Building a New Business Within an Established Firm

Introduction

The business environment in the modern world is becoming more turbulent and less predictable. The future performance of the business is becoming hard to be predicted because of the ever-changing business environment. Excellent entrepreneurial skills are vital for business survival in a dynamic business environment. Additionally, business innovation and the production of quality goods and services also play an important role in the 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 of building a new business is to enable the existing business to meet 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). The entrepreneurial effort involves taking risks and engaging in new business ventures to generate more revenues for the business. This is meant to enable the company to gain a competitive edge against its rivals.

Wawa background information

Wawa is a privately owned firm whose main line of operation is the preparation of high-quality foods and beverages. Wawa began the preparation of food and beverages back in the year 1964. The company has become one of the largest private companies in the United States. Over the years, the company has diversified its business operation to venture into fuel vending and sell lottery tickets. Wawa food chain operates in the Mid-Atlantic States in the Northeast of the United States (Wawa, 2012). Wawa food chain offers a wide range of food categories and beverages to its huge clientele. Additionally, Wawa provides nutritional health information to its clients (Wawa, 2012).

Building a new business within an established firm

The majority of businesses 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 for the present business. Therefore, this should be undertaken separately from the existing business at some point. Building a new business within an established firm is pursued with an interest in increasing the existing firm’s profitability and productivity (Block & MacMillan, 2003).

New ventures may originate externally. However, they 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 the 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 (2003), a new venture is completely different from the existing business and thus it does not involve modifying an existing business. Block and MacMillan (2003) are of the idea that since new business is different from the existing business, it needs a fundamentally different approach of management and leadership.

There are so many reasons why companies build a 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 for building a new business within an established firm is to enable the company to grow, as well as respond to market and competitive pressures (Block & MacMillan, 2003). The majority of companies in the United States pursue this strategy to meet the strategic business goals and establish the business base.

In the context of the Wawa food chain, there are various reasons that the company can consider in its quest to venture into a new business. According to Morris, Kuratko, and Covin (2011), a company may consider building a new business within an established business to exploit the underutilized company resources. Wawa Company before considering venturing into a new business should determine whether the company is basing its expansion on this reason.

A new business is crucial in utilizing the internal capabilities of the existing business that remain idle for long periods. The new business can productively utilize these resources to the benefit of the existing business. Furthermore, a new business venture can also be used as a vehicle for extracting additional value from the existing resources. The new venture is built around corporate capabilities, knowledge, and other resources 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 establish 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 to divest non-core activities of the established firm.

In this context, the new business is pursued with an interest in exploiting different opportunities that the firm can take advantage of and the ones in which it had no interest. A firm may also consider a new venture to exert pressure on internal suppliers. In the end, the new business can become an alternative source supplies to the existing business (Morris, Kuratko & Covin, 2011).

In other 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 developing new competencies. This is meant to expand the business scope of operation and knowledge. Furthermore, the company is also motivated by the prospect of a 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 for expanding the existing business, the Wawa Company should now focus on the factors that are vital before 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. Therefore, the company should have a motivated staff that is willing to participate in the new venture from top to bottom of the organizational hierarchy. The 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). The Wawa Company should determine whether the building of the new venture is going to be technologically intensive or not. Rapid technological evolutions should be considered in designing the new venture framework. Environmental factors such as market forces and legislative forces also influence the corporate venturing process (Grist Ltd, Gaule & Spinks, 2003).

The Wawa Company needs to determine the markets in which the new venture is going to operate. 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).

Expansion strategies

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). The corporate venture, as opposed to external expansion strategies, focuses on the use of the parent company resources and human capital in the overall operation of the venture (Enkel & Goel, 2012).

The Wawa Company has expanded its business as a growth strategy over the years (Wawa, 2012). Wawa began as a textile company about two centuries ago. The company diversified its operations as a growth objective when it moved into the diary industry back in the early twentieth century. As the company expanded into new geographical locations in the Mid-Atlantic States, it started to experiment on the sale of food and beverages in 1964. This was the first attempt to grow its business portfolio, but the company went ahead to establish gas stations that sell fuel in five states in the Northeast of the United States (Coghlan & Rashford, 2006). At the gas stations, the company also runs food restaurants as an additional service to the customers.

Having vast experience in business expansion due to its rich historical expansion, the Wawa Company can pursue different strategies in order to grow and expand into areas along the east coast of the United States. The company can either pursue external venture growth strategies or adopt an internal approach through corporate ventures.

External business expansion strategies such as joint ventures, acquisitions, and mergers are vital if the company requires substantive and immediate financial returns on investment in the areas of interest. Mergers and acquisitions are the most common means used by companies as growth strategies (Lussier, 2012). A company pursues these two strategies when it wants to close down competition from rivals, gain more access to larger markets, take advantage of technology, and acquire economies of scale. A merger takes place when two or more companies join to form one business entity (Lussier, 2012). On the other hand, an acquisition 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, acquisitions, or joint ventures as expansion strategies into the targeted areas on the east coast. The company can choose to either merge with or acquire existing companies in the region, which are engaged in the business in which the company has planned to venture. Furthermore, Wawa can also consider joint ventures with some companies within the region. If successful, these strategies carry a number of advantages that can be utilized by the Wawa Company.

The benefits include increased value generation for the company, increased market share, and cost efficiency (Hoskisson, 2008). Through these strategies, the company can 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 economic efficiencies. In this case, the operational and production costs of the company will be reduced. It is also going to be easier for Wawa to introduce a new product in the east coast region through such strategies. Furthermore, these growth strategies can enable the company to achieve a great competitive advantage against its competitors, as well as improving its profitability (Hoskisson, 2008).

However, these strategies do also have limitations. 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 its growth motive. Additionally, mergers and acquisitions may cause friction among organizational employees and may 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 of 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 for the firm to grow both vertically and horizontally. The 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 the Wawa Company is considering venturing into a new product, then it is going to be influenced by intrinsic factors. Such factors include 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 the 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 to access new business models that are essential in the long term performance of the 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 limitations of the corporate venture. These limitations may negatively affect the company considering it as a growth strategy. Corporate ventures may prove disastrous if not keenly articulated (Rajagopal, 2006). If a company fails to 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 an unsuccessful corporate venture (Rajagopal, 2006).

Conclusion

The Wawa Company has been engaged in business diversification over the years. Therefore, it is expected that minimal hindrances are going to be encountered as it pursues its expansion strategies. However, the company should base its strategies on the general understanding that the business environment has evolved and required sound managerial skills in formulating and planning for new ventures. The company needs to acknowledge different strategies that are at its disposal.

The company can then design the most appropriate strategy, which can be pursued to achieve its objectives. The company should carefully analyze 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.

References

Block, Z., & MacMillan, I. C. (2003). Corporate venturing: Creating new businesses within the firm. Washington, D.C: Beard Books.

Coghlan, D. & Rashford, N. S. (2006). Organizational change: interlevel dynamics and strategy. Abingdon, Oxon: Routledge.

Enkel, E. & Goel, S. (2012). Smoothing the corporate venturing path: rules still count. Journal of Business Strategy, 33(3): 30 – 39.

Grist Ltd, Gaule, A., & Spinks, N. (2003). Factors to considered during corporate venturing. London. Grist Ltd.

Hoskisson, R. E. (2008). Competing for advantage. Mason, OH: Thomson/South-Western.

Lussier, R. N. (2012). Management fundamentals: Concepts, applications, skill development. Mason, Ohio: South-Western.

Morris, M. H., Kuratko, D. F., & Covin, J. G. (2011). Corporate entrepreneurship and innovation: Entrepreneurial development within organizations. Mason, OH: South-Western Cengage Learning.

Rajagopal, (2006). Innovation and business growth through corporate venturing in Latin America: Analysis of strategic fit. Management Decision, 44(5): 703 – 718.

Wawa. (2012). Wawa. Web.

Young, G. (2003). Mergers and Acquisitions: Planning and Action. London: Routledge.