mod 3: business in action Flashcards
business life cycle
a theoretic cycle with distinct phases a business goes through as it develops. The nature, operation, and organisation of the business changes as the business progresses from one stage to the next.
business life cycle stages
- establishment
- growth
- maturity
- post maturity; steady state, renewal, decline
business life cycle: establishment
Birth of the business where profit is negative. The owner has invested significantly and the business is very vulnerable at this time. The aim is to get the business onto a stable foundation of profitable sales and a consistent cash flow.
business life cycle: growth
The business will experience growth in volume and rate of sales from regular customers, cashflow will be positive. With growth comes the complexity of long-term planning. Advertisement is important as the need to make investments in relevant equipment/employees is to ensure a good reputation.
Owners must be careful not to expand faster than their business can adapt to changes.
business life cycle: common ways of growth
sales volume, profitability, accumulation of value, number of staff, number of outlets, number of products offered
vertical integration
business expands at different but related levels in production
eg. woolies expanding to have farms
horizontal integration
business expands by merging/acquiring another business with similar products
eg. woolies buying IGA
merger
owners of two separate businesses agree to combine resources and form a new organisation.
acquisition (takeover)
when a business takes control of another business by purchasing controlling interest
diversification
when a business merges with/acquires a totally seperate business
eg. woolies merging with Caltex
business life cycle: maturity
sales come to a plateau, the business is thriving with a good customer base and cash flow. A more formal, detailed approach for long term should take place. It may be wise to reevaluate the business’ vision and mission statements to match the business and possibly restructuring.
restructuring
changing the legal, ownership, operational, or other structures of a business to make it more profitable or better organised for present needs.
business life cycle: post-maturity
once a business reaches this, it can either:
- steady state; continues to operate at the same level, stops expansion spending, focus on existing customers, can’t be maintained forever
- renewal; increasing sales and profits due to new growth areas, direct results of new market being tapped to create areas of growth, expanding breadth/depth of products
- decline; falling sales and profits resulting in business failure, difficult to reverse as it is hard to get debt finance and credit from suppliers, products become obsolete, well-qualified employees may begin to seek out better opportunity
transformation process: the 4Vs
volume, variety, variation in demand, visibility
the 4Vs: volume
the amount of output that a business’ transformation process can produce. Businesses aim to achieve volume flexibility which refers to how quickly a business can adjust to increase/decrease demand (variation) to reduce lead times, is an indicator of speed and flexibility.
