42. How firms respond to potential and actual change

42. How firms respond to potential and actual change

1. 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

2. 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.

3. 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

4. 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

5. 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)