1.
In your own
words and using referenced quotes describe the difference between organic
growth, merger & acquisition and strategic alliance.
Organic growth:
Organic growth is sometimes known as ‘organic development’.
It has been considered as the main and primary method of strategy development.
It is a strategy where an organization builds its own capabilities. This is a
strategy of “Do it yourself”.
For example, the products which are highly technical in
method of manufacture or design can be considered as organic growth.The best example can be the Amazon’s development of Kindle
using its own in house development.
It will enable to enhance knowledge and skills within the
organization’s business units. Also investments are spread over a period of
time to make financing more easily.
Merger and Acquisition:
Merger simply means the combination of two previously
organizations.
When strategies are developed after taking the ownership of
another organization, the strategy is called acquisition.
In the major scale, mergers and acquisitions take place. In
1990s UK saw a wave of mergers in service organizations such as accountancy
firms, law firms, financial services and property services. Likewise acquisition has also been an
important aspect in some industries like food and drink, newspaper and media,
banks and telecommunication industry. Merger of Compact and HP. SPSS
acquisition by IBM.
Followings are the motives for mergers and acquisition:
There are different kinds of motives for mergers and
acquisition. They can be grouped under three categories of environment,
strategic capability and strategic position of the company. An organization
needs to move with a changing environment with:
One of the best reasons for the development of acquisition is
speed, which permit the organization to come into the new product and market.
In some industry the product and market are changing so rapidly that the acquisition becomes the only one way out from
the problem.
Another factor that influences an organization to choose is
competitive situation. For a new company to enter into a new market can be
risky where market is steady. However,
if the new company enters into a new market with acquisition, the risk of
competition is lowered.
Further, deregulation is also a major determinant for mergers
and acquisition. It can happen in telecommunication industry, electricity and
other types of public services. The main
reason behind this was that the regulation created a level of disintegration
that was regarded as the sub-optimal.
Financial motives for acquisition are also there. If share
value of a bank is high then, it may be motivated to acquire a bank having low
share value. In addition, the most common financial motives for acquisition is
cost efficiency by which scale advantage can be achieved. Another motive for
acquisition can be experience or learning. For instance, a well established
company has a long term experience or expertise which would be difficult to
imitate quickly by the internal development or organic development.
Acquisition can also be made with the expectation of
stakeholders. Shareholders expect to see a continuous growth and acquisition
can be a tool to achieve a quick growth. Also, acquisition might be attractive
for senior managers who are willing to have better career path and rewards.
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| Sources: http://www.photo-dictionary.com/phrase/10665/acquisition.html |
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| Sources: http://www.lotusmuseum.com/pages/IBM_Acquisition |
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| Sources: http://www.business-sale.com/blog/tag/post-acquisition |
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| Sources: http://www.1-focus.com/e/mergers.php |
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| Sources: http://www.differencebetween.co.in/finance/difference-between-merger-and-acquisition/ |
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| Sources: http://flondon8.blogspot.com/ |
Strategic Alliance:
When two or more organizations share resources and activities
to pursue a strategy then the strategy is called strategic alliance. Strategic
alliance is becoming popular days by day. As we know, organizations cannot
always cope with the complex environment in this globalization period.
Following are the motives for strategic alliance:
The need for critical mass is the major motives for strategic
alliance. It can be achieved by forming partnerships either with the
competitors or suppliers of the raw materials. This may drive towards cost
reduction, sharing risks and improved customer offering.
Co-specialization allows each partner to work and activities
that best suit their capabilities. For instance, alliance is widely used when
an organization enters into a new market with different geographical
characteristics. Now, the company needs local knowledge and knowledge about
distribution, marketing, advertising and customer support.
A
complementary alliance is another motive for strategic alliances. It brings together
matching strengths to counteract the other partner’s weaknesses.
Sources: http://www3.alcatel-lucent.com/partners/hp/alliance.html
Sources: http://www.engadget.com/2011/02/11/nokia-and-microsoft-enter-strategic-alliance-on-windows-phone-b/
Sources: http://www.seedboxlist.com/2011/02/13/
 | |||||
| Figure. Strategic allaiance of hp and Alcatel-Lucent |
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| Figure: Strategic Alliance of Nokia and Microsoft |
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| Figure: Strategic Alliance of Nokia and Microsoft |
The main differences between organic growth, merger &
acquisition and strategic alliance are as follows:
Urgency: The internal development of organizations might be
very slow. Due to lack of experience, expertise marketing skills it may take a
long time and the development of capabilities might be outdated. For example,
if a newly launched product wants to manufacture raw materials using its
capabilities, it may not be relevant.
Alliance can little bit accelerate the process. We must
remember in alliance two or more organization cooperates with each other to
pursue new industry.
On the contrary, acquisition is the quickest method of
strategy development.
Uncertainty:
In alliance failure does not indicate the full cost is loss
as alliance is risk sharing. On the other hand, failure of organic growth and
acquisition may incur a huge loss.
Types of capabilities:
Organic growth best work with soft resources rather than hard
resources. There will be a cultural consistency because the capabilities are
developed with an organization. Acquisition best work with hard resources and
cultural and valuation problems may arise. Strategic alliance may face
difficulties like culture and control problems.
Modularity of capabilities:
Organic growth will be the best strategy if an organization
is willing to develop in new venture units. Strategic alliance will be best if
the organization has the ability to alliance with relevant partner unit. But in
acquisition organization might feel difficulties in buying the whole
organization.
2. Give an example of a company that has grown through a) organic growth, b) merger or acquisition and c) strategic alliance.
Organization that has grown through Organic Growth:
Poundland (discount retailer):
Poundland is a UK based variety store which sells
every item in its stores for £1. This company was established in 2000 and it
has grown tremendously due to its perfect and comprehensible focus on a
constantly rotating product range sold at £1. After ten years, it was sold to a
US based capital venture at £200 million, where its annual profit was £400
million. The strategy of organic growth was simple. It opened new stores in
suitable places and again repeating the same magic by offering heavy discounts
on products primarily
to the female customer base.
Revenues
in the Year to March: 2010: £510m (320 stores) 2009: £396m
2008: £330m 2007: £310m 2006: £281m 2005: £240m
2004: £196m 2003: £193m (75 UK stores.
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| Figure: Products of Poundland |
 | |
| Figure: Poundland Store |
Source: http://thehenrybrothers.wordpress.com/2012/01/18/pound-land-a-poem/
Organization that has grown through Merger or
acquisition:
Merger:
Disney-Pixar
It was the most successful merger.
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| Sources: http://chriswoodhead.blogspot.com/2012/03/mergers-and-acquisitions-is-bigger.html |
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| Sources: http://wayfaringmouse.blogspot.com/2012_01_01_archive.html |
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| Sources: http://www.ebay.com/itm/Square-Enix-Disney-Pixar-Formation-Arts-Figure-Part-1-/220766526063 |
Acquisition:
US Airway
was acquired by America West. Now they are
called US Airways.
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| Source: http://articles.philly.com/2013-02-17/business/37145999_1_frequent-flier-programs-american-airlines-american-frequent-fliers |
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| Sources: http://www.sfgate.com/business/article/US-Airways-America-West-agree-to-merge-1-5-2669393.php |
Organization that has grown through Strategic Alliance:
Nokia and Microsoft
Nokia and Microsoft on 11th February, 2011 announced plans to form a broad strategic partnership that would use their complementary strengths and expertise to create a new global mobile ecosystem. Nokia and Microsoft intend to jointly create market-leading mobile products and services designed to offer consumers, operators and developers unrivaled choice and opportunity. As each company would focus on its core competencies, the partnership would create the opportunity for rapid time to market execution. Additionally, Nokia and Microsoft plan to work together to integrate key assets and create completely new service offerings, while extending established products and services to new markets.
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| Figure: Strategic Alliance of Nokia and Microsoft |
3. Briefly discuss the merger between Britvic and AG Barr. What advice would you give to the new Board?
Before the merger AG Barr was the maker of Irn Bru and Britvic was the producer of Tango. After the merger the new combined company is named as Barr Britvic Soft Drinks plc and its estimated annual sales is more than £1.5 billion. After the merger, Britvic shareholders own 63% shares and AG Barr shareholders own 37% shares.
References:
Johnson, Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson Education, Chapter 6
Johnson, Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson Education, Chapter 10
https://www.microsoft.com/en-us/news/press/2011/feb11/02-11partnership.aspx
Before the merger AG Barr was the maker of Irn Bru and Britvic was the producer of Tango. After the merger the new combined company is named as Barr Britvic Soft Drinks plc and its estimated annual sales is more than £1.5 billion. After the merger, Britvic shareholders own 63% shares and AG Barr shareholders own 37% shares.
Followings are the positives and benefits of merger between AG Bar
and Britvic:
They will get a chance to cut their cost in difficult markets. Where AG Barr is strong in certain market, then it will be easier for Britvic to go in that market and vice-versa.
The newly combined company will be benefited from scale production.
Loyal customers of both the company will be buying the products of the newly merged company. There is a high chance of shift from another brand to the company’s brand.
Britvic is a bottler for Pepsi by which Barr will be also be in relation with Pepsi. It will help to increase their sales. Also Barr will be able to sell their products to the customers of Britvic.
Barr will get extra benefit as the main vision of merger is to get benefit. For instance, it owns 37% of the share of the combined company and will contribute to only 16% sales by which it will have a return of 23%.
Britvic will also be benefitted from the Barr. Barr makes an operating profit of 14%, where Britvic makes only 9%. Although Britvic’s half of the turnover comes from low margin bottling, Barr will help Britvic to narrow the gap.
The company will also get huge cash flow which can be used to cover the debt of Britvic which is around £600 million. Britvic can take advantage to cover its debt because Barr is almost debt free.
With the combination they will better get a chance to compete with coke by gaining some market shares.
They will get a chance to cut their cost in difficult markets. Where AG Barr is strong in certain market, then it will be easier for Britvic to go in that market and vice-versa.
The newly combined company will be benefited from scale production.
Loyal customers of both the company will be buying the products of the newly merged company. There is a high chance of shift from another brand to the company’s brand.
Britvic is a bottler for Pepsi by which Barr will be also be in relation with Pepsi. It will help to increase their sales. Also Barr will be able to sell their products to the customers of Britvic.
Barr will get extra benefit as the main vision of merger is to get benefit. For instance, it owns 37% of the share of the combined company and will contribute to only 16% sales by which it will have a return of 23%.
Britvic will also be benefitted from the Barr. Barr makes an operating profit of 14%, where Britvic makes only 9%. Although Britvic’s half of the turnover comes from low margin bottling, Barr will help Britvic to narrow the gap.
The company will also get huge cash flow which can be used to cover the debt of Britvic which is around £600 million. Britvic can take advantage to cover its debt because Barr is almost debt free.
With the combination they will better get a chance to compete with coke by gaining some market shares.
Following are the negatives and potential risks of merger between Britvic and Barr:
When merger takes place there is high chance to lay off their staffs. Here, Britvic will lay off their 500 staffs.
By, doing so the employees remained in the company will feel unsecured and will not be motivated towards working.
Britvic owns 63% share and Barr owns only 37% share, however Barr seems to gain more benefit. Here, Barr contributes to 16% of the total sales and will get 23% revenue which might be disadvantageous to Britvic.
Barr getting in relationship with Pepsi does not mean that it will get benefited. It is very hard to shift customers from one brand to another brand.
Although Barr will get a chance to sell their drinks to the Britvic’s customers but it might be very difficult in the case of French drinkers.
One of the most negative things is that Britvic has a net debt of £600 million whereas Barr is almost debt free. It may hamper the economic condition of the newly combined company. Also, if the debt of Britvic increases, the profit of Barr will be lowered.
If Britvic fails or go for bankruptcy, Barr too will be bankrupt. So, special consideration should be given.
Customer dissatisfaction for one product may hamper another product. For instance, if a loyal customer of Barr has a bad experience with the service or products of Britvic, then the customer may shift from Barr to other brand as Barr and Britvic are combined. Hence, there is a high chance of customers shifting to another brand because of their customers’ dissatisfaction.
Britvic’s half of the turnover comes from a low margin bottling hence, merger with Barr may not have helped Britvic to resolve their problems.
As market of soft drinks in UK is growing by less than 2%, merger between these two companies may not help to increase their market share significantly.
Although they owns decent brand but it might not be possible to compete with number one brand Coke.
When merger takes place there is high chance to lay off their staffs. Here, Britvic will lay off their 500 staffs.
By, doing so the employees remained in the company will feel unsecured and will not be motivated towards working.
Britvic owns 63% share and Barr owns only 37% share, however Barr seems to gain more benefit. Here, Barr contributes to 16% of the total sales and will get 23% revenue which might be disadvantageous to Britvic.
Barr getting in relationship with Pepsi does not mean that it will get benefited. It is very hard to shift customers from one brand to another brand.
Although Barr will get a chance to sell their drinks to the Britvic’s customers but it might be very difficult in the case of French drinkers.
One of the most negative things is that Britvic has a net debt of £600 million whereas Barr is almost debt free. It may hamper the economic condition of the newly combined company. Also, if the debt of Britvic increases, the profit of Barr will be lowered.
If Britvic fails or go for bankruptcy, Barr too will be bankrupt. So, special consideration should be given.
Customer dissatisfaction for one product may hamper another product. For instance, if a loyal customer of Barr has a bad experience with the service or products of Britvic, then the customer may shift from Barr to other brand as Barr and Britvic are combined. Hence, there is a high chance of customers shifting to another brand because of their customers’ dissatisfaction.
Britvic’s half of the turnover comes from a low margin bottling hence, merger with Barr may not have helped Britvic to resolve their problems.
As market of soft drinks in UK is growing by less than 2%, merger between these two companies may not help to increase their market share significantly.
Although they owns decent brand but it might not be possible to compete with number one brand Coke.
Advices and suggestion for newly merged company:
·
The newly formed company should support
each other brands.
·
They need to maintain an effective
communication.
·
Also the newly merged company’s senior leaders
can lead the effort.
· The newly formed company may research its
audiences. For instance, asking the audience what they want and how they wish
to be connected with the company.
·
Training and supporting staffs and
providing facilities, bonus and rewards.
·
Also if they need to hire people they
need to hire most competitive people in their company.
·
The company should have the same vision and
mission.
·
They should support each other in the
marketing to gain more customers.
·
Shareholders of Britvic are little bit
confused. So, management team must solve their problems.
·
They need to invest more capital so that
it can go for large scale.
·
They need to develop strategies by which
they can compete with Coke.
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| Sources: http://animal-chin.tumblr.com/post/6702845790/the-ingredients-in-irn-bru-are-a-secret-and-the |
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| Sources: http://www.echoarena.com/news/britvic.asp |
References:
Johnson, Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson Education, Chapter 6
Johnson, Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson Education, Chapter 10
P.
Gaughan, Mergers, Acquisitions and Corporate Restructurings, 4th
edition, Wiley, 2007.
G.
Johnson and K. Scholes (eds), Exploring Techniques of Analysis and
Evaluation in Strategic Management, Prentice Hall, 1998.
J.F.
Mognetti, Organic Growth: Cost-Effective Business Expansion from Within,
Wiley, 2002.
P.
Gaughan, Mergers, Acquisitions and Corporate Restructurings, 4th
edition, Wiley, 2007.
R.
Schoenberg, ‘Mergers and acquisitions: motives, value creation and
implementation’, The Oxford Handbook of Corporate Strategy,
Oxford University Press, 2003, chapter 21.
G.
Muller-Stewens, ‘Catching the right wave’, European Business Forum,
issue 4, Winter (2000), pp. 6–7.
D.
Carey, ‘Making mergers succeed’, Harvard Business Review, vol. 78, no. 3
(2000), pp. 145–154. B. Savill and P. Wright, ‘Success factors in acquisitions’,
European Business Forum, issue 4, Winter (2000), pp. 29–33
J.
Bower, ‘Not all M&As are alike’, Harvard Business Review, vol. 79,
no. 3 (2001), pp. 93–101.
Y.
Doz and G. Hamel, Alliance Advantage: The art of creating value through
partnering, Harvard Business School Press, 1998
Y.
Doz, D. Faulkner and M. de Rond, Co-operative Strategies: Economic, Business
and Organizational Issues, Oxford University Press, 2001. J. Dyer, P.
Kale and H. Singh, ‘How to make strategic alliances work’, Sloan Management
Review, vol. 42, no. 4 (2001), pp. 37–43.
https://www.microsoft.com/en-us/news/press/2011/feb11/02-11partnership.aspx
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