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42. How firms respond to potential and actual change
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Chapter 42
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6. section 6 external influences
business studies
business studies
6. external influences
a level
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charcrawford
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42. How firms respond to potential and actual change
What changes need to be addressed?
Operating in a changing environment is an inescapable reality for businesses.
Business success depends on how they respond to potential and actual changes.
Potential change = may be needed in the future
Actual change = have really happened
Short term changes = tactical responses
Long term changes = strategic change
Marketing strategy
Product porfolio
Expansion or reduction?
Expecting economic downturn: sell low-cost version. Political change: chance to break into a new market
External changes may make existing products poor sellers
Image shift
External changes may prompt shift in corporation image.
UK company suffering from global competition gain competitive adv. by pushing 'Britishness' of brand.
Financial strategy
Sources of finance
Changes requires cash!
i.e new product or laying off staff
Increased interest rates = borrowing expensive Booming stock market = expected dividend payments
Analysis gearing ratio before deciding appropriate source of finance
Returning cash to shareholders
external change -> rationalisation (sale of fixed assets). Firms may buy back shares or return cash to shareholders.
Without increasing operating profit, ROCE will be boosted
Operations strategy
Update facilities
Boost efficiency, gains competitive edge/ keeps up with competitors
New location?
changes -> increased demand -> construction of new facilties
Increase capacity
Take too long? - Firm can subcontract
Subcontracting
Quick to increase overall capacity. Offers greater flexibility.
However, poor treatment of workers? Lose control of operations? Quality control problems?
Close facilities
Falling demand long term -> permanent closure. (Relocation to different country)
Expensive (redundancies)
However, will allow firm to reduce fixed costs
HR strategy
Right number of staff, right skills, right place?
Flexibility
Create a staff with adaptable skills and keen to embrace change
Or, small permanent ('core') staff who coordinate specialist contractors hired on fixed-term contracts
Retraining
Maintain flexibility, high levels of motivation (staff feel valued)
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