakeholder group can see positive and negative affects of a change in business size

1.1 Expanding a BusinessSlide27

Stakeholder – Empathy Builder

A large chain of supermarkets has merged with a chain of local convenience stores (e.g.

Sainsbury’s buys Jacksons)How would you feel if you were:

Pensioner who relies on the local store for groceries

Manager at the local grocery store

Local farmer supplying to the convenience stores

Office worker who pops in at lunch times

1.1 Expanding a BusinessSlide28

Impact on stakeholders of business growth

Work in pairs to complete the table below

1.1 Expanding a Business

Stakeholder

Benefits

DrawbacksSlide29

Actions of Stakeholders

Stakeholders are likely to take actions to try and protect their interests

These actions could include:Pressure groups

Consumer groups

Trade unions

Bank negotiations

Government involvementThis might be particularly true if the business gains so much power from its size that it can exploit the customer

Media involvement

1.1 Expanding a BusinessSlide30

What words have you learnt so far?

Fat Race Division

Rat EvokeA Nattering Rhino Lit Zoo

Talked Horses

Great Monocle

1.1 Expanding a BusinessSlide31

5 Minute

Test

What is meant by organic growth?What is the difference between a merger and a takeover?What is the difference between horizontal and vertical integration?

What is meant by diversification

State 3 stakeholders

State 1 interest for each of these stakeholders

End