Week 16 Journal

Week 16

1)      In your own words and using referenced quotes describe the difference between organic growth, merger and acquisition and strategic alliance.

2)      Give an example of a company that has grown through a) organic growth, b) merger or acquisition and c) strategic alliance.

3)      Briefly discuss the merger between Britvic and AG Barr. What advice would you give to the new board?

  

Answers

1)       

Organic Growth

Organic growth strategy refers to a company expanding its business through the use of its own resource and assets. Organic growth follows the “Do It Yourself” strategy.  Organic growth allows company to set and achieve corporate goals in which ever manner they choose. Organic growth strategies are built on four main pillars. They are revenue, headcount, PR and quality. 

Many well known, public company uses organic growth strategies. Some of them are Best Buy, Outback Steak House and Tiffany and Company.

The main advantages of organic growth are

·         Knowledge and learning can be enhanced.

·         Spreading investment over time.

·         No availability constraints.

·         Strategic independence.

Merger and Acquisition

Merger and Acquisition is an aspect of corporate strategy, and management dealing with       the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector. Merger and Acquisitions follow the “Buying Strategy”.

 The best example of merger is Compaq merging with Hp and acquisition is SPSS acquisition by IBM.

The companies to follow this strategy are driven by three strategic motives. They are;

·         Financial motive (financial efficiency, tax efficiency and assets stripping or unbundling )

·         Managerial motive (Personal ambition, Bandwagon effects)

·         Strategic motive (extension, consolidation and capabilities)

Strategic Alliance

An agreement between two companies that have decided to share resources to undertake a specific strategy for the mutual benefits is known as strategic alliance. Strategic alliance lies between merger and acquisition (M&A) and organic growth.

There are two main kinds of ownership in strategic alliance, equity and non equity alliance. Equity alliances involve the creation of a new entity that is owned separately by the partners involved. Example, Nokia and Microsoft. Non-equity alliances are typically looser, without the commitment implied by ownership.  Example, Renault is a strategic investor in Nissan.

             Motives for Strategic alliances:

·         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. 

 The differences between organic growth, merger and acquisition and strategic alliance are:

1)      Organic growth strategy makes the internal development of organization very slow. Development of capabilities might be outdated because of lack of experience and marketing skills.

Where as in alliance, the development process is better than organic growth, on the contrary, acquisition is the quickest method of strategy development.

2)      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.

3)      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.

Answer

2)       

Organic Growth

The company that has growth through the organic growth is Bibby Line Group. Bibby Line Group is characterized by organic growth. Starting with seven ships at the beginning of the nineteenth century, the company expanded over the next 20 years to acquire another 18 vessels. Initially it focused on routes to Mediterranean ports, before expanding to support trade with India, China and, later still, South America. Its ships carried many different cargoes, including cotton, sugar, animal hides and many other commodities.

Strategic Alliance

The company that has growth through the strategic alliance is Nokia and Microsoft, Nokia and Microsoft on 11^th 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 developer’s 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.

Merger and Acquisition

The company that has growth through M&A is Disney and Pixar merging for DisneyPixar.

                                                                                                             

3)       

After merging the two companies AG Barr and Britvic, the new company named Barr Britvic Soft drinks PLC is founded. Now, 63% of shares are owned by Britvic shareholders and 37 % of shares are owned by AG Barr shareholders.

The merger strategies have brings many positive aspects to the company and some of them are:

·         The cost reduction is very effective especially in difficult or strong markets because AG Barr is strong in certain market which now will help for Britvic to go in that market and vice versa.

·         The newly combine company will be benefited from the economy of the scale.

·         With the combination, there will be better chance for the company to compete with Coke by entering in some new market and thus gaining market shares.

·         Loyal customers of both the company will be buying the products of the newly merged company. There is a high chance of shift from some other brand to the company’s brand.

             The potential risk of merger between Britvic and Barr are:

·          The customer dissatisfaction for one product has negative impact on 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.

·         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.

Advice and suggestion to the new board:

·         There should be equal support and coordination among the staffs and board members for the new brand.

·         The flow of communication must be effective and the whole company should have common vision and strategy.

·         The investment should be increase in order to gain the quick market share and unnecessary expenses should be cutoff.

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

·         Online available from http://executiveeducation.wharton.upenn.edu/ . [Accessed March 21, 2013]

·         Online available from http://www.business-sale.com/expanding-your-business-through-m-and-a.html  [Accessed March 21, 2013]

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