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A2 Business > Chapter 11-Strategic change > Flashcards

Chapter 11-Strategic change Flashcards

1
Q

why do businesses grow?

A
  • Break even/Profit
  • Economies of scale to get cost advantages
  • remain with competition
  • Spreads risk of something going wrong
  • you can cope with recession better
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2
Q

why do businesses retrench?

A
  • weak demand in a market
  • Strong competition and cant keep up
  • Refocuses to gain specialisation
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3
Q

what are the reasons for why it is possible to grow?

A
  • Rising demand for your product/Services
  • Strong economies of scale to reduce price so demand goes up
  • Identification of new markets
  • strong economy so generally high demand for things
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4
Q

what two ways can a business grow in?

A

Organic

External

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5
Q

what is organic growth

A

when a firm expands its existing capacity by extending its premises or building new factories from its own resources rather than by integration with another firm

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6
Q

What is external growth?

A

when two or more firms merge or takeover

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7
Q

what are the advantages of organic growth?

A
  • Can maintain its current management style
  • less risk because its expanding in what the business is good at
  • easier to manage internal growth
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8
Q

what are the disadvantages of organic growth?

A
  • Can take a long time to grow a business internally
  • if the market isn’t growing the business is restricted to increasing its market share
  • May miss out on opportunities for more ambitious growth
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9
Q

how can diseconomies of scale bring problems to a business?

A

the growth of a business is too fast so the business loses control on its communication/quality and morale and unit cost go up because a bigger business is harder to manage than a small one

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10
Q

what are economies of scope?

A

cost advantages that result from firms providing a variety of products rather than just specializing in one. it can also reduce the risk of the business failing because sales are not just based on one product

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11
Q

what is the experience curve?

A

As a business gets more experienced with making a product the better, faster and cheaper it is likely to be producing. The experience curve slows down and it will become harder to reduce costs and speed up production over time

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12
Q

what is overtrading?

A

a business doesn’t have enough working capital to keep the business operating, this might be because the business has loads of money tied up in assets

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13
Q

what are the problems of growth?

A
  • Diseconomies of scale
  • The experience curve (when it gets to a point)
  • Overtrading
  • Growth via external means could be too fast
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14
Q

what are the problems of retrenchment?

A
  • Morale of employees falls
  • Reputation: the idea of redundancy may give you a bad rep
  • Brain drain: you might have to get rid of specialists
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15
Q

what are the solutions to having to retrench?

A
  • Natural wastage: Don’t get rid of anyone but when they leave don’t replace them
  • Delayering: getting rid of a tier of management so the number of people that your involved with is less
  • Partial closure: Closing part of your business eg. several stores
  • Change of control: Bringing in someone new to guide you through the retrenchment process
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16
Q

what are some of the internal economies of scale?

A

Technical economies of scale: bigger businesses can become more capital intensive so wage costs fall
managerial economies of scale: Large businesses employ managers with better skills to make the business more efficient and quick
Purchasing: Bulking buying and can borrow money at lower interest rates
Marketing: larger outputs can spread costs over more units because marketing costs are usually fixed

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17
Q

what are external economies of scale?

A

make a whole industry or area more efficient

18
Q

what are internal economies of scale?

A

increase the efficiency within a firm

19
Q

what are some of the external economies of scale?

A

-having a lot of suppliers to choose from so they can negotiate cheaper prices easier

20
Q

what going to be the impact of growing and retrenching on the marketing department?

A

Growth: more promotion, bringing in more specialised staff, gretaer marketing economies of scale
retrenchment: less money spent on promotion, have to keep the profile of the business going

21
Q

what going to be the impact of growing and retrenching on the Operations department?

A

Growth: More output, greater capital insensitivity so less staff?’, lower unit cost because of bulk buying
Retrenchment: loss of jobs, relocation to smaller factory, more labour intensive

22
Q

what going to be the impact of growing and retrenching on the Finance department?

A

Growth: higher costs, retained profits, less risk, easier credit
retrenchment: Cash flow difficulties leading to lower profits

23
Q

what going to be the impact of growing and retrenching on the HR department?

A

Growth: Recruitment, more training, less control because of more staff leading to communication difficulties
Retrenchment: Union activity, less jobs, delayering

24
Q

what are the possibilities of growth?

A

mergers
acquisitions (takeovers)
Ventures
Franchising

25
Q

what is a merger?

A

when two or more firms agree to come together under one board of directors

26
Q

what are the motives behind why a business opts for a merger in order to grow

A

costs: it might cost more for growing organically than merging
Branding: might take a long time to develop a brand so might just want to buy one eg. Kraft bought cadburys
Asset stripping: u might be able to buy a business and then sell off particular assets for more than bought it for
Synergy: might be able to merge with a business and then be worth more than the combination of the two businesses net worths

27
Q

what is a venture?

A

arrangements between two or more firms most usually involve companies in the early stage of development with high growth potential

28
Q

what are venture capitalists?

A

people looking to provide their money and technical expertise to a business in the early stages of development in return for a share in the business

29
Q

what is franchising?

A

when a franchiser is able to expand the business by getting other people (the franchisee) to replicate the format of the business in other areas but the control remains with the franchiser

30
Q

what is the benefits of franchising as a franchiser?

A
  • Regular reward eg. percentage of the profits
  • Little expense, you don’t have to buy the premises
  • rapid expansion
  • purchasing economies of scale are quicker to put in place
  • Control over standard and quality remains
31
Q

what are the benefits to a franchisee?

A
  • Low risk because you get to keep the brands rep
  • established brand name
  • Banks are more willing to lend money to them because the franchiser has to make sure the location of the site is going to be successful
  • lower advertising costs
  • Supply sorted, stuff will just arrive
32
Q

what are the disadvantages to the franchiser?

A
  • possibly high upfront costs to establish the franchise system
  • The franchisee may ruin your rep
  • Possible pressure from franchisee to change things
33
Q

what are the disadvantages to the franchisee?

A
  • other franchisees could give the brand a bad rep
  • Non competition clause agreeing not to set up competing businesses in the franchisers industry
  • hard to sell a franchise if it isn’t doing very well
34
Q

what is integration?

A

the coming together of two businesses via a merger

35
Q

what is a acquisition?

A

where one firm buys a majority share in another firm and assumes full management control

36
Q

what is synergy?

A

the whole is greater than the sum of the parts

37
Q

what is grieners model of growth

A

a model describing the different phases of company growth each of which include a calm period of development and ends with a crisis

38
Q

what are the six stages of grieners model of growth?

A 
creativity 
direction
delegation
co-operation 
collaboration
39
Q

what is vertical integration?

A

the coming together of firms in the same industry but in different stages of the production process. It can be backward and forwards

40
Q

what is horizontal integration?

A

the coming together of firms operating at the same stage of production and in the same market

41
Q

what is conglomerate integration?

A

the coming together of firms in unrelated markets

42
Q

give an example of a business that backward vertically integrated

A

Zara

A2 Business (15 decks)

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