This case study analyses the background information of Wawa Food Chain Company. Furthermore, various strategies that can be employed by Wawa Company in its quest to expand its business into east coast region o United States of America are thoroughly explored. The study also reveals various factors that need to be considered before building a new business within an established firm. Various reasons for such ventures are also discussed at length in the study. The conclusion remarks further emphasizes the importance of considering the above mentioned factors in the design of expansion strategies.
Building a New Business within an Established Firm
The business environment in the modern word is becoming more turbulent and less predictable. The performance of business in the future is becoming hard to be predicted because ever changing business environment. Excellent entrepreneurial skills are vital for business survival in the ever changing business environment. Additionally, business innovation and production of quality goods and services also play an important role for survival of any business (Rajagopal, 2006).
One of the most important ways of ensuring business sustainability in the future is establishing a new business within the existing organization. The importance building a new business is to enable the existing business to adequately meet growth its growth strategies in the future. Corporate venturing is not only a business strategy but also an entrepreneurial effort designed by a business organization to ensure the business entity survives today and in the future (Rajagopal, 2006). Entrepreneurial effort involves taking risks and a engaging in new business ventures to generate more revenues for the business so that the company can gain a competitive edge against its rivals.
Wawa background information
Wawa is a privately owned firm whose main line operation is the preparation of high quality foods and beverages. Wawa began preparation of food and beverages back in 1964 and has become of the largest private companies in the United States of America. The company over the years has diversified its business operation to venture into fuel vending and sell of lottery tickets. Wawa food chain operates in Mid-Atlantic States in North-east of United States of America (Wawa, 2012). Wawa food chain offers a wide range of food categories and beverages to its huge clientele. Additionally, Wawa provide nutritional health information to its clients (Wawa, 2012).
Building a new business within an established firm
Majority of business are usually interested in venturing into new businesses besides the existing business entity after certain periods of time (Block & MacMillan, 2003). Companies are compelled to do so by virtue of gaining dynamic growth and profitability in the unforeseeable future. Building a new business within an existing firm is an internal affair that involves significant risks and is usually characterized by great uncertainty. Organizations realize that a new venture is a new activity to the present business and therefore should be undertaken separately from the existing business at some points. Building a new business within an established firm is basically pursued with an interest of increasing the existing firm’s profitability and productivity (Block & MacMillan, 2003).
New ventures may originate externally but may require an internal approach by the existing business because it requires its input for it to be actualized (Block & MacMillan, 2003). Building a new business within an established firm may take various forms. It may involve manufacture and production of new products, new technology commercialization, development of new markets, innovations, and so much more. It is normally difficult to distinguish or have a dividing line between a new venture and the existing business activities (Block & MacMillan, 2003). According to Block and MacMillan, a new venture is completely different from the existing business and thus it does not involve modifying an existing business. Block and MacMillan are of the idea that since new business is different the existing business it needs a fundamentally different approach of management and leadership.
There are so many reasons why companies build new business within the existing ones. Though the types of ventures pursued are different from one company to another, there exist substantial commonalities in the reasons for such new ventures. The primary reason of building a new business within an established firm is to enable the company grow and respond to market and competitive pressures (Block & MacMillan, 2003). Majority of companies in the United States pursue this strategy so as to meet the strategic goals of the business at the same establishing the business base.
In the context of Wawa food chain, there are various reasons that is can consider in its quest to venture into a new business. According to Morris, Kuratko and Covin (2011), a company may consider to build a new business within an established business so as to exploit the underutilized company resources. Wawa Company before considering venturing into a new business should determine whether the company is basing it expansion on this reason. A new business is crucial in utilizing internal capabilities of the existing business that remain idle for long periods of time. The new business can productively utilize these resources to the benefit of the existing business. Furthermore, new business venture can also be used as a vehicle for extracting additional value from the existing resources. The new venture is usually build around corporate capabilities, knowledge, and other resources so as to build value in a product market that the current business does not serve (Morris, Kuratko & Covin, 2011).
Companies also pursue new ventures in order to spread risks and costs associated with product development. Companies are compelled to build a new business basing on the motivation that the target market for the new business products is goings to be larger than the existing business core product (Morris, Kuratko, &Covin, 2011). Additionally, companies may choose to build a new business so as to divest noncore activities of the established firm. The new business in this context is pursued with an interest of exploiting different opportunities that the firm can take advantage of and the ones that it had no interest in. A firm may also consider new venture so as to exert pressure on internal suppliers. The new business can, in the long run become an alternative source supplies to the existing business (Morris, Kuratko & Covin, 2011).
In others studies, businesses engage in new ventures for three major reasons Morris, Kuratko & Covin, 2011; Block & MacMillan, 2003 ). For instance, a company is motivated to enter into a new venture as a way of appropriating and developing new competences so as to expand business scope of operation and knowledge. Furthermore, the company is also motivated by the prospective of quick generation of financial returns from the new venture and the building of innovative capabilities of the existing business (Morris, Kuratko & Covin, 2011).
Wawa should base its expansion strategies on one or several reasons discussed above. After considering the reasons of expanding the existing business, Wawa Company should now focus on the factors that are vital before in selecting the appropriate expansion strategy.
Factors to be considered when building new business
Companies need to consider a number of factors before engaging in a new corporate venture (Grist Ltd, Gaule & Spinks, 2003). The company should consider both internal and external factors that are vital during corporate venturing. One of the most important factors to be considered is the human resources factor (Grist Ltd, Gaule & Spinks, 2003). Human resources are vital for the success of the new business and therefore the company should have a motivated staff that is willing to participate in the new venture from top to bottom of the organization hierarchy. Wawa Company should consider if the new venture may require any additional human resources or not
Technological factors also need to be considered during new venture planning (Grist Ltd, Gaule & Spinks, 2003). Wawa Company should be able to determine whether the building of the new venture is going to be technologically intensive or not. Rapid technological evolutions should be considered in the designing of the new venture framework. Environmental factors such as market forces and legislative forces also influence corporate venturing process (Grist Ltd, Gaule & Spinks, 2003). Wawa Company need to determine the type markets that the new venture is going to operate in. Market factors such as market size, segments, customer data, existing and potential competitors, and products being offered need to be determined. On the other hand, legislative and regulatory matters regarding the new venture need to be clearly understood and how they are going to impact on the operation of the business (Grist Ltd, Gaule & Spinks, 2003).
Different firms adopt different growth strategies to reach their set goals (Rajagopal, 2006). Some organizations opt to expand their business through mergers or acquisitions. On the other hand, some organizations opt to expand their business portfolio through corporate venturing and joint ventures (Rajagopal, 2006). Corporate venture as opposed to external expansion strategies focuses on the use of parent company resources and human capital in the overall operation of the venture (Enkel & Goel, 2012).
Wawa Company has over the years expanded its business as a growth strategy (Wawa, 2012). Wawa began as a textile company around two centuries ago. The company diversified its operations as a growth objective when it moved into diary industry back in early twentieth century. As the company expanded into new geographical locations in the Mid-Atlantic States, it started experimenting the sell of food and beverages in a1964. This was the first attempt to grow its business portfolio but went in to establish gas station that sell fuel in five states in northeast of United States of America (Coghlan, & Rashford, 2006). At the gas stations, the company also runs food restaurants as an additional service for its customers.
Having experience in business expansion due to it rich historical expansion, Wawa can pursue different strategies in order to grow and expand into areas along the east coast of the United States of America. The company can either pursue external venture growth strategies or adopt a more internal approach through corporate ventures.
External business expansion strategies such as joint ventures, acquisition, and mergers are vital if the company requires substantive and immediate financial returns on investment in the areas of interest. Merger and acquisitions are the most common means used by companies as growth strategies (Lussier, 2012). These two strategies are pursued by a company whens it wants to close down competition from rivals, gain more access to larger markets, to take advantage of technology, and to acquire economies of scale. A merger takes place when two or more companies join together to form one business entity (Lussier, 2012). An acquisition, on the other hand, occurs when one company buys part of or the whole company. The purchased company becomes part of the purchasing company and management is usually centralized (Lussier, 2012).
Wawa can consider using mergers, acquisition or joint ventures as expansion strategies into the targeted areas in the east coast. The company can either choose to merger with or acquire existing companies in the east coast that are engaged in kind of business that the company has planned to venture in. Furthermore, Wawa can also consider joint ventures with some companies within the region. These strategies, if successful, carry a number of advantages that can be utilized by Wawa Company.
These benefits include increased value generation for the company, increased market share, and cost efficiency (Hoskisson, 2008). Through these strategies, the company can be able to increase the value generated to business owners since the new business entity is going to be of greater value as compared to the parent company (Hoskisson, 2008). Through acquisitions, mergers, and joint ventures Wawa will be able to acquire economies efficiencies thereby operational and production costs of the company will be reduced. It is also going to be easier for Wawa to introduce new product in the east coast region through such strategies. Furthermore, these growth strategies can enable the company to achieve greater competitive advantage against its competitors as well as improving its profitability (Hoskisson, 2008).
However, these strategies do also have limitation. These limitations may depict the inefficiencies that may be caused by the strategies. A company may merge with or acquire a company with a bad reputation thereby undermining growth motive. Additionally, mergers and acquisitions may cause friction among organization personnel, and may also introduce undesirable union between organizations (Young, 2003).
Corporate ventures may also be considered as an internal strategy of Wawa Company to be used in the expansion the business to the east coast. If the motive of Wawa Company is to improve its profitability then corporate venture can be taken as a vehicle to for the firm to grow both vertically and horizontally. Corporate venture does not delink the parent company and the new venture therefore the performance of the new business is guaranteed (Rajagopal, 2006; Enkel & Goel, 2012).
Factors that have an impact on the success of corporate ventures are either intrinsic or extrinsic to the organization. If Wawa Company is considering venturing into new product then it is going to be influenced by intrinsic factors such as product characteristics and managerial experience. Extrinsic factors may include the structural and functional factors that are determined by the organization and investment aspects of the venture (Rajagopal, 2006).
Corporate ventures are important for Wawa because it acts as a source of technological innovation to the business (Rajagopal, 2006). Through corporate venture the company will be able to access the emerging technologies, and tap market opportunities in the new geographical location. Furthermore, corporate ventures shall enable the company access new business models that are essential in the long term performance of parent company and the venture business. Corporate ventures are also important in reducing the initial risk involved in business start-ups. Additionally, corporate ventures usually introduce a company to emerging distribution channels that can be used to market parent company products as well as new products (Rajagopal, 2006).
However, there are a few limitation of corporate venture that may negatively affect the company considering it as growth strategy. Corporate ventures may prove disastrous if not keenly articulated (Rajagopal, 2006). If a company fails to sufficiently distinguish between operational, strategic, and financial goals, the whole process may hit a snag. Another challenge presented by corporate venture is finding the right human personnel to work together in order to achieve the desired results. Furthermore, it is highly dependent on the parent organization for human resources and other resources. Failure of the parent company may also mean unsuccessful corporate venture (Rajagopal, 2006).
Wawa Company has been engaged in business diversification over the years and therefore it is expected minimal hindrances are going to be encountered as it pursue its expansion strategies. However, it should base its strategies on the general understanding that business environment has evolved and require sound managerial skills in formulating and planning for new ventures.
Wawa Company needs to acknowledge different strategies that are available at its disposal and design the most appropriate strategy that can be pursued to achieve its objectives. The company should carefully analysis the objectives of business expansion so as to design the approach strategies to realize the objectives. At the same time the company should consider the benefits and limitations of each strategy.
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