3.9 How to pursue strategies Flashcards
What is ‘growth’ in a business?
An increase in a size, revenue, market share and/or profitability over time.
What is ‘retrenchment’ in a business?
A term used when a business decides to cut or scale-back its activities
What are the causes of retrenchment?
New leadership (usually a new CEO)
Excessively-high costs and low profitability (or unsustainable losses)
Low ROCE
Excessively high gearing (leading to cash flow problems)
Loss of market share
A failed takeover or merger
Economic downturn
Change of ownership
What are some strategies a business can use to grow?
Innovation
Diversification
International Expansion
Cost leadership
Product development
What are the 2 methods of achieving a growth strategy?
Organic (Internal)
External
What is the difference between internal and external growth?
Give some examples
Internal / prganic = growth from within the business
Launching of new products, entering new markets, Franchising, exporting etc
External = growth from outside the business
Ventures, takeovers, acquiring supplier or major customer
Example of organic growth and external growth
Organic growth = Costa in the uk
External growth = Alphabet group
Benefits and cons of organic growth
Benefits =
1) Concentrate resources on what it does best
2) Lowest risk for shareholders
3) Improves competitive strength of business
4) Benefit from greater EOS, greater brand awareness
5) Rewards innovation
Costs =
Slower, less potential reward
1)
Benefits and cons of external growth
Benefits =
Greater potential reward, Transformational, Faster, can aquire missing technology and brands
1) Greater potential reward
2) Can be transformational
3) Access to a new market
4) Faster
5) Can aquire missing technology and brands
6) Cost synergies (savings by reducing duplication of efforts)
Costs =
Much higher risk, higher cost
What are economies of scale?
Savings in costs gained by an increase in production
What are diseconomies of scale?
Diseconomies of scale are the cost disadvantages that economic actors accrue due to an increase in organizational size or in output.
What are economies of scope?
Economies of scope refer to the cost advantages that a firm can realize by producing a range of different products or services. These cost advantages can arise from the shared use of common inputs or resources, such as production facilities, technology, or distribution networks.
What is the experience curve?
A model that shows how a business will achieve lower unit costs as it develops experience in production. Developed in 1960s by Boston Consulting Group
What are some criticisms of the experience curve?
-DEveloped in 1960s
-Industry leaders become complacent
-Experience can create resistance to change
What is synergy?
When the value of two businesses brought together is higher than the sum value of the two business.
Can occur through reduction of duplication of efforts, reducing costs, and increased EOS
What is overtrading?
Overtrading happens when a business expands too quickly without having the financial resources to support such a quick expansion. If suitable sources of finance are not obtained, overtrading can lead to business failure.
What are some symptoms of overtading?
High revenue growth but low gross and operating profit margins
Persistent use of a bank overdraft facility
Significant increases in the payables days and receivables days ratios
Significant increase in the current ratio
Very low inventory turnover ratio
Low levels of capacity utilisation
What is Greiner’s model of growth?
A model that aims to predict the 6 phases and 5 crises that businesses may experience when as they grow
What are the 6 phases of Greiner’s model of growth?
Creativity
Direction
Delegation
Coordination
Collaboration
Alliances
Explain the 5 crises of growth according to Greiner’s model of growth
Growth Phase: Direction - Crisis of Leadership
Informal communication starts to fail
Business now too big for leader to get involved in everything
Growth Phase: Delegation - Crisis of Autonomy
Business now has functional management
But founder / leader still struggling to let go
Growth Phase: Coordination - Crisis of Control
More formal management structures in place
But new layers of hierarchy needed to keep control
Growth Phase: Collaboration - Crisis of Red Tape
A dangerous growth in organisational bureaucracy
Slowing decision-making & missing external changes
Growth Phase: Alliances - Crisis of Growth
Growth slowing as business runs out of ideas
Alliances are sought (including new business owners)
What are the messages from Greiner’s model of growth?
-Growth is hard
-Growth poses many management and leadership challenges (crises)
-Leadership and organisational structure have to evolve to reflect the growth of a business
-Businesses that don’t adjust as they grow will experience lower growth than those that do
What are some criticisms of Greiner’s model of growth?
Simplistic, not every business will suffer crises as it grows, model doesnt take into account the pace of growth
What is a Takoever?
Takeover = A takeover (or acquisition) involves one business acquiring control of another business
What is a merger?
Merger = A merger is a combination of two previously separate firms which is achieved by forming a completely new business into which the two original firms are integrated.
What is a venture?
A joint venture (JV) is a separate business entity created by two or more parties, involving shared ownership, returns and risks
Joint ventures are different from takeovers and mergers in that the risks and returns of the business formed as the joint venture are shared by the parties involved.
What is a franchise?
Franchising arises when a franchisor grants a licence (franchise) to another business (franchisee) to allow it trade using the brand / business format.
What is vertical integration?
Vertical integration involves acquiring a business in the same industry but at a different stage of the supply chain.
Forward = this an integration of a business that is closer to final consumers e.g. a manufacturer buying a retailer
Backward = here the aquisition is of an operater earlier in the supply chain e.g. a manufacturer buying a raw material or component supplier
What is horizontal integration?
Horizontal integration involves the combination of two business operating in the same industry and at the same stage of the supply chain.
What is conglomerate integration?
Conglomerate integration refers to the process of merging or acquiring companies that operate in different industries or markets.
What is innovation?
Putting a new idea or approach into action?
What is process innovation?
Improving existing goods, services and processes.
What is product innovation?
Developing goods, processes or services of value that have not existed previously
What is a patent?
The right to be the only user or producer of a specified product or process.
What is a copyright?
Legal protection against copying for authors, composers and artists.
What are the 4 methods of entering international markets?
Exporting, Direct Investment, Alliances, LIcensing
What is exporting?
Exporting is the act of selling goods and services to another country.
What is Direct Investment?
Business with headquarters in its home country sets up additional operations in another country
What are Alliances?
Business make an agreement with another (likely international) to pool resources in order to undertake a specific project
What is licensing?
Business makes a legal agreement for another country to produce and/or sell their goods and services in return for a fee
What is Bartlett and Goshal’s model of international strategy for?
Also draw it
A theory developed to help firms enter and target international markets.
What are the ‘pressures’ in Bartlett and Goshal’s model of international strategy?
The pressures refer to pressures that firms are under as they try to go from domestic organisations to multi-national organisations.
Explain the ‘pressure for local responsiveness’ of Bartlett and Goshal’s model of international strategy
How much pressure does the firm face to customise its products and services to the indivdual needs of each nation.`
Explain the ‘pressure for global integration’ of Bartlett and Goshal’s model of international strategy
Pressure for the multinational to keep standardisation accross its firms, the less pressure, the more autonomy each individual branch could have. This could stem from the pressure to:
-Achieve EOS
-Keep costs down
-To retain centralised control, RnD, marketing
-To restrict production to a few loactions where land/labour is cheap
Explain the ‘international strategy’ of Bartlett and Goshal’s model of international strategy
Low pressure for local responsiveness, low pressur for global intergation
-Take standardised products from domestic market and sell overseas without having to keep functions and decision making centralised, can instead make decision making localised.
I.E Regional marketing, supply chains, production processes etc.
Explain the ‘global strategy’ of Bartlett and Goshal’s model of international strategy
Low pressure for local responsiveness, high pressure for global intergation
Take standardised products from domestic market and sell overseas, this time keeping centralised as many functions as possible, conducted by head office
-Idea is to maximise EOS and give less autonomy to satelites of business in overseas market
Explain the ‘multi-domestic strategy’ of Bartlett and Goshal’s model of international strategy
High pressure for local responsiveness, low pressure for global integration
COnsumers in different international market have more localised, specific needs. Need to alter goods and services to suite these needs.
Low pressure for gloabl intergratio make this easier to do, allowing firm to be more decentralised to different nations ; localized marketing, RnD etc….
Danger is satelites operate on too rouge a basis and lose core competincies of business
Explain the ‘trans-national strategy’ of Bartlett and Goshal’s model of international strategy
High pressure for local responsiveness with HIGH pressure for global integration.
Most challenging strategy to make work, difficult to determain which EOS it can actually use, for example similar components of a final good.
Consumers in different international market have more localised, specific needs. Need to alter goods and services to suite these needs. However, firms is under pressure to keep decision making and functions centralised to keep costs low, for example forgoing localised production, marketing, departments ETC.
What is E-Commerce?
E-commerce, also known as electronic commerce, is the buying and selling of goods or services over the internet. It includes online retailing, business-to-business transactions, and the facilitation of transactions between consumers through electronic platforms.
What is Big Data?
Big data is the process of collecting and analysing large data sets from traditional and digital sources to identify trends and patterns that can be used in decision-making.
What is data-mining?
Data mining is the process of analysing data from different perspectives and summarising it into useful information, including discovery of previously unknown interesting patterns, unusual records or dependencies.
What is enterprise resource planning?
ERP is a software system that a system that helps businesses integrate and manage their often complex financial, supply chain, manufacturing, operations, reporting, and human resource systems.
What are the benefits of Digital Technology?
Higher living standards – improved wealth creation around the world;
Greater competition – reduces barriers to entry;
Improved efficiency and reduced waste;
Advances in communication;
Better quality products and services;
New products and materials;
Company efficiency and increased consumer needs met; and
Improved working environment – employees are safer and happier.
What are the costs of Digital Technology?
Stress – people are concerned with change;
Lower morale – greater power given to people who have the skills to benefit
from it;
Costs of introducing and updating digital technology;
Possible higher barriers to entry;
Digital technology is changing the global competitive environment –
developing countries that have adapted to digital technology have seen a
shift in the economic balance away from Europe; and
The impact of digital technology on the functional areas of a business.
