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Business > 3.9 Strategic Methods > Flashcards

3.9 Strategic Methods Flashcards

1
Q

What is change?

A

-Change occurs when a business alters its structure, size or strategy to respond to internal or external influences.
-Changes may be necessary to help a business meet its aims and objectives
-Change creates opportunities and threats
-Change should not be seen as bad must be managed carefully to ensure a business maintains or increases its competitiveness as a result of change.

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2
Q

Reasons for change

A

-To meet objectives
-Gain market share
-Increase shareholders’ worth
-Respond to external forces
-Technological advancements
-Political and legal changes
-Consumer demand
-Respond to internal forces
-Employee pressures
-Owners’ power
Gain competitive advantage
-Economies of scale and scope
-Market development

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3
Q

What is business growth?

A

-Increasing the size of the businesses’ operations e.g new stores, new products, new markets, buying other businesses.

-Possible reasons include:
-Increase shareholder value
-Increase market share
-Reduce average costs
-Fulfil an objective of growth
-Stakeholders’ perception of success

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4
Q

What is business Retrenchment?

A

-Downsizing the scale of the business’ operations e.g closing branches, selling off parts of the business, delayering.

-Possible reasons include:
-Restructure to increase efficiency
-Turn around poor performance
-Focus on core business
-Sell off less profitable parts of
business to improve overall
performance

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5
Q

What is organic growth?

A

-Organic/internal growth occurs when a business expands in size by opening new stores, branches, functions or plants.

-This may be achieved within the UK or on a multinational scale

-Can be time consuming but is a relatively low risk strategy

-Control is easier to maintain

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6
Q

What is external growth?

A

-External growth occurs when a business expands in size by either merging with or taking over another business.

-This may be with other business within the UK or on a multinational scale

-This allows a business to expand more rapidly as it is buying business that are already established.

-Can be high risk if the two business are not compatible.

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7
Q

Economies of Scale

A

-The advantages enjoyed by a business as it increases the scale of its current operations leading to a fall in unit costs.

-Lower unit costs will allow businesses to reduce price to increase sales, or maintain same price to earn more profit per unit.

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8
Q

Economies of Scope

A

-The advantages enjoyed by a business as it increases the scale of its operations by expanding the range(scope) of activities it undertakes leading to a fall in unit costs.

-This includes entering new markets, introducing new products and diversification (Ansoff matrix)
-Market brand rather than individual
products
-Share expertise
-Maximise use of resources
-Increase brand loyalty

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9
Q

Diseconomies of scale

A

-The disadvantages suffered as a result of a business increasing the scale of its operations that lead to a rise in unit costs.

-Rising unit costs will make a business less competitive. They may mean that a business will have to:
-Raise prices, therefore selling less,
in an attempt to cover increased
average costs.
-Maintain the same price and earn
Less profit per unit on the product

-Diseconomies of scale include communication, coordination and control.

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10
Q

The experience curve

A

-The advantages enjoyed by an established business as a result of having both managers and employees who are familiar with the running of a business. This leads to:
-A fall in unit costs
-Greater specialism increasing
efficiency
-Confidence when dealing with
stakeholders
-Less mistakes

-A business that quickly gains market share to become a dominant business will have a competitive advantage due to lower unit costs as a result of the experience curve.

-Each time a business doubles its cumulative output, unit costs will fall by a consistent percentage e.g 10% or 75%

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11
Q

Synergy

A

-Two businesses joined together will be able to achieve more than the sum of the two businesses operating separately.

-Examples include:
-Shared resources
-Increased expertise
-Joint marketing
-Complimentary products
-Securing a supplier or customer

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12
Q

Overtrading

A

-A business has expanded too rapidly resulting in it operating at a level beyond its resources leading to potential liquidity problems.

-Can also refer to a business where supply is exceeding demand as a result of growth.

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13
Q

5 Phases of growth according to Greiner’s model of growth

A

-Phase 1 Creativity/Leadership
-Phase 2 Direction/Autonomy
-Phase 3 Delegation/Control
-Phase 4 Coordination/Red Tape
-Phase 5 Collaboration/Future crisis

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14
Q

Characteristics of phase 1 of Greiner’s Model

A

-Creativity and a lack of formal hierarchy. The business is new and young therefore the entrepreneurs are likely to be innovative and totally in control.

-Crisis: Needs direction

-Revolution: Leadership

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15
Q

Characteristics of phase 2 of Greiner’s Model

A

-More formal approach including the introduction of a functional structure. However, as the business expands some managers may feel they lack independence and want greater responsibility for example for their own branch, product line or function.

-Crisis: Autonomy

-Revolution: Greater delegation

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16
Q

Characteristics of phase 3 of Greiner’s Model

A

-Decentralised decision making and the possible introduction of profit centres. The business may reach the point, if it continues to grow, where senior managers feel that they no longer have control of all aspects of the business.

-Crisis: Fear of loss of control

-Revolution: Introduce more formal procedures

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17
Q

Characteristics of phase 4 of Greiner’s Model

A

-Centralised decision making, and the introduction of more formal policies and procedures. Greater levels of bureaucracy may become increasingly stifling as the business continues to expand.

-Crisis: Red tape

-Revolution: Coordination HQ and functions

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18
Q

Characteristics of phase 5 of Greiner’s Model

A

-Greater communication and team work between head quarters and functional areas

-Crisis: Potential future crisis but will vary between organisations.

-Revolution: Dependent upon the nature of the crisis.

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19
Q

The four functional areas of growth and retrenchment.

A

-Finnance

-Marketing

-Operations

-Human Resources

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20
Q

4 Methods of external Growth

A

-Mergers

-Takeovers

-Ventures

-Franchising

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21
Q

What is integration?

A

The bringing together of two or more businesses.

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22
Q

What is a merger?

A

-When two or more businesses agree to become integrated to form one business under joint ownership

-An agreement. A + B = AB

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23
Q

What is a takeover?

A

-When one business gains control over another and becomes the owner. Can be achieved by buying 51% of the shares

-Can be hostile. A + B = A

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24
Q

What are the three forms of external growth and what do they mean?

A

-Horizontal
-2 Businesses at the same stage
within a process integrate
-Vertical
-2 Businesses at different stages
within a process integrate
-Forward vertical- joins with a
business at the next stage in the
process. E.g manufacturer with
retailer
-Backward vertical- joins with a
business at an earlier stage in
the process e.g a manufacturer
with a supplier of a raw
material.
-Conglomerate/Diversification
- 2 unrelated businesses integrate

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25
Q

What is a joint venture?

A

-2 or more businesses agree to act collectively to set up a new business venture with all parties contributing equity to fund the set up and purchase of assets.

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26
Q

Advantages of a joint venture

A

-Combined expertise
-Local knowledge
-Shared risk and control
-Access to established markets and distribution channels
-Possibly financed through equity not debt
-Greater potential capacity
-Secure a supplier or outlet
-Synergies

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27
Q

Disadvantages of joint ventures?

A

-Shared revenue
-Potential for conflict between stakeholder objectives
-Cultural differences
-May be difficult to work effectively together
-Local partner may learn from the partnership and then themselves become a global competitor
-Memorandum of understanding is not a legally binding document.

28
Q

What is a franchise?

A

-A franchise is a replication of a successful business formula
-Franchising occurs when the owner of a business, the franchisor, licenses the use of the trademarks and proven business ideas to another party, the franchisee.
-Each business outlet is owned and operated by a franchisee.
-However, the franchisor retains control over the way in which goods and services are marketed and sold, and controls the quality and standards of the business.
-There are a number of familiar franchises in the uk and worldwide. Many are ideas from abroad such as McDonald’s and subway but franchising covers all areas of business such as engineering, home care, parcel services and travel.

29
Q

What’s the difference between a franchise, franchisee and franchisor?

A

-Franchise
-When a business (franchisor) gives
another business (franchisee)
permission to trade using the
franchisors name and selling the
franchisors goods or services. (Can
be seen as a less risky option for
growth but can mean additional
costs and a loss of independence)
-A franchisee
-A business that is given Permission
from another business to trade
using its name or goods and
services in return for a fee and a
share of the profits.(The franchisee
will also be given support by the
franchisor but will have less
autonomy in decision making)
-A franchisor
-A business that sells a license giving
permission to another business to
trade using its name or goods/
services.(This allows the franchisor
to grow more rapidly but may
damage its reputation if standards
are not maintained.

30
Q

Advantages of franchising for the franchisor?

A

-Rapid expansion
-Optimum size
-Maximum profitability

-Investment from others

-Motivation- franchisee has own capital tied up in the business

-Economies of scale
-Buying power
-Mass advertising

31
Q

Disadvantages of franchising for the franchisor?

A

-Loss of control
-Do they have good systems?
-Do they have good contracts?

-Managing growth
-Enough staff?
-Enough resources?
-Litigation
-A failed franchisee is a court case
waiting to happen.

32
Q

Advantages of franchising for the franchisee?

A

-Lower risk
-Established product
-Experienced business
-Brand awareness
-Proven operation
-Assistance
-Entering new markets
-Management
-Financial
-Marketing
-Training

33
Q

Disadvantages of franchising for the franchisee?

A

-Lack of control
-Rules that need to be followed
-You cannot sell without franchisor’s
permission
-You must buy supplies from the
franchisor
-Higher than expected costs e.g start up, royalties, supplies and franchise renewals can be expensive.

34
Q

What is innovation and what are the two types of innovation?

A

-Innovation
The development of an idea into a
new product or process. Businesses
invest time and money in order to
make a profit
-Product innovation
-Changing a product that already
exists or developing an invention
into a brand new product
-Process innovation
-Changing a process of production
that already exists or putting into
practise a brand new production
process

35
Q

What is the value of innovation?

A

-Businesses cannot afford to stand still in competitive markets.
-Todays innovations are tommorows rising stars and cash cows
-A business that comes up with the right innovation can guarantee future income if it’s protected by a patent.
-Although expensive, the alternative risk of losing future markets might be worse.

36
Q

What are the risks involved in innovation?

A

-Businesses can make substantial losses if the innovation fails
-Other businesses are likely to react with their own innovations
-Legal implications often arise with other businesses questioning whether a product or process is really an innovation.

37
Q

Advantages and disadvantages of innovation?

A

-Advantages
-Creates a USP (Unique selling
proposition) for the product.
-Less competition due to patent
-More efficient and cost effective
production process.
-Likely to be a premium product with
high prices
-Disadvantages
-Can be very costly in R&D stage and
therefore a drain on resources
-For all innovations there is an
oppurtunity cost
-Few innovations see the light of day
so the business is effectively
financing waste

38
Q

Four methods of becoming an innovative organisation?

A

-Kaizen

-Research and development

-Intrapreneur

-BenchMarking

39
Q

What is kaizen?

A

-Kaizen is a system that concentrates on small, but frequent, improvements in every aspect of the production process.
-All members of the workforce will be involved
-Employees are encouraged to work in kaizen groups
-Improvements can take place at any level of the hierarchy
-Requires a highly motivated and committed workforce
-A vital component of Total Quality Management in order to improve the quality of the production process.

40
Q

What is research and development?

A

-Through r&d a business can differentiate its products leading to success in either a mass or niche market.

-Differentiation means being able to offer a good or service that stands out from the competition.
-Product- has to appear better than
the competition.
-Promotion- create desire,
exclusivity, brand loyalty.
-Operational objectives will focus
on R&D and innovation
This will lead to increased market power.

41
Q

Characteristics of an entrepreneur/intrapreneur ?

A

-Creative and innovative

-Enthusiastic and motivated

-Good communication skills

An intrapreneur has the same characteristics as an entrepreneur however they are employees working as a part of a larger organisation.

42
Q

What is benchmarking?

A

-The process of identifying best practise, normally within an industry.

Order of benchmarking:
-Identify areas that can be benchmarked.
-Collect quantitive data on these areas.
-Identify best practice.
-Compare performances to identify areas of weakness.
-Set new targets
-Implement procedures to achieve these targets.
-Review progress

43
Q

Methods to protect innovation and intellectual property?

A

-Copyrighting

-Patents

44
Q

Definition of Copyright

A

A legal protection for anyone that has produced work in a range of areas. These include literature, drama, music, art, layouts, recordings and broadcasts of work. It is illegal to use copyrighted work without the permission of the owner.

45
Q

Definition of Patent

A

A legal protection of a unique feature of a product or process.

46
Q

Reasons for targeting, operating in and trading with international markets?

A

Reasons:
-Low Cost
-Increased Wealth
-Spread Risk
-Specialist Skills
-Proximity to raw materials
-Proximity to market
-Government incentives
-Tax advantages
-Shared Expertise
-New Markets

47
Q

Methods of entering international markets.

A

-Export
-Selling goods and services produced
in one country to another country
-Licensing
-A business gives permission to a
third party to sell their goods or
services abroad(this is often linked
to an exclusivity deal for a specific
country or region)
-Alliances
-Forming partnerships with one or
more businesses operating in
another country
-Direct investment
-Capital expenditure to establish a physical presence in another country. E.g setting up sales outlets or a manufacturing plant.

48
Q

Factors influencing the attractiveness of international markets

A

-Economic characteristics of the market e.g. size, GDP, growth, stability

-Trade agreements

-Political stability

-Cultural differences

-Infrastructure including transportation, logistics and costs.

-Degree of competition

-Opportunities e.g for alliances or licensing.

-Assessment of risk

49
Q

What is Off Shoring and some reasons for using it?

A

-Off shoring
-The process of moving business
functions e.g production and IT
support, abroad.

Reasons for:
-Lower costs
-Higher productivity
-Enter new markets
-Overcome domestic regulations
-Talent pool

50
Q

What is Re-Shoring and some reasons for using it?

A

-ReShoring
-The process of moving previously off
shored business functions back to
country of origin.

Reasons for:
-Cost savings no longer so significant
-Quality issues
-Infringement to intellectual property
-Shorter lead times
-Government incentives

51
Q

What is a multinational company and what are their advantages.

A

-Large businesses that operate in a number of different countries.

Advantages:
-Economies of scale
-Economies of scope
-New market development
-Strong brand recognition
-Market dominance
-Shared expertise.

52
Q

What are influences on buying selling and producing abroad?

A

-Corporate objective
-Strategy e.g low cost or highly differentiated, market development
-Economic and political stability
-Cultural differences
-Investors
-Attitudes to risk

53
Q

What are the pressures for local responsiveness?

A

-Responding to cultural diversity

-Ease with which products can be altered

-Unintended meanings/inappropriate marketing

54
Q

What are the pressures for cost reductions?

A

-Ability to benefit from economies of scale

-Whether a business competes by being low cost or highly differentiated

55
Q

Bartlett and Goshal’s global strategy?

A

-There is pressure to achieve cost savings through global integration
-There is little pressure to adapt products to meet local differences
-Therefore the business sells largely homogeneous products
-Subsidiaries abroad have limited functions e.g marketing

56
Q

Bartlett and Goshal’s Transnational strategy?

A

-There is pressure to achieve cost savings through global integration.
-There is pressure to respond to local differences.
-The business encourages sharing of ideas and expertise between subsidiaries.
-Foreign subsidiaries enjoy a relatively high level of autonomy.

57
Q

Bartlett and Goshal’s international strategy?

A

-There is little pressure to achieve cost savings through global integration.
-There is little pressure to adapt products to meet local differences
-The business primarily runs from the home country

58
Q

Bartlett and Goshal’s Multidomestic strategy?

A

-There is little pressure to achieve cost savings through global integration
-There is little pressure to adapt products to meet local differences.
-The business operates a portfolio of relatively autonomous organisations

59
Q

The impact of internationalisation for the functional areas of the business.

A

-Marketing
-Market research to understand
different markets
-Marketing to different cultures,
languages and religions
-Product portfolio
-New market development

-Finance
-Accounting standards
-Tax liabilities
-Exchange rate fluctuations

-Operations
-Working with suppliers
-Maintaining quality
-Research and development
-Technological advancements

-Human resources
-Workforce planning
-Health and safety
-Language barriers
-Communication

60
Q

What is digital technology?

A

-Digital technology is the use of computers to find, store, analyse, manipulate and communicate digital information.

-Digital technology includes:
-E-commerce
-Big data
-Data mining
-Enterprise resource planning(ERP)

61
Q

What is E-Commerce?

A

-E-commerce involves digitally enabled commercial transactions between and among organisations and individuals.

-Commercial transactions can be:
-B2B
-B2C
-C2C

-How it’s growing?
-Improved internet speed
-Convenience
-Competitive advantage
-Safer payment
-Increased confidence

62
Q

What is competitive rivalry formed by?

A

-New competitors

-Buying power of customers

-Selling power of suppliers

-Threat of substitutes

63
Q

What is Big data?

A

-Big data refers to the volume of data that can now be accessed as a result of technological advancements.

-Collected from customer transactions
-Increasingly sophisticated commercial datasets
-Government statistics
-Detailed insight into demographic trends, consumer lifestyles and behaviours
-Market intelligence
-Easily stored

64
Q

What is data mining?

A

-Data mining refers to the ability to manipulate and analyse the data to inform decision making

-Extrapolate trends in the market
-Target advertising
-Sales forecasting
-Product development
-Record response rates to advertisements
-Inform resource planning e.g inventory, workforce
-Take advantage of bloggers and influencers e.g individuals with a high social media profile.

65
Q

What is Enterprise Resource Planning(ERP)?

A

-Management software that enables greater integration between all functional areas.
-Functional areas:
-Inventory
-Production
-Accounting
-Purchase
-HR
-Delivery
-Sales
-Engineering
-Production planning

66
Q

What is the Value of digital technology?

A

-Ease of entering new markets
-More informed new product development
-Greater integration of functional areas
-Availability of information to stakeholders
-New processes e.g. E-Commerce, automation.

67
Q

The impact of Digital Technology on the functional areas of a business?

A

-Marketing
-Growth in e-commerce
-Price comparison websites
-Social media and viral marketing
-Product life cycle
-Degree of competition

-Finance
-Investment in technology
-Online transactions
-Budgetary control
-Frequency of reporting

-Operations
-Resource management e.g inventory
-Automation
-Quality
-Research and Development

-Human resources
-Workforce practises
-Training
-Homeworking
-Employee engagement

Business (11 decks)

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