Schedule N Flashcards
reasons firms will grow (4 points)
- economies of scale
- economies of scope
- benefit from the experience curve
- acquiring other businesses creating synergies
reasons for retrenchment (2 points)
- economic downturn
- suffering from diseconomies of scale
how do businesses retrench? (5 points)
- reduce physical stores
- reduce number of employees
- reduce output
- reduce portfolio size
- reduce geographical area
when does change occur
when businesses alter their structure, size or strategy to respond to internal or external influences
reasons for change (4 points)
- to meet objectives e.g. gain market share
- to respond to external forces e.g. consumer demand
- respond to internal forces e.g. employee pressure
- gain a competitive advantage e.g. economies of scale
reasons a business may want to grow (4 points)
- increase shareholder value
- increase market share
- decrease average costs
- stakeholders perception of success
reasons for retrenchment (4 points)
- restructure to increase efficiency
- turn around poor performance
- focus on core businesses
- sell off less profitable parts of business to increase overall performance
organic growth
when a business expands in size by opening new stores, branches, functions or plants
benefits of organic growth (5 points)
- low risk
- get to maintain control
- less disruption
- typically more sustainable
- incremental growth
disadvantages of organic growth (3 points)
- takes a long time
- dont gain synergies
- slow gain of market share
external growth
when a business expands in size by either merging with or taking over another business
advantages of external growth (6 points)
- quick access to new markets
- quick growth
- material impact of market share
- become a more diversified business
- access to new technology
- overseas business will mean you gain their experience
disadvantages of external growth(3 points)
- expensive
- high risk
- managers of business may lack experience in new market/business
economies of scale
the advantages enjoyed by a business as it increases the scale of its current operations leading to a fall in unit costs
technical economies of scale
the benefits enjoyed when a business is able to spend more on larger and more efficient machinery leading to a decrease in average unit costs
purchasing economies of scale
the benefits enjoyed when a business is able to negotiate greater discounts with suppliers for bulk buying to lower average unit costs
managerial economies of scale
the benefits enjoyed when a business can employ specialist people leading to a fall in average costs
financial economies of scale
the benefits enjoyed when a business gets bigger and has more assets
economies of scope
the advantages enjoyed by a business as it increases its operations by expanding its range of activities leading to lower AUC
the experience curve
the advantages enjoyed by a established business as a result of having both managers and employees who are experienced with the running of the business
diseconomies of scale
the disadvantages suffered as a result of the business increasing its operations scale leading to increased unit costs
rising unit cost will force a business to… (2 points)
- increase selling price of product
- sell less products to decrease costs (retrenchment)
diseconomies of scales (communication issues) (3 points)
- larger firms struggle to communicate internally
- increased costs for communication methods
- lots of workers = harder to communicate with them all
diseconomies of scales (coordination and control) (2 points)
- large firm = more people = harder to organise
- may become harder to delegate and moderate
diseconomies of scales (motivational issues)(3 points)
- increase size of business = less contact with senior managers and overall vision of the business
- may feel insignificant in bigger businesses
- Maslows hierarchy of needs
Greiner’s model of growth: Phase 1(3 points)
- Characteristics: creative and lack of hierarchy as business is young and entrepreneur is likely to be in control
- Crisis: need for direction
- Revolution: creation of leadership structure
Greiner’s model of growth: Phase 2(3 points)
- Characteristics: Better structure, some managers may feel lack of autonomy
- Crisis: autonomy
- Revolution: increase delegation
Greiner’s model of growth: Phase 3(3 points)
- Characteristics: decentralised decision making. senior managers feel they no longer have control
- Crisis: loss of control
- Revolution: introduce more formal procedures
Greiner’s model of growth: Phase 4(3 points)
- Characteristics: centralised decision making and increased bureaucracy
- Crisis: red tape
- Revolution: coordination between HQ and functions
Greiner’s model of growth: Phase 5(3 points)
- Characteristics: increased communication and team work between HQ and functional areas
- Crisis: Potential future crisis but will vary between organisations
- Revolution: dependant on the nature of the crisis
limitations of Greiner’s model (4 points)
- only a model, growth isn’t always perfectly linear
- you can skip phases of model
- you can retrench which model doesn’t show
- the longer you stay in one stage of growth the greater the resistance to change
Horizontal integration
2 businesses at the same stage e.g. Tesco and ASDA
vertical integration
2 businesses at different stages e.g. Tesco and Bookers
conglomerate integration
2 unrelated businesses integrating
Advantages of diversification (4 points)
- may reduce risk
- might acquire intellectual property
- might acquire talent
- gained increase marketing exposure
Disadvantages of diversification (5 points)
- culture clash
- red tape
- monopoly issues
- lack of direction
- might lack efficiency
joint ventures
two or more businesses agree to act collectively to set up new business venture with all parties contributing equity to fund the set up
advantages of joint ventures (5 points)
- access to new markets and distribution networks
- increased capacity
- sharing of risks and costs with a partner
- access to new knowledge and expertise
- access to greater resources e.g. tech and finance
disadvantages of joint ventures (5 points)
- objective of venture is unclear
- communication between partners is not good
- partners expect different things from venture
- expertise and investment isn’t equal
- conflict over decision making
costs for a franchisee
pay initial and anual fee to franchisor
benefits of franchising for franchisor (4 points)
- rapid expansion
- minimal capital expenditure
- less exposed to risk
- local expertise
drawbacks of franchising for franchisor
- maintaining quality for brand name
benefits of franchising for franchisee(3 points)
- already established brand name
- support with marketing, pricing, training…
- getting a proven model, reduces risk of failure
drawbacks of franchising for franchisee(3 points)
- expensive
- dont have total control
- dont get to keep all of the profits
pressures for innovation: competition (4 points)
- gain a competitive advantage
- people copying your products
- gain market share
- disrupt the market
pressures for innovation: market (4 points)
- innovate to meet customer needs
- environmental regulations forcing change
- laws that regulate e.g. safety standards
- global growth will require innovation in production
pressures for innovation: growth (3 points)
- global growth
- gaining diversification through conglomerate growth
- in search of efficiency through growth and economies of scale
product innovation
- changing an existing product or developing an innovation into a new product e.g. apple watch
process innovation
- changing a process of production that already exists or putting into practice a new one e.g. Ocado sorting factory
advantages of innovation (6 points)
- gain a competitive advantage
- become more efficient due to process
- better customer experience
- expand the market
- creates jobs
- better quality product
risks of innovation (4 points)
- product failing, loss of money in R&D, time and resources
- money and time in patent
- need a skilled workforce who are motivated
- management need to take a risk
intrapreneurship
- when a firm encourages staff to act as entrepreneurs, developing new ideas which the company will provide financial backing for
benchmarking
seeking our examples of outstanding ways other companies do things and then finding a way to implement these methods in your own business
processes that can be benchmarked (7 points)
- lead times
- production time
- distribution
- quality control
- supply chain and logistics
- inventory management
- marketing conservation rates
copyright
a legal protection for anyone that has produced work in a range of areas e.g. music
- dont have to apply for it
patent
a legal protection of a unique feature of a product or process
- lasts for 20 years
- can be very expensive
reasons for trading internationally (4 points)
- target a larger customer base
- cheaper supplies
- access to cheaper labour
- potential wider range of skills/talent
methods of entering international markets: direct investment (3 points)
- high risk
- capital expenditure to establish a physical presence in another country e.g. fresh and easy
methods of entering international markets: Alliances (3 points)
- Medium/high risk
- a joint venture
e.g. M&S and Ocado
methods of entering international markets: Licensing (3 points)
- Medium/low risk
- a business gives permission to a third party to sell their goods or services abroad
- e.g. Mcdonalds
methods of entering international markets: Export (3 points)
- Low risk
- selling goods and services produced domestically to markets abroad
e.g. Toyota
Multinationals
- organisations that have production bases in multiple countries
reasons governments like multinationals (3 points)
they can:
- increase employment
- increase tax revenue
- might support local suppliers
benefits of being a multinational (6 points)
- larger customer base
- year round demand
- access to cheaper labour
- access to more highly skilled labour
- possible government incentives
- gain closer proximity to different markets
multinationals can be criticised for… (4 points)
- exploiting local resources and not sharing the rewards with local economy
- keeping senior jobs for their staff and employing locals for low level jobs
- finding ways to avoid paying high tax levels
- being involved in corruption to win contracts
factors influencing the attractiveness of a market (9 points)
- cultural/consumer preferences
- tax advantages
- competition
- market size and potential for market growth
- GDP
- infrastructure
- quality/availability of labour
- technology
- political stability
benefits of producing products abroad (3 points)
- cheaper labour
- access to raw materials
- access to talented and potentially harder working people
off shoring
the process of moving business functions e.g. production, abroad
advantages of off shoring (5 points)
- lower costs
- increase productivity
- enter new markets
- overcome domestic regulations
- talent pool
re-shoring
the process of moving previously off shored business functions back to country of origin
reasons for re-shoring (5 points)
- costs savings no longer significant
- quality issues
- infringement to intellectual property
- shorter lead times
- government incentives
Bartlet and Ghostal’s model: pressure for local responsiveness
represents the extent to which different countries consumers expect products to be adapted to suite local tastes
Bartlet and Ghostal’s model: cost pressure
the pressure of lowering costs
Bartlet and Ghostal’s model: Low pressure for local responsiveness and high cost pressure (2 points)
global
- centralised decision making to maximise scale advantage
- product stays the same e.g. McDonalds
Bartlet and Ghostal’s model: high pressure for local responsiveness and high cost pressure (3 points)
Transnational
- Hardest to implement
- foreign subsidiaries get high level of autonomy
- different branches in different countries will be specialised in particular area of competence
Bartlet and Ghostal’s model: Low pressure for local responsiveness and low cost pressure (2 points)
international
- business primarily runs from home country
- centralised branding but localised products.
Bartlet and Ghostal’s model: high pressure for local responsiveness and low cost pressure (2 points)
multi-domestic
- decision making is decentralised, local branches are seen as separate businesses
- each individuals country’s branch is run on its own
digital technology definition
any piece of equipment containing a computer chip
E-commerce
involves digitally enabled transactions between and amongst organisations and individuals
B2B
Business to business
B2C
business to consumer
C2C
Consumer to consumer
reasons for the growth of E-commerce (6 points)
- improved internet speed
- millennial generation
- convenience
- competitive advantage
- safer payment
- increased confidence
benefits of E-commerce for a business (3 points)
- reach a larger customer base
- open 24/7
- digital processes will work out to be cheaper
drawbacks for e-commerce on businesses
- increased competition due to low barriers to entry
advantages of e-commerce for consumer (5 points)
- convenience
- large range of products
- competitive prices
- comparative shopping
- digital payments
drawbacks for e-commerce on consumer (5 points)
- cant try things on
- shipping cost
- delivery time
- return policies
- fraud and scams
big data
the volume of data that can now be accessed as a result of technological advancements
big data can be… (5 points)
- collected from transactions
- government statistics
- insights into trends
- market intelligence
- easily stored
data mining
refers to the ability to manipulate and analyse the data to inform decision making
data mining can be… (6 points)
- used to extrapolate market trends
- sales forecasting
- product development
- record responses to adverts
- inform resource planning
- take advantage of bloggers
benefits of big data and data mining (marketing) (2 points)
- social media and sentiment (the feeling on social media)
- marketing campaigns
benefits of big data and data mining (HR) (2 points)
- track employee performance
- talent acquisition in hiring
benefits of big data and data mining (finance) (2 points)
- use data to improve budgeting and forecasting
- risk management
benefits of big data and data mining (operations) (2 points)
- inventory management
- supply chain optimisation (tracking packages)
enterprise resource planning (ERP)
Management software that enables greater integration between all functional areas
greater integration leads to… (4 points)
- greater efficiency
- less waste
- increased productivity
- customer satisfaction
negatives of increased integration (3 points)
- takes time and capital to implement
- it is likely the business will experience teething problems during which time, reputation can be damaged
- staff will need to be trained
enterprise resource planning (ERP) will: (3 points)
- calculate how soon inventories will be used up, and re-order dates
- calculate what skills are needed to complete new orders
- enable all the right physical and human resources to be in the right place and right time.
