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sbm > Growth Stategies & Options > Flashcards

Growth Stategies & Options Flashcards

1
Q

What is business growth?

A

Business growth refers to the process of improving some measure of the enterprises success.

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2
Q

Why is business growth important?

A
  1. Customer taste and preferences are continuously changing.
  2. New entrants in the market erode market share.
  3. To meet internal demands, such as profits for its owners.
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3
Q

How is business growth measured?

A
  1. Profits and turnover
  2. Assets and investments.
  3. Market share.
  4. Size (of employees)
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4
Q

What is a strategy?

A

A strategy is a pattern of actions and resource allocation in order to achieve the goals of an organization.

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5
Q

Process of strategic planning.

A
  1. Develop a vision
  2. Analyse the environment
  3. Set long term objectives.
  4. Develop strategies
  5. Develop action plans
  6. Implement and control
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6
Q

What are the 2 types of basic growth strategies?

A
  1. Internal growth strategy
  2. External growth strategy
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7
Q

Explain internal growth strategy.

A

Internal growth strategy refers to the expansion from within the organization. This is by increasing their own assets or outputs through the reinvestment of cash flows in existing businesses.

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8
Q

Internal growth can be achieved by..

A
  1. Increased market share
  2. Gaining and maintaining customer and consumer confidence.
  3. Achieving economies of scale
  4. Expansion of new markets, niches and loacations
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9
Q

Strategic options of internal growth.

A
  1. Cost leadership
  2. Differentiation
  3. Focus or specialization
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10
Q

Advantages of internal growth?

A
  1. Incremental (slow paced) growth
  2. Provides maximum control
  3. Preserves organization culture
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11
Q

Disadvantages of internal growth strategies are.

A
  1. Need to develop new resources
  2. Slow form of growth
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12
Q

What is external growth strategy?

A

External growth strategy refers to the expansion outside the organization. This is by performing mergers and acquisitions.

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13
Q

What are the main 3 external growth strategies?

A
  1. Vertical integration
  2. Horizontal integration
  3. Lateral integration
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14
Q

Explain vertical integration.

A

Occurs when a firm buys another that is at a different level of value addition than itself. For instance, buying its supplier or it’s customer.
When a firm buys it supplier, it is known as backwards integration. When a firm buys its customer, it is known as forward integration.

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15
Q

Explain horizontal integration.

A

Occurs when a firm buys another in the same level of value addition to itself.
An example of this is when Facebook bought Instagram.

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16
Q

Explain lateral integration

A

Occurs when a firm does not buy its supplier, customer or competitor. This happens when a firm wants to diversity into another industry or product to reduce risks.

17
Q

Name the other 2 external growth strategies.

A
  1. Northern integration
  2. Southern integration
18
Q

Explain northern integration

A

Occurs when a firm buys others seeking to enter in a particular sector, in order to prevent this from happening. Market DOMINANCE is the motive.

19
Q

Explain Southern integration.

A

Occurs when a firm buys up the means of production of critical substitutes products. This is motivated to exert dominance and to increase influence.

20
Q

Advantages of external growth strategy.

A
  1. Diversification of business risks.
  2. Reducing competition
  3. Gaining access to new products and markets.
  4. Access to an astablished name
21
Q

Disadvantages of external growth strategies.

A
  1. Clash of corporate cultures.
  2. Operational problems.
  3. Loss of organizational flexibility
  4. Increased business complexity
22
Q

What is a merger?

A

A merger is the pooling of interests to combine two or more firms into one.

23
Q

What is an acquisition?

A

An acquisition occurs when a firm completely acquires another firm.

24
Q

Mergers & acquisitions can be done in order to gain access or control the following:

A
  1. Customer base and portfolios
  2. Foothold of new markets, sectors and locations.
  3. High profile brand names.
  4. High value firms.
25
Q

What are the challenges to the success of mergers and acquisitions?

A
  1. Evaluation of the business - thorough investigation is needed in order to determine the potential benefits of the acquired business.
  2. Cultural factors - cultural differences need to be properly managed given that they play a significant role in the performance of the merged firms.
  3. Implementation difficulties - implementation difficulties often arise.
26
Q

Requirements for the joint venture to be a success.

A
  1. Each participant needs to offer something.
  2. There must be a written agreement in which matters such as management, profit sharing and termination or buyout of one party are set out.
  3. The objectives of the formed venture must be clear.
  4. Careful pre-planning must be done and key executives must be assigned to implement the plans

sbm (4 decks)

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