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MODULE 4

CHANGES

A. Reading

The main reasons a business fails are resistance to change and or fear of failure.

Owners are accustomed of running their business in a particular way and see no reason to

change. Also, there is a fear that if they make changes in the way they manage their store,

they may fail. Change is considered a bad gamble and status quo is the safe route. It is the

status quo that often results in the business failing. The best companies/owners embrace

their mistakes and learn from them. Retailers must be ready and able to make all the

changes needed to keep their store competitive. They must forget about failure. Failure will

happen if you do not make the changes needed to improve your business. If you wait too

long, it will be too late to revive your business.

When your business reaches a new stage in its development, you may need to change

the way it is organized. For example, as you come to the end of the start-up phase and focus

on developing the business, you may need to create a formal structure so that the business

is better positioned to achieve its objectives. In a start-up, staff numbers tend to be limited so

employees take on multiple roles. As the business and workload grow, it makes sense for

employees to focus on what they do best. Many entrepreneurs choose to bring aboard

professional finance and sales and marketing personnel, for example.

Introducing a solid organizational structure will help you stay in the driving seat while

your business expands. Common ways to expand your business include making a strategic

acquisition or merging with another business. An acquisition is when you buy another

business and end up controlling it. A merger is when you integrate your business with

another and share control of the combined businesses with the other owner(s). There are

many good reasons for growing your business through an acquisition or merger. These

include:

Obtaining quality staff or additional skills, knowledge of your industry or sector and

other business intelligence. For instance, a business with good management and

process systems will be useful to a buyer who wants to improve their own. Ideally, the

business you choose should have systems that complement your own and that will

adapt to running a larger business. Accessing funds or valuable assets for new development. Better production or

distribution facilities are often less expensive to buy than to build. Look for target


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businesses that are only marginally profitable and have large unused capacity which

can be bought at a small premium to net asset value.

Your business underperforming. For example, if you are struggling with regional or

national growth it may well be less expensive to buy an existing business than to

expand internally.

Accessing a wider customer base and increasing your market share. Your target

business may have distribution channels and systems you can use for your own

offers.

Diversification of the products, services and long-term prospects of your business. A

target business may be able to offer you products or services which you can sell

through your own distribution channels.

Reducing your costs and overheads through shared marketing budgets, increased

purchasing power and lower costs.

Reducing competition. Buying up new intellectual property, products or services may

be cheaper than developing themselves.

Organic growth, i.e. the existing business plan for growth, needs to be accelerated.

Businesses in the same sector or location can combine resources to reduce costs,

eliminate duplicated facilities or departments and increase revenue.

1. Answer the questions briefly.

a. What does the text talk about?

b. What is the main idea of paragraph one?

c. Mention supporting ideas of paragraph-ones main idea?

d. What does status quo bring about in a business?

e. Why must the business change the way it is organized when it reaches a new stage

of development?

f. When does the employee have to focuson what they do their best?

g. Do you think acquisition and merging strategy are the most common ways to expand

a business? Why? Why not?

h. What is the basic different between acquisition and merging strategy?

i. What are the advantages of acquisition and merging strategy?

j. Do you think there are disadvantages the employer can get from acquisition and

merging strategy?

2. State whether the statements below true (T) or false (F). If false, correct them.a. Reorganizing the business will put it the better position to achieve its objectives.


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b. Revenue can be increased by accelerating business, reducing cost, and eliminating

similar departments.

c. Building better production or distribution facilities is often as expensive as to buy than

the new ones.

d. It is very necessary to have a business equipped with systems that complement its

own and that will adapt to running a larger scale.

e. If the management is struggling with regional or national growth it may well be less

expensive to buy an existing business than to expand internally.

f. Success and failure will happen if the employers do not make any changes needed to

improve their business.

g. Status quo is the safest route to develop and expand the business.

h. It is inevitable to assess the companys funds and assets before implementing the

development plan.

i. Diversified products, services and long-term prospects of a business can be sold

through other business distribution channels.

j. It is believed that if the managements make changes in the way they manage their

business, they may fail.

3. Match the parts of sentences in column A with the other parts in column B.

Column A Column B1. If you are contemplating a merger

or acquisition,2. You will need to review salaries

and contracts and make sure3. If you wait until your business'

position is threatened4. Proactive change -when

management foresees a changein the market or economy that willaffect the business

5. Analyzing your strengths andweaknesses can help

6. Internal business needs mayinclude the need

7. It is a good idea to work out adetailed costing of the changeprogram,

8. You may need to modify yourproposals, policies andprocedures to take into account

9. Make sure that you are not

changing the business just for thesake of it, and understand10. If you are considering a merger or

acquisition,

a. everyone is remunerated andtreated fairly.

b. the people factor becomes hugelyimportant

c. it may result in defensive andineffective management.

d. to raise additional capital orthe necessity of addressingoutdated and inefficient workingpractices and processes.

e. changing circumstances in thebusiness and in the market place.

f. and makes changes in order tobetter its position- is much moreeffective.

g. so that there aren't any unforeseenexpenses that derail or halt thereorganization.

h. why you are reorganizing thebusiness and have a rationalanalysis of the situation.

i. you should assess your targetbusiness and talk to those whoregularly interact with it.


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j. you identify potential changes.B. Structure

1. Fill in the blank with the appropriate modals (will, must, can, should, would).

For example:An existing strong brand name ___ be used as a vehicle for new or modified

products.

An existing strong brand name can be used as a vehicle for new or modified

products.

a. The service you provide your customers ______ be free to them, but you pay

for it.

b. For example, if you provide free parking, you ______ pay for your own parking

lot or pick up your part of the cost of a lot you share with other retailers.

c. Make a list of the services that your competitors offer and estimate the cost of

each service. How many of these services ______ you have to provide just to be

competitive?

d. Are there other services that ______ attract customers but that competitors

are not offering?

e. If so, what are your estimates of the cost of such services? Now you ______

list all the services you plan to offer and the estimated costs.

f. Total this expense and figure out how you ______ include those added costs

in your prices without pricing your merchandise out of the market.

g. Buying anything for the best price ______ be a matter of skilful negotiation.

h. But if you are considering an acquisition, you ______ apply one of the

following methods of valuing the target business.

i. Even if you are not buying the business and are considering a merger, you

______ also be aware of how much the other business is worth.j. Once you have a location in mind, begin work on your next area of marketing.

How ______ you attract customers to your store?

2. Fill in the blank with the right word form from bracket.

For example:

Sometimes the services are ______ (combine)into vacation packages that include

transfer to the location and lodging.

Sometimes the services are combinedinto vacation packages that include

transfer to the location and lodging.


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a. A budget helps you to see the dollar amount of your ______(expect) revenue and

expenses each month. Then from month to month the question is: Will sales bring in

enough money to pay the store's bills?

b. The owner-manager must prepare for the ______ (finance) peaks and valleys of the

business cycle.

c. Cash forecast is a ______ (manage) tool that can eliminate much of the anxiety that

can plague you if your sales go through lean months.

d. Is ______ (add) money needed? Suppose at this point that your business needs

more money than can be generated by present sales.

e. What do you do? If your business has great ______ (potency) or is in good financial

condition, as shown by its bank balance sheet, you will borrow money (from a bank

most likely) to keep the business operating during start-up and slow sales periods.

f. The loan can be repaid during the fat sales months when sales are ______ (great)

than expenses.

g. Adequate working capital is needed for ______ (succeed) and survival: but cash on

hand (or the lack of it) is not necessarily an indication that the business is in bad

financial shape.

h. A ______ (lend) will look at your balance sheet to see the business' Net Worth of

which cash and cash flow are only a part.

i. The sample balance sheet ______ (state) format shows a business' Net Worth

(financial position) at a given point in time, say as of the close of business at the end

of the month or at the end of the year.

j. Even if you do not need to borrow money, you may want to show your plan and

balance sheet to your ______ (bank).

k. It is never too early to build good ______ (relate) and credibility (trust) with your

banker.

l. Let your banker know that you are a manager who knows where you want to go

rather than someone who ______ (mere) hopes to succeed.

C. Vocabulary

Fill the blank with the words available in the box

Consider advertising last, after you have determined your image, price range, and

customer services. Only then are you ready to _______ prospective customers why they

should shop in _______ store. When advertising dollars are limited, it is _______ that your

advertising be on target. Before _______can consider how much money you can _______

for advertising, take time to determine your _______ goals. What are the strong points of


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your _______? What makes your store different from your _______? What facts about your

store and its _______ should tell prospective customers?

When you have _______these questions, you are ready to think _______the form and

potential cost of your advertising. _______ the local media (newspapers, radio and

television, and direct mail pieces) for information about the _______and results they offer for

your money. _______ you spend advertising money is your decision, _______don't fall into

the trap that snares _______advertisers who have little or no _______ with advertising copy

and media selection. Advertising is a _______. Don't spend a lot of money on advertising

_______ getting professional advice on what kind _______how much advertising your store

needs.

When you _______ a figure on what your advertising for the _______ twelve months

will cost, check it _______ what similar stores spend. Advertising expense is one of the

_______ ratios (expenses as a percentage of sales) that trade associations and other

organizations _______. If your estimated cost for advertising is _______ higher than this

average for your line of _______, take a second look. No single expense item _______ get

out of line if you want to make a _______. Your task in determining how much to spend for

advertising _______ down to the question, "How much can I afford to spend and still do the

job that needs to be done?"

Paragraph Words

1advertising merchandise tell vital you your afford storecompetitors

2answered experience services but many profession about askwithout and

3operating gather merchandise should profit comes substantiallyhave next against

D. Speaking

Read the following passage to get the idea of Relocation, and present orally in front of the

class what you have understood. Be prepared to answer questions from your friend.

If your business is growing rapidly, you may decide to move premises to accommodate

extra staff. Or you may want to reduce costs by moving to a location that is cheaper

or nearer to customers, labor or transport links. Relocation is stressful, so make sure that

new premises have quantifiable advantages over the old ones to justify this upheaval.

Potentially, the most damaging effect of relocation can be the ability to retain staff.

Develop a relocation support package for employees who are moving with you and consider

further financial incentives to retain key staff. Check out the quality, availability and costs of

labor in the new area. Consider and consult with suppliers and customers - if your current


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suppliers face problems delivering to your new location then you'll need to find new ones, for

example.

Thorough research, proper planningand effective execution are essential to ensuring

relocation is as smooth as possible. It is a good idea to set up a small team of employees

who have the authority and management backing to take decisions. You could also hire a

relocation agent if you feel you don't have the relevant skills in-house.

1. Do you agree with the idea that passage convey?

2. Say your opinion changes that are needed by your company.

3. Discuss with your friend how to develop your kitchen-set company.

E. Writing

1. Read the story of Mr. Jet carefully to get the idea and the similar story.

Mr. Jet on the East Coast maintained a dock and sold and rented boats. He thought he

was in the marina business. But when he got into financial trouble and asked for outside

help, he learned that he was not necessarily in the marina business. He was in several

businesses. He was in the restaurant business with a dockside cafe, serving meals to

boating parties. He was in the real estate business, buying and selling lots. He was in the

boat repair business, buying parts and hiring a mechanic as demand arose. Mr. Jet was

trying to be too many things and couldn't decide which venture to put money into and how

much return to expect. What slim resources he had were fragmented.

Before he could make a profit on his sales and a return on his investment, Mr. Jet had

to decide what business he was really in and concentrate on it. After much study, he realized

that he should stick to the marina format, buying, selling, and servicing boats.

Decide what business you are in and write it down. Define your business. To help you

decide, think of answers to questions like:

1. What do you buy?

2. What do you sell?

3. Which of your lines of goods yields the greatest profit?

4. What do people ask for?

5. What are you trying to do better, more of or differently than your competitors?

2. Case Study: A Problem of a Hostile Takeover

Working in groups, read the following case study. Discuss the problem, answer the

questions, and write a brief report on how your group would solve the problem. (Choose one

member of the group to do the writing.) Follow the format in Appendix E (Case Study Report)

in writing your report.


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International Airlines, which has never recovered from the October 1987 stock market

crash, is struggling to stay alive. An IA stock selling for $28 one year ago now gets about

$14, and IA appears to be vulnerable to a hostile takeover. In fact, the employees of IA have

heard a rumor that Roland Crane, the infamous corporate raider and takeover artist, is

preparing to stage a takeover of their once highly successful company. Crane is known as a

cut-throat manipulator who treats his employees poorly and has little concern for the long-

term growth and future of his companies. However, his wealth and power are so great that

Crane usually gets whatever he goes after.

George Harris, the Chief Executive Officer (CEO) of IA, is determined to prevent the

hostile takeover from succeeding. He is willing to use almost any tactics to achieve his goal.

Harris has called an emergency meeting of the companys upper management to brainstorm

a strategy to use in overpowering Cranes bid. The word on Wall Street is that Crane will

make his move in the next ten days. Harris is leaning toward an Employee Stock Ownership

Plan (ESOP), allowing IA employees to become employee-owners. IA could borrow money

from a bank to establish an ESOP trust, which would buy shares of IA stock. Then the shares

would be released to IA employees based on each employees salary. By placing IA in an

employee stock ownership plan, IA would change from a publicly owned to an employee-

owned company, thus preventing takeovers. Now employees own about 10 percent of the

stock, and with an ESOP, Harris thinks he could boost that to 5560 percent. An ESOP

would give employees an incentive because they would be working for themselves and

taking a bigger role in running the company.

Patrick Fitzgerald, the Chief Operating Officer (COO) of IA, also has a proposal to

present at the meeting, but it is quite radical. He wants to convince the company executives

to attempt a last- minute merger with Worldwide Airlines, thus making Cranes takeover

financially unfeasible. He knows, however, that he will face a great deal of resistance,

especially from Paul Bergman, President of IA, and the senior executives. IA and WA went

through an unsuccessful merger attempt last year, and there are hard feelings on both sides

as a result. The merger failed because IA and WA executives couldnt agree on either the

restructuring of the new organization or the companys long-term objectives, but Fitzgerald

has reason to believe WA would be open to a deal.

Paul Bergman, President of IA, has rarely agreed with George Harris about anything,

and now is no exception. Bergman has his own plan to present at the meeting. He and some

other senior executives want to do a leveraged management buyout (MBO)* and buy IA

themselves. Then IA would be a privately, not publicly, held corporation, which would protect

it from any takeover attempts. Bergman knows their offer will have to be a fair oneand

above the price of IA stock on the marketperhaps even $20 a share, but he thinks its

worth it. The only problem is how to raise the cash needed to buy the company. He is


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working on this and has already contacted several major banks that have tentatively agreed

to provide financing at around 10 percent interest. Nothing has been settled, but he is

hopeful that hell have a viable solution by the time of the meeting. He heard that Harris will

push for a merger with WA, which makes him angry. IA and WA have completely divergent

long-term goals and company values. If they merge, hell take early retirement. In Bergmans

eyes, the only way for IA to stay alive is to go the MBO route.

Questions

1. How should Harris present his ESOP plan at the meeting?

2. Should Fitzgerald contact executives at WA about a merger?

3. How should Bergman present his MBO plan at the meeting?

4. Should Bergman meet with Hams before the meeting to try to convince him of a

leveraged management buyout (MBO)?

5. What other options do IA employees have?

Solution: Case Study Report

I. Define and analyze the problem.

II. Suggest possible solutions.

III. Evaluate possible solutions.

IV. Select a solution.

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