3.9 strategic methods Flashcards
why is growth an important objective for any businesses
business growth can create wealth for the owners
it can also leverage a number of benefits and opportunities for the business that may nor may not be available to smaller organisations
why is organic growth a lower risk option than external; growth
steady and gradual whereas external growth is very sudden and can bring about significant change in an organisation
benefits of external growth
offers the opportunity for fast expansion but with the risk of clashes in the way the two businesses that have been joined together operate
eg of organic growth
market penetration
product development
market development
external methods of growth
mergers
takeovers
joint ventures
benefits of business growth
synergies
the experience curve
economies of scope
economies of scale
synergies
external growth can bring businesses together that complement one anothers strengths eg one business could be extremely innovative whilst another might have the financial power to support investment in r&d
synergies may not occur when there is a clash of cultures
the experience curve
big businesses typically have more experience than smaller businesses
they have made mistakes and have gained knowledge and experience that smaller businesses dont have
however big businesses can sometimes become complacent- happened to m and s in mid 1990s
economies of scope
operating with a wide variety of products in a number of markets creates benefits theorugh reduced costs which are shared across the different product lines and spreading the risk of any one product failing
nevertheless widening a businesss scope may lead to a loss of focus on any particular product or market and potentially poor performance
when do economies of scale occur
when unit costs fall as a business expands- theese are the advantages of business size
benefits a business gains as it grows in size relating to economies of scale
purchasing economies- bulk buying
technological economies-larger businesses can invest in the best technology
financial- larger businesses have more collateral and can raise more capital especially if PLC)
managerial- larger business can employ specialists to manage a particular aspect of the business
the benefits and drawbacks of growth
economies of scale result in unit costs falling as the business grows in size
however at a certain point the business will start to experience diseconomies of scale
here unit costs will start to rise as the business starts to lose some of the efficiencies it gained from growth
for many businesses there is an optimal size where they are able to operate efficiently
furthermore large businesses can lose some of the advantage they had when they were smaller
diseconomies of scale
occur when unit costs rise as a business expands- therse are the disadvantages of sizew
what issues can a business face as it grows
communication problems- becomes harder to communicate a clear message across the organisation
control- inorder to control the organisation layers of management are added
this slows down decision making and quality becomes harder to monitor
flexibility- due to the issues of communication and control the business may be less flexible in its ability to adapt to the changing business enviornment
motivation- workers in large organisations find it difficult to see the impact they have and feel less significant
overtrading
occurs when businesses grow too fast and overstretch their financial resources such as cash
a business may also face logistical problems if it cannot manage operations
overtrading can lead to business failure
retrenchment
there may be times when a business needs to reduce its scale
this may be to counteract the problems of diseconomies of scale or to improve efficiency and reduce costs as demand falls
perhaps as a resukt of a downturn in the economic climate
what may retrenchment involve
redunandcies
closure of branches
discontinuing product lines
pulling out of international markets
delayering
reallocating expansion plans
outsourcing aspects of the business’ss operations
greiners model of growth
considers some of the issues a business might face as it grows in scale
the model can help managers predict and plan for different issues as the business grows
how many phases are in greiners model
6
what are the 6 phases of greiners model
phase 1- growth through creativity
phase2- growth through direction
phase 3- growth through delegation
phase 4- growth through coordination
phase 5-growth through collaboration
phase 6- growth through alliances
growth through creativity phase 1
informal business practices
business driven by creativity and all employees understand the impac they have on the business
rules are not clear
growth thriugh direction phase 2
leadership crisis
as the business grows some tasks may get missed or jobs will be duplicated
at some point clear direction is needed along with leadership
growth through delegation phase 3
autonomy crisis
as the business hrows there is a need for more delegation as managers desire autonomy to make their own decisions and respons to localised issues
growth through coordination phase 4
crisis of control
as the business continues to groq directors may feel they are losing control of some aspects of the business and they worry about strategic direction
growth through collaboration phase 5
red tape crisis
as the leaders put in place systems and mechanisms of control, bureaucracy leads to inefficiencies and a distraction from the core business activities
growth through alliances phase 6
growth crisis
as the business reaches its potnential for internal growth it may look for growth through external collaboration
this brings with it a new set of dilemmas
what does the greiner model demonstrate
the conflicting forces managers will face as a business grows
mainly ther are fluctuations between controlling the business and providing autonomy to maximise employee potential and adapt to specific needs
impact of managing growth/greiner model on business functions
marketing
finance
operations
human resources
how does managing growth and the greiner model impact on marketing
as businesses grow they will launch new products and move into new markets
marketing must ensure that the business understands the needs of its new customers and effectively promotes new ventures
how does managing growth/greiner model impact on finance
as businesses grow cash flow is essential
furthermore finance should identify the capital investment required to finance growth and find suitable sources of financing
how does managing growth/greiner model impact on operations
operations will look to maximise capacity and put in place sustems to manage increased production and sales
operations may also need to find additional capacitu to cope with expansion
how does managing growth/greiner model impact on human resources
as businesses grow so will the workforce
human resources will recruit and train the new employees
methods of external growth
takeover
joint venture
merger
franchise
takeover
also known as acquisition which may be hostile or voluntary
one business will acquire another along with it assets
if hostile the takeover is riskier for the acquiring busines
joint venture
two businesses come together to work on a particular project such as a product launch
information and expertise will be shared but the business will remain seperate, removinf the problems of integrating two businesses
merger
two businesses come together for mutual benefit
this may be to share strengths or with the purpose of business survivial
the business will seek synergies through the merger
franchise
growth through selling the rights of the business (name, product, assets) to a third party (franchisee) who will run the business independantly following the business model
the franchisee will pay a % of revenue
requires little effort or investment but requires close monitoring
disadvantages of takeovers/aquisitions
more likely to be resistance from employees, customers and shareholders if they believe their own interests may be damaged- loss of jobs
levels of control with methods of growth
high control/influence
takeover
franchise
merger
joint venture
low control/influence
options available to a businesss looking to externally grow through a takeover, merger or joint venture
backwards vertical
conglomerate
forwards vertical
horizontal
backwards vertical
taking over a supplier
conglomerate
taking over an unused business in a different market
forwards vertical
taking over a customer
horizontal
merging with a business at the same level of the supply chain
innovation
involves a business developing new products and processes to create products or distribute them to customers
innovation through product development creates benefits for customers
process innovation can help a business become more efficient
both types of innovation increase competitiveness and this is why many businesses have to continually innovate
political change as a pressure of innovation
may alter regulations around products which open up new opportunities or force businesses to amend current products to meet the new requirements
economic change as a pressure of innovation
in an economic downturn there is pressure for businesses to improve efficiency and lower costs
social change as a pressure of innovation
trends and tastes are continually developing, meaning businesses have to keep up with consumer expectations
technological change as a pressure of innovation
as new technologies are developed businesses face the challenge of keeping up to date in order to compete
competitive change as a pressure of innovation
as competitors innovate businesses must be able to match this innovation if they are going to maintain market share
how does leadership support innovation
acceptance of failure
innovation is rewarded
sharing is commonplace
listening to all shareholders
culture
how does culture encourage innovative practices
a business may have a culture of innovation
these issues must be accepted and encouraged within the company
how does leaderhsip support innovation
the leadership within a business must set innovation as a priority, lin innovation to the corporate objectives and make resources availabe to support it
what techniques might a business adopt to encourage innovative practices
kaizen
intrapreneurship
benchmarking
research and development
how can kaizen be used to encourage innovative practices
continuous improvement
kaizen groups meet regularly to discuss and develop incramental improvements that can be applied across theorganisation
kaizen brings together workers from across the organisation to work together on improvement
how does intrapreneurship encourage innovation
individuals are given time within their working week to develop their own ideas and work on innovative projects
intrapreneurs are then given support and authoritu to implement their ideas
this encourages the development of intellectaul property
how does benchmarking encourage innovative practices
managers may set a target based on best practice or shining example for a similar business
this is then set as the standard that the business must aim to achieve
benchmarking works well where there is collaberation between businesses r within an industry
how does research and development encourage innovative practices
in innovative organisations a considerable amount of money will be invested in research and development
research and development may be built into an employees working week
the value of innovation
a business may improve competitiveness through better wuality, faster delivery, lower costs or improved service
innovation can directly influence each of these
furthermore without innovation a business will lose ground on its competitors leading to a loss of market share and possible failure
innovation may provide a business with a competitive advantage but may also be a threshold requirement for it simply to maintain its place
issues with innovation
innovation iss constant change-sometimes a business might need to get good at what it does instead of going through a constant cycle of change
innovation is no gaurantee a success- time and resources can be wasted if innovation is not successful
firest mover advantage- innovation can be expensive and other businesses can sometimes copy and reap similar benefits
how can a business protect its innovations such as designs, inventions, intellectual property and creative content
patent
copyright
trademark
design rights
patent
protects inventions and products if registeration is successful
copyright
literary work and creative content- no need for registration
trademark
product name, logo and jingles- registration required
design rights
on styles, shapes and objects- no ned for registration
disruptive innovation
occurs where innovation considerably alters a market eg digital photography or music downloads
can cause significant problems for businesses as they have to make the choice between adopting new technology, processes and products or sticking with what they know
a these times disruptive innovation can result in some big questions being asked and major change within business
what business functions can innovation impact
marketing
finance
operations
human resources
how does innovation impact marketing
marketing must provide the drive for innovation within a business by identifying the needs of customers
how does innovation impact finance
finance must make a long term commitment to innovation through investment in R&D
profits may also need to be retained in order to finance growth through innovation
how does innovation impact operations
operations managers may be responsible for developing new products or implementing process innovation to improve efficiency and reduce costs
how does innovation impact on human resources
job design and working practices must encourage employees to be innovative
eg giving employees the opportunity for job enrichment and rewarding innovative ideas put forward by employees
internationalisation
large businesses now operating on an international scale as operating in international markets become easier and cheaper
incentives of internationalisation
improvements in transportation
improvements in communication
trade agreements including custom unions such as EU, NAFTA, ASEAN
opportunity to target a larger population and neter new geographical markets
the need to counteract foreign competition
risks for businesses of internationalisation
reliability when dealing with some international businesses and shipping companies
existince of trade barriers such as quotas and tariffs between some countries
issues of dealing with local trends and customs
language barriers
tariff
a tax placed on foreign goods and services
a quota is a limit on the number of imported goods and services
methods of entering international markets
exporting
direct investment (set-up abroad)- multinational compaies
licensing
alliances
exporting
produces domestically but ships products abroad
lowest risk strategy but may have to deal with protectionist measures imposed by foreign countries
direct investment (set up abroad)
involves investing overseas into production facilities retail and distribution facilities
can be highly profitable but capital intensive- firm becomes a multinational
licensing
giving the rights to a foreig country to produce goods/services for a foreign market
this gains an insight into new markets as a test but responsibility for sales passes to another business
alliances
partnership with foreign firm
risk is shared as well as expertise of operating in the foreign market
profits are shared with partner
multinational companies
a business with production in more than one country
MNCs are often welcomed by foreign governments (including the UK) because they create jobs bringing investment to the country and increase tax revenue
benefits of MNCs
better access to local markets
may receive tax incentives from local government
costs of production (eg labour costs) can be lower
operating in multiple countries spreads the risk
drawbacks of MNCs
harder to manage business across countries-time zones legislation consistency
attention taken away from home markets
some multinationals are criticised for damaging local traditions and taking trade away from local businesses
what factors will a business consider when choosing which international markets are viable options
barriers to entry
similarities to/differences from home market
PESTLE factors
competitive rivalry within the market
alignment with the business’ corporate strategy
size and growth potential
pressures for internationalisation
the pressure for growth-growth leads to greater profitability a key driver of shareholder value
the pressure to lower costs-manufacturing abroad can be cheaper mainly due to the lower labour costs
location- businesses may need to have close proximity to resources and skilled labour this can speed up transportation and lower transport costs
declining domestic markets- to continue growth businesses may seek opportunities in international markets
outsourcing
where businesses move production overseas
re shoring
where production is moved back to the domestic country
reasons for outsourcing
lower costs
closer to resources
lower distribution costs
avoids barriers to trade
reasons for re shoring
pressure to support local employment
better quality can be achieved domestically
the bartlett and ghoshal matrix
considers the different approaches a business might take towards internationalisation
the matrix considers two variables: the level of responsiveness to local markets and the drive for a standardised global product
what are the two axis labelled on the bartlett and ghoshal matrix
top axis- national responsiveness from low to high
side axis- global integration from low to high
what are the 4 areas on the bartlett and ghoshal model
global strategy
transnational strategy
multi domestic strategy
international strategy
where is global strategy on the bartlett and ghoshal model
high global integration
low national responsiveness
where is transnational strategy on the bartlett and ghoshal model
high global integration
high national responsiveness
where is multi domestic strategy on the bartlett and ghoshal matrix
low global integration
high national responsiveness
global strategy
a standardised product sold around the world
transnational strategy
highly responsive to local markets but business is highly integrated sharing knowledge and expertise
multi domestic strategy
products and services tailored for local markets; subsidies may operate independently of one another affiliated to the brand
international strategy
products produced for the domestic market with some slight alterations for international markets-perhaps to meet national standards
issues of global strategy
businesses maximise the benefits of economies of scale and efficiencies but will struggle in markets where localised needs exist
issues of transnational strategy
business operates as one entity and there is lots of sharing and learning together
very hard to implement effectively but successful transnational businesses benefit from economies of scale but remain responsive to demands of local markets
issues of multi domestic strategy
a true MNC- the business is completely focused on meeting local needs through decentralisation
highly adaptive but difficult to manage and control strategic direction of the business
issues of international strategy
business focussed on domestic markets but through slight modifications with a product to export
gains benefits to economies but makes slight tweaks to satisfy localised needs
risks of internationalisation
anti globalisation
cultural differences
differing styles of business
ethical standards
how is anti globalisation a risk of internationalisation
anti global pressure groups and a growing distaste for international firms in some industries can draw negative publicity for MNCs
how is cultural differences a risk of internationalisation
often very subtle and form barriers to entry
in particular marketing can be very difficult in foreign markets
how is differing styles of business a risk of internationalisation
often linked to cultural norms
nations negotiate and make decisions differently
this can make partnerships and trade more complicated
how are ethical standards a risk of internationalisation
moral codes in business are not the same across countries
neither are legal systems to protect businesses and consumers
what business functions can internationalisation impact
marketing
finance
operations
human resources
how can internationalisation impact on marketing
marketing must be able to understand cultural differences and communicate effectively with customers in foreign markets
understanding needs of foreign customers can be very challenging and may require localised expertise
impact of internationalisation on finance
exporting may require limited financial investment but becoming an MNC will require significant capital investment and long term finance
how can internationalisation impact operations
distribution and transportation will become a significant operational issue
the business may also have to learn to manage multiple product varieties in order to meet local needs
maintaining economies of scale will be a key challenge
how can internationalisation impact human resources
as with marketing localised skills may be required to recruit and train staff
it may be necessary for managers and specialists to relocate in order to establish international production
what digital technologies are shaping the strategic direction of a business
e-commerce
data mining
big data
enterprise resource planning
e-commerce
continues to grow as delivery networks and collection lockers become more effective and accessible
benefits of e commerce
the growth of mobile devices means online purchasing can happen anywhere and at any time
prices are transparent
there is greater access to suppliers
start up costs are low
drawbacks of e commerce
it is not suitable for all products where customers need to touch and experience the product
delivery costs can be expensive
lots of fraud is committed through e commerce
data mining
a process of analysing business data to identify patterns and relationships between a number of variables
eg demographics and buying behaviour in supermarkets
benefits of data mining
businesses are able to profile customers and better understand their needs
it uses analytics to effectively target customers with offers and products that they will want
it accurately forecasts sales numbers based on a wide variety of data including economic and social trends
drawbacks of data mining
it may only be valuable to large firms where a large quantity of data is available
correlation of data doesn’t necessarily mean there is a relationship
big data
closely linked to data mining
big data refers to the vast quantities of information that businesses are now able to collect through sources such as GPS data, car code readers and social media
these huge datasets give businesses vast amounts of information to help them make decisions
enterprise resource planning
the data management software that links the functional areas of a business together such as stock ordering, customer relationship management, human resource management and financial management
benefits of enterprise resource planning
ERP improves flexibility and efficiency by coordinating the functions of a business
it provides managers and employees with useful information on a number of business processes
drawbacks of enterprise resource planning
there is the cost of developing the system for businesses specific needs
there has to be investment in training staff to effectively use the system
how can digital technology improve the competitiveness of a business
faster access to information
knowledge management systems can replace need for a moderate level of expertise
better communication between employees and functions
offers new ways of doing business (paperless transactions, crowdfunding, virtual reality)
the pressures of digital technology
technology can remove barriers to entry increasing the level of competition in markets
technology creates transparency in markets- customers can easily compare prices and find online reviews
constant change- the pace of technology is extremely fast and it can be very difficult for businesses to keep up with these advancements
disruptive technology- disruptive technology is a threat for many businesses should their current technologies become obsolete
what business functions can digital technology impact on
marketing
operations
finance
human resources
how can digital technology impact on marketing
big data gives businesses access to vast amounts of information on thru customers
effective use of this information in order to understand customer needs can improve products and customer service
impact of digital technology on finance
digital technology provides businesses with the ability to monitor financial transactions and closely monitor business costs
thus leading to greater efficiency and control over budgets
impact if digital technology on operations
ERP systems can integrate all aspects of production leading to greater efficiency and reduced waste
eg just in time stock control systems will reduce inventory levels and free up cash
impact of digital technology on human resources
a modern day workforce must be computer literate and have the skills to work with data management software
technology can also replace some of the decision making processes formerly made by humans
the value of change
change can create a number of opportunities for businesses such as creating new markets
change is also an opportunity for businesses to re evaluate what they do in order to improve productivity efficiency quality and profitability
however many stakeholders will see change as a threat
i’d businesses do not foresee some changes or manage change poorly this can result in business failure
what are the different rules of change
internal or external
rapid and unexpected
long term
incremental
disruptive
internal or external change
change driven by internal factors such as management and strategic direction or change driven by external forces such as economic conditions
rapid and unexpected change
such as in response to a disaster
long term change
steady planned and gradual
incremental
broken down into steps gradual improvements over time
disruptive change
adapting to external forces that change the nature of the industry
lewins force field analysis
model presents a business with the opportunity to determine the forces driving change vs those resisting it
change may be deemed necessary but will not happen if resisting forces are greater than the driving forces
managers can use this model to identify resistance and develop strategies to remove them
these forces can be internal or external
forces for change
high number of customer complaints
productivity falling
significant investment in new technology by a leading competitor
forces resisting change
lack of funding
limited understanding or appreciation that change is needed
no strategic direction to drive the change
value of flexible organisations
rigid organisations may find it more difficult to adapt to a changing environment or the internal pressures for change
the more agile a business is the easier and faster it will be able to manage the change process
what approaches can a business use to add flexibility
delayering
organic structures
information and knowledge management
restructuring
flexible contracts and felixibke teams (matrix structures)
how can delayering add flexibility to a business
remove unessecary levels of hierarchy
how can an organic structure add flexibility to organisations
organisational structure where teams evolve depending on the needs of the task
teams based around projects not functions
how can information and knowledge management add flexibility to a business
through technology vast amounts of information are available to managers
how they use and share this information is key to flexibility by identifying changes before they happen and evaluating strategies
reasons for resisting to change
self interest
prefer present state
different assessment
misunderstanding
self interest as a reason for resistance to change
individuals may lose out in terms of pay status or anticipating harder work
prefer present state as a reason for resistance to change
some employees may be very comfortable with the current situation
change will take them outside their comfort zone
different assessment as a reason for resistance to change
some employees may simply disagree and believe that change is not necessary or that a different approach would be more successful
misunderstanding as a reason for resistance to change
employees may not see the need for change or nah not understand what the change process will involve-fear of uncertainty
what might change include
new technology
new ways of working
new products
new structures
new processes and regulations
new members of staff (leadership)
what approaches can be used to overcome resistance to change
education and communication
facilitate and support
participation and involvement
manipulation and co option
negotiation and bargaining
explicit/implicit coercion
education and communication as an approach used to overcome resistance to change
clearly share the reasons and logic behind the change and provide necessary training in new approaches
facilitate and support as an approach used to overcome resistance to change
give employees what they need to accomplish the change along with encouragement and support
participation and involvement as an approach used to overcome resistance to change
involve employees in the decision making so that they have ownership of the change
manipulation and co option as an approach used to overcome resistance to change
involve and influence key people
get individuals with influence on board and use them to drive the change
negotiation and bargaining as an approach used to overcome resistance to change
compromise may involve employees receiving higher wages or better working conditions
explicit/implicit coercion as an approach used to overcome resistance to change
force change through using authority
threats may be involved- openly or applied
long term success may be more important than short term agreement
what factors determine what the most appropriate tactic to deal with the change process is
the reason for resistance
the level of resistance
the time available
the leadership style of the managers involved
who created a model to overcoming barriers and approaches to change
kotter and schleslinger
managing information and knowledge
businesses have far greater access to information that they have ever had before through technology such as store/loyalty cards social media and data mining
the effective use of this information can give a business an insight into likely changes ahead
if businesses use this information wisely they are better placed to foresee and manage change within the organisation
the same is true of knowledge
expertise must be managed shared and retained in the business eg experience of managers who have successfully gone through significant change
what do factors contributing towards the culture of a business determine
the way the business operates
may respond to the external environment and changes within the business
what factors contribute towards the culture of a business
rituals-significant events or ways of doing things
key personalities- leaders and employees who influence others
rewards- what the business recognises as success and the way it rewards this
stories- things that have happened good or bad in the past
physical environment
