Key Terms for BUSS4

Open the link below to view a host of terms you should know for BUSS4 - If there are any you don't recognise, be sure to learn them


BUSS4 Glossary

How and Why? A Guide to GOOD ANALYSIS

How & Why. These are the two important words for students preparing for BUSS4 and as they practice their essay technique.

So, why is that? And how can they be used?

The source of their importance lies in the skill of analysis…

The challenge for students is to demonstrate to the examiner that they can respond to each chosen question with a logically-argued essay. A logical answer is one in which the argument is developed through relevant points, properly explained and supported by evidence. The use of How and Why is a great way to help "properly explain" a point and make it easier to reach Good Analysis.

In our BUSS4 exam coaching days we practice the tutor2u Stepping-Stones method for developing a 

logical chain of argument. By thinking about How & Why, the Stepping Stones method becomes much easier! 

Let's look at an example of this in action by considering the recent decision by Tesco to withdraw from the US grocery retailing market. 

Tesco's decision is a good example of retrenchment. It has decided to cut its losses in the US in order to focus the business on better investment opportunities. The result for Tesco shareholders is a £1.2bn loss on the US project.

It's a great example to use in a BUSS4 essay if it helps support a point that is relevant to the question. However, on its own, the information above is not really enough. You need to explain to the examiner why a strategy of retrenchment might be a suitable choice and how the case of Tesco helps support this argument.

So, let's take this step by step and see if we can develop some logical analysis using How & Why as our prompts?

WHY might a firm decide to adopt a strategy of retrenchment?

Retrenchment is about reducing the scale or scope of a firm's operations - for example by closing a business unit, implementing significant cost reductions or scaling back investment plans. Often a strategy of retrenchment is forced on a firm do to poor financial performance. It can also be adopted where a firm wants to make a change in strategic direction.

WHY did Tesco originally decide to enter the US market?

Tesco has pursued a strategy of international expansion in many territories - and with great success. Fresh & Easy launched to great fanfare in November 2007 – just before the recession and sub-prime mortgage crisis swept through the US causing American customers to retreat to the security of familiar retail brands.

WHY did Tesco decide to review its investment in the US? 

Because their US Chain (Fresh & Easy) continued to incur heavy losses despite sustained efforts to improve the grocery retailing format. Tesco had tried to make a success of the business for over 5 years.

WHY was Fresh & Easy incurring heavy losses?

Because it did not have sufficient economies of scale to enable the business to be competitive and revenues were not enough to cover substantial fixed costs. The business was also criticised for its retail format.

HOW can a successful retailer like Tesco get it wrong in the US?

Industry experts have also criticised Fresh & Easy’s use of self-service check-out stands which confused consumers used to heavy store helper presence. The chain’s lack of vouchers and coupons alienated price-sensitive shoppers.

HOW might a decision to close Fresh & Easy be a difficult decision for Tesco to take?

Because Tesco had developed a strong reputation for successful international expansion and the attempt to enter the intensely competitive US market was high profile. Tesco management consistently reassured shareholders that they were confident that they could make a success of Fresh & Easy.

HOW will a strategy of retrenchment work for Tesco in the US?

Tesco will attempt to sell Fresh & Easy and its 200 stores in California, Arizona and Nevada. If buyers cannot be found, then Tesco will need to close the stores and settle outstanding liabilities including redundancy costs and leases.

WHY might a strategy of retrenchment involve significant costs for Tesco?

Because there is no guarantee that a buyer will be found for the Fresh & Easy store portfolio and support infrastructure (e.g. distribution centres). The Tesco plc Board has estimated that it will cost Tesco a further £1bn in terms of the difference between what it invested in Fresh & Easy and any potential sale value.

HOW will shareholders react to the retrenchment?

In general shareholders are likely to be relieved that the business has cut its losses in the US. Whilst a £1.2bn loss on Fresh & Easy is a large amount, it is a relatively insignificant amount compared with the overall value of the business. As a result of the retrenchment, Tesco should be better able to focus its resources on the core UK retailing brand and other better-established international operations.

Localisation by McDonalds

A slideshow video showing how McDonalds localises. Gets interesting from 1 min 50 secs onwards as it explains what they do in China and India. A good source of information and an example for you to use in section A

Why Did Facebook Buy Whatsapp?

Facebook paid £19 billion for messaging app Whatsapp!!! How is that justified?
An example of acquisitions. A good example to use - Do some reading on this

Barclays Boss Antony Jenkins on the Bank's Future Agenda

Antony Jenkins (CEO of Barclays) talking about the banks new strategy of retrenchment and discussing external economic factors which has forced it to amend its strategy. 

Remember 19,000 job losses worldwide in the next 3 years, mainly in investments and deciding to concentrate on retail banking instead.  

(Mainly Section B)

Revision Session in Half Term - 29/05/2014

Hi all, the planned revision session which was supposed to take place on Thursday has had to be cancelled due to personal circumstances. However the session on Friday 30th May 2014 at 10.30am is still taking place where both BUSS3 and BUSS4 guidance will be given.

In the meantime if you have any queries can you please email me or place a comment on the blog and I'll get back to you as soon as possible

Sorry for the inconvenience and happy revising

Examples of Compare and Contrast Businesses for Section B

When writing your essays, whether it is section A or B it is important that you are able to compare and contrast businesses. Here you are provided with some good examples of it for you to research and add to your examples portfolio


Here are some “compare and contrast examples” that you might use as the basis for evidence to support the analysis developed in paragraph points in a BUSS4 Section B essay.

You'll need to dig just a little deeper into these examples to gain sufficient detail for your answers (though not too deep - beware storytelling!).

As you finalise your research, try to find some more pairs of examples that can be used to compare and contrast. And also consider how the evidence you gather can be used to help support the analysis you develop at the start of each paragraph point.

RETRENCHMENT

Compare successful retrenchment:

Harriet Green has led a transformation of travel company Thomas Cook since April 2012, bringing it back from the brink of failure through a programme of rationalisation (cost cutting, business disposals) and refocusing the business on core activities. Green, who was vote Leader of the Year 2013 and Businesswoman of the Year 2014, puts her success down to energising a committed team and moving fast. There is a clear lesson to be learned about what a successful retrenchment strategy needs: decisive action, speed and focusing on the core activities that customers value.

With unsuccessful retrenchment:

CEOs Thorsten Heins (Blackberry) and Stephen Elop (Nokia) both opted for a strategy of deep retrenchment in response to their loss of their market leadership positions. Nokia’s phone business was eventually sold to Microsoft (but only after the loss of thousands of jobs); Blackberry’s owner RIM ditched Heins after its market share continued to plummet.

Both Heins and Elop were faced with a common problem for businesses that opt for retrenchment - a lack of competitiveness and competitive advantage. Blackberry and Nokia had become too complacent about their market leadership position and they were overtaken by rapid technological change.

TAKEOVERS AND MERGERS

Compare a successful takeover:

Indian conglomerate purchased Jaguar Land Rover (“JLR”) from Ford for around £1.2bn in March 2008 at the depth of the credit crunch and global financial crisis. The takeover price represented a large loss at the time for Ford who had bought the two brands for $5,2bn and had invested a further $10bn to fund heavy losses. Since 2008, JLR has proved a spectacular success for Tata. Driven by strong sales in emerging markets (particularly China), JLR sold over 435,000 vehicles in 2013 and is forecast to achieve a profit of over £2bn alone in 2014.

With an unsuccessful takeover:

The acquisition by US technology firm HP of British software business Autonomy has proved disastrous for HP shareholders.

Autonomy was acquired by HP for $10.2bn in October 2011. The price paid by HP was approximately 50 times the latest annual profit made by Autonomy. The takeover was part of a significant change in strategy by HP involving stopping making hardware in order to refocus on software. At the time of the takeover, Mike Lynch (the CEO and Founder of Autonomy) said that "HP understands the special culture we have. This is about building Autonomy."

Just one year later HP wrote off $8.8 billion of Autonomy's value, claiming that it had been duped by a serious accounting scandal at Autonomy. Many of Autonomy's senior management left very soon after the takeover by HP and several blamed a clash of corporate cultures between the two organisations (HP was described as too bureaucratic).

LEADERSHIP STYLE

Compare a the successful democratic leadership style of Tony Hsieh of Zappos

Tony Hsieh - the founder of Zappos (bought by Amazon in 2009) wanted to build a business based around a simple idea. That it - if you get the organisational culture right - then everything else that you need to be successful will fall into place. This approach to leadership has created a hugely successful business with a unique organisational culture and supporting structure.

Hsieh has an interesting insight into what an effective leadership style is. In a recent interview he explained:

“Personally I cringe at the word 'leader.' It's more about getting people do what they're passionate about and putting them in the right context or setting. They're the ones doing the hard work. ... [Zappos is] structured a lot less hierarchical [than most companies], so we're a lot more flat. We try and decentralize a lot of the decision making. We all hang out with each other, at all different levels."

With the unsuccessful autocratic leadership style of Fred Goodwin at RBS

When the Financial Services Authority (“FSA”) published their report on the collapse of Royal Bank of Scotland (“RBS”) they noted that RBS repeatedly ignored warnings about Sir Fred Goodwin's 'assertive and robust' management style from as early as 2003. They might just as well have used the term “autocratic” leadership style to describe a CEO who brought the RBS to its knees.

A subsequent report by Newcastle Business School went further about how the leadership style of Goodwin had contributed to the disastrous strategy which ultimately resulted in RBS being nationalised. They claimed that Goodwin’s “aggressive, macho management style” created a culture where staff were locked in constant fear of losing their jobs, and Goodwin’s lieutenants were said to have stopped employees speaking out about problems.

ORGANISATIONAL CULTURE

Compare a business success story rooted in the organisational culture: John Lewis Partnership

The organisational structure and organisational culture at John Lewis Partnership (“JLP”), based around employee ownership, is distinctive and highly successful. But why? What is it about the "partnership" model at JLP which drives sales and customer service so high?

The answer seems to lie in the concept of “trust” in each other based around a shared sense of purpose. All 76,500+ of John Lewis's permanent staff are partners in the business and they ultimately own the retailer's 35 department stores and 272 Waitrose supermarkets.

The JLP website explains that “partners share in the benefits and profits of a business that puts them first." John Lewis's constitution also lists a formal mission to maximise the "happiness" of its staff. The organisational structure also involves a staff council – for ideas and complaints to filter up to the board – and a weekly magazine where staff can air their views about policies and management, anonymously if they choose.

With an organisational culture that ultimately caused the spectacular failure of a business - Enron:

It is relatively easy to identify evidence like JLP to see how organisational culture can be an intangible asset of a business - a source of competitive advantage and a key reason for a business enjoying industry-beating financial performance.

However, the reverse can also be true. If organisational culture is managed incorrectly or (worse) left unmanaged, it can become dysfunctional or toxic. In these situations the organisational culture of a business can become a liability, not an asset. It can even lead to the failure of the business. The classic example is Enron.

Enron is perhaps the best example of how a toxic culture can ultimately lead to the collapse of an organisation. The collapse of Enron was one of the biggest corporate scandals of all time and much of it can be directly traced to the culture of greed, aggression and plain illegal behaviour that was encouraged and tolerated by the senior management team.

So much was wrong about the organisational culture at Enron - it is described in some detail here. Aggressive management, inappropriate incentives, lack of controls, excessive costs, deep-seated fear of senior management - Enron had it all!

BUSINESS ETHICS

Compare a business that is consistent rated as one of the world’s most ethical companies - Premier Farnell

For four years running, UK-based technology distribution business Premier Farnell has been named as one of the world's 100 most ethical businesses. Premier Farnell attributes this consistent record of achievement to a variety of initiatives which, taken together, mean that Premier Farnell has scored highly on its performance in ethics, governance (how the company is run) and citizenship. For example, as part of staff induction training which details Premier Farnell's "Core Values", the company's code of conduct is introduced to all new starters. These include keeping customers and suppliers at the heart of everything the firm does, working together, being innovative, developing the firm's people, and integrity and trust.

With a business whose ethics are consistently called into question - GSK

Sir Andrew Witty, the CEO of global pharmaceutical giant GSK, has his work cut out trying to restore the ethical reputation of a firm that continues to face allegations of unethical and illegal activity around the world.

GSK is the world's fourth-largest pharmaceutical company measured by sales (after Pfizer, Novartis, and Sanofi) and was established in 2000 by the merger of Glaxo Wellcome plc (formed from the acquisition of Wellcome plc by Glaxo plc) and SmithKline Beecham plc. GSK has an enormous product portfolio covering just about every disease area major disease area including asthma, cancer, virus control, infections, mental health, diabetes and digestive conditions. It also has a large consumer healthcare division that produces and markets oral healthcare and nutritional products, drinks and over-the-counter medicines. The sheer scale and complexity of GSK may be part of the problem when it comes to enforcing acceptable ethical standards. But so too might be the prevailing corporate culture. Just look at some recent examples:

• In July 2012 GSK was fined $3bn in the largest healthcare fraud settlement in US history. GSK admitted to promoting antidepressants Paxil and Wellbutrin for unapproved uses, including treatment of children and adolescents.
• In July 2013, GSK confirmed that some of its senior Chinese executives appeared to have broken the law after police accused it of funnelling up to 3 billion yuan (approx. £323 million) to travel agencies to facilitate bribes to doctors to boost the sale of its medicines. In May 2014 GSK was then accused of tax evasion in China.

When he became CEO in 2012, Witty promised in 2012 that GSK would make “displaying integrity in everything we do” a priority. Some might argue the business still has a long way to go!