9. Strategic methods: How to pursue strategies Flashcards
When does change occur?
Change occurs when firm alters its structure, size or strategy to respond to internal or external influences
Reasons for change
Meet objectives
Respond to external forces
Respond to internal forces
Gain competitive advantage
Growth definition
Increasing size of firms operations e.g. new stores, new products, new markets
Reasons for growth
Increased shareholder value
Increased market share
Reduce average costs
Retrench definition
Downsizing scale of firms operations e.g. closing branches, selling of parts of firm
Reasons for retrenchment
Turn around poor performance
Focus on core firm
Restructure to increase efficiency
Organic growth
Internal growth - firm expands in size by opening new stores and branches
External growth
Firm expands in size by merging or taking over a firm
Economies of scale
Firm increases scale of operations leading to fall in unit costs
Lower unit costs effects
Reduce prices
Increased sales revenue
Economies of scope
Increases scale of operations by expanding range of activities it undertakes leading to fall in unit costs
Diseconomies of scale
Increase in scale of operations that causes rise in unit costs
Experience curve
Having both managers and employees who are familiar with the running of the firm
Synergy
Two firms join together will be able to achieve more than sum of two firms separately
Overtrading
Firm expands too quick resulting in operating at level beyond its resources causing liquidity problems
Greiner’s growth model
As firm grows in size it will go through series of changes in terms of management and structure
Model shows how firm evolves over time but periodically reaches crisis point where actions are needed
Greiner Phase 1
Phase 1 - creativity and lack of formal hierarchy
Crisis 1 - need for direction
Revolution - leadership
Greiner Phase 2
Phase 2 - more formal approach including introduction of functional structure
Crisis 2 - autonomy
Revolution - greater delegation
Greiner Phase 3
Phase 3 -decentralised decision making and possible introduction of profit centres
Crisis 3 - fear of loss of control
Revolution - introduce more formal procedure
Greiner Phase 4
Phase 4 - centralised decision making, introducing more formal policies
Crisis 4 - red tape
Revolution - coordination HQ and functions
Greiner Phase 5
Phase 5 - Greater communication and team work between head quarters and functional areas
Methods of growth
Mergers
Takeovers
Ventures
Franchising
Conglomerate
2 unrelated firms integrate
Joint ventures
2 or more firms agree to act collectively to set up new firm venture with all parties contributing equity
