3.9 How to pursue strategies

Question 1

What is ‘growth’ in a business?

Answer 1

An increase in a size, revenue, market share and/or profitability over time.

Question 2

What is ‘retrenchment’ in a business?

Answer 2

A term used when a business decides to cut or scale-back its activities

Question 3

What are the causes of retrenchment?

Answer 3

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

Question 4

What are some strategies a business can use to grow?

Answer 4

Innovation
Diversification
International Expansion
Cost leadership
Product development

Question 5

What are the 2 methods of achieving a growth strategy?

Answer 5

Organic (Internal)
External

Question 6

What is the difference between internal and external growth?

Give some examples

Answer 6

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

Question 7

Example of organic growth and external growth

Answer 7

Organic growth = Costa in the uk

External growth = Alphabet group

Question 8

Benefits and cons of organic growth

Answer 8

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)

Question 9

Benefits and cons of external growth

Answer 9

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

Question 10

What are economies of scale?

Answer 10

Savings in costs gained by an increase in production

Question 11

What are diseconomies of scale?

Answer 11

Diseconomies of scale are the cost disadvantages that economic actors accrue due to an increase in organizational size or in output.

Question 12

What are economies of scope?

Answer 12

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.

Question 13

What is the experience curve?

Answer 13

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

Question 14

What are some criticisms of the experience curve?

Answer 14

-DEveloped in 1960s
-Industry leaders become complacent
-Experience can create resistance to change

Question 15

What is synergy?

Answer 15

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

Question 16

What is overtrading?

Answer 16

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.

Question 17

What are some symptoms of overtading?

Answer 17

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

Question 18

What is Greiner’s model of growth?

Answer 18

A model that aims to predict the 6 phases and 5 crises that businesses may experience when as they grow

Question 19

What are the 6 phases of Greiner’s model of growth?

Answer 19

Creativity
Direction
Delegation
Coordination
Collaboration
Alliances

Question 20

Explain the 5 crises of growth according to Greiner’s model of growth

Answer 20

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)

Question 21

What are the messages from Greiner’s model of growth?

Answer 21

-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

Question 22

What are some criticisms of Greiner’s model of growth?

Answer 22

Simplistic, not every business will suffer crises as it grows, model doesnt take into account the pace of growth

Question 23

What is a Takoever?

Answer 23

Takeover = A takeover (or acquisition) involves one business acquiring control of another business

Question 24

What is a merger?

Answer 24

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.

Question 25

What is a venture?

Answer 25

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.

Question 26

What is a franchise?

Answer 26

Franchising arises when a franchisor grants a licence (franchise) to another business (franchisee) to allow it trade using the brand / business format.

Question 27

What is vertical integration?

Answer 27

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

Question 28

What is horizontal integration?

Answer 28

Horizontal integration involves the combination of two business operating in the same industry and at the same stage of the supply chain.

Question 29

What is conglomerate integration?

Answer 29

Conglomerate integration refers to the process of merging or acquiring companies that operate in different industries or markets.

Question 30

What is innovation?

Answer 30

Putting a new idea or approach into action?

Question 31

What is process innovation?

Answer 31

Improving existing goods, services and processes.

Question 32

What is product innovation?

Answer 32

Developing goods, processes or services of value that have not existed previously

Question 33

What is a patent?

Answer 33

The right to be the only user or producer of a specified product or process.

Question 34

What is a copyright?

Answer 34

Legal protection against copying for authors, composers and artists.

Question 35

What are the 4 methods of entering international markets?

Answer 35

Exporting, Direct Investment, Alliances, LIcensing

Question 36

What is exporting?

Answer 36

Exporting is the act of selling goods and services to another country.

Question 37

What is Direct Investment?

Answer 37

Business with headquarters in its home country sets up additional operations in another country

Question 38

What are Alliances?

Answer 38

Business make an agreement with another (likely international) to pool resources in order to undertake a specific project

Question 39

What is licensing?

Answer 39

Business makes a legal agreement for another country to produce and/or sell their goods and services in return for a fee

Question 40

What is Bartlett and Goshal’s model of international strategy for?
Also draw it

Answer 40

A theory developed to help firms enter and target international markets.

Question 41

What are the ‘pressures’ in Bartlett and Goshal’s model of international strategy?

Answer 41

The pressures refer to pressures that firms are under as they try to go from domestic organisations to multi-national organisations.

Question 42

Explain the ‘pressure for local responsiveness’ of Bartlett and Goshal’s model of international strategy

Answer 42

How much pressure does the firm face to customise its products and services to the indivdual needs of each nation.`

Question 43

Explain the ‘pressure for global integration’ of Bartlett and Goshal’s model of international strategy

Answer 43

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

Question 44

Explain the ‘international strategy’ of Bartlett and Goshal’s model of international strategy

Answer 44

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.

Question 45

Explain the ‘global strategy’ of Bartlett and Goshal’s model of international strategy

Answer 45

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

Question 46

Explain the ‘multi-domestic strategy’ of Bartlett and Goshal’s model of international strategy

Answer 46

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

Question 47

Explain the ‘trans-national strategy’ of Bartlett and Goshal’s model of international strategy

Answer 47

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.

Question 48

What is E-Commerce?

Answer 48

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.

Question 49

What is Big Data?

Answer 49

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.

Question 50

What is data-mining?

Answer 50

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.

Question 51

What is enterprise resource planning?

Answer 51

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.

Question 52

What are the benefits of Digital Technology?

Answer 52

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.

Question 53

What are the costs of Digital Technology?

Answer 53

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.