strategic methods Flashcards
types of growth
internal growth (organic) and external growth (integration)
what will growth achieve
economies of scale
economies of scope
experience curve
synergies
what problems may growth have when too fast
diseconomies of scale
overtrading
management crisis
what problems come with diseconomies of scale
coordination
communication
motivation
impact of growth of finance
cash flow needs to be managed by forecasting
to stop
-overtrading
-too high gearing
-exchange rates if international
impact of growth on operations
economies of scale
diseconomies of scale
quality issues
impact of growth on marketing
may need to change marketing mic
more Distibution
more spent on marketing
impact of growth on HR
more staff needed - pressure to recruit people
higher costs for wages- more ppl
recruitment costs
training costs
redeployment
retrenchment
it is a strategic change all about reducing costs
how to achieve retrenchment
reduce output
reduce staff size - save on labour costs
reduce product portfolio- focus of a few
reduce countries operated in
why do you retrench
economic downturn
to leave unprofitable market
low ROCE
diseconomies of scale
focus on core competencies
problems with retrenchment
may lose EOS gains, economies of scope, experience curve,
reduce employee motivation
impact of retrenchment of finance
may help improve cash flow- less costs, more money
cost cutting- eg no more worry of exchange rates in international
impact of retrenchment of operations
EOS and diseconomies of scale depending on where you are according to MES (mini mum efficient scale)
decrease capacity so that cap utilisation increases
impact of retrenchment of marketing
reduced product portfolio - less spending on marketing
impact of retrenchment of HR
redundancy= less staff- delayering- flatter structure- wider spans of control
reduce staff- costs high in short term- but in long term for costs on wages
purchasing Eos
as output increases costs decrease- purchase more supplies for less- you can negotiate with supplier cos you are more important to them
technical Eos
as business grows finance increases - able to buy more quantity and quality of capital (machinery)- increase productivity and efficiency - costs decrease
technical Eos example
movement from job production to flow production due to automated production line
managerial Eos
when a high level manager increase the output and costs
diseconomies of scale
when past the Eos mark and an increase in output leads to higher costs
effects of diseconomies of scale
discoordinated staff- too many
employee motivation drops, feel insignificant - production drops and waste increases so too costs
employee communication is lacking- being told what to do- reduction decreases
economies of scope
when the variety of products makes av cost per unit decrease, because costs can be spread over more products and there are already all the processes in place
economies of scope results
can have increased brand loyalty- get everything form one place
more competitive - flexible with pricing
experiance curve
more practice better efficiency then lower costs
experiance curve can lead to
being complacent and not innovative -resistant to change
its an old theory
what is synergy
when the whole is greater than the sum of the parts - the advantage of a merger or takeover
businesses come together -combined effect is better than separate
cost synergy
benefit of a merger- cost savings occur, purchasing eos
overtrading
when a business grows too quickly and uses up all of its working capital - liquidity issue
a disadvantage and risk
how to prevent overtrading
cashflow forecast
reduce receivables days
expand payable days
put long term funding in place
lease rather than buy
greiner’s model of growth
used to look at the stages of growth and management crises
phase 1 gmog
growth though creativity :
focus around product and market - encourages innovation and creation - but communication becomes too informal so crisis of leadership occurs
how to prevent pahse 1 of gmog
create a management structure to regain direction and control
phase 2 of gmog
growth though direction
defined department and roles but experienced managers want more power
creates autonomy crisis
solution for phase 2 of gmog
delegation
phase 3 of gmog
growth though delegation
managers begin to make decisions and will further delegate to others
but this creates a communication gap owenes loose control
crisis of control
solution for phase 4 of gmog
coordination
phase 5 of gmog
growth though coordination
centralised and formal procedures procedures
but this creates bureaucracy and the red tape crisis too much bureaucracy means reduced growth and innovation
solution for phase 5 of gmog
collaboration
phase 6 of gmog
growth though collaboration
introduction of matrix structures in the biz (each team report to multiple leaders)
but it can fail due to confusion
crisis of internal growth
solution for gmog phase 6
external growth
phase 7 of gmog
external growth
mergers or takeovers
criticism of gmog
just a model- each business grows differently
not all stages re followed
resistance to adapting the solution the longer your in one section
external growth
mergers
takeovers
quicker that internal
more expensive
why do a merger or takeover
purchasing eos
increase market share
secure point of sale (if takenover a shop)
secure supplier (if takenover a supplier)
reduce risk
diversification
more knowledge
horizontal integration
same industry and stage of supply chain
forwards vertical integration
same industry but further up in the supply chain
backwards vertical integration
same industry but further down the supply chain
conglomerate integration
different industry and stage of production
joint venture
when 2 or more companies join together to invest in a high risk high reward business 50/50 split
pros of joint venture
skills and expertise from parent companies
synergy
risk is split
losses are shared
cons of joint venture
profit is shared
diff companies have diff cultures
don’t want to share competitive advantages with the other company invested
corperte venturing
venture capital - when one larger business takes an equity stake in a smaller business
strategic alliance
franchisor
creator of a franchise who let franchisee to use the business formula for a price
franchisee
someone who pays the franchisor to use their idea - pays an initial fee and gives a cut of the profit
franchisor in change of
concept like menu
uniform
store layout
franchisee is in charge of
staff training
recruitment
stock control
external methods of growth
mergers
takeovers
ventures
integration
product innovation
making new goods/services or improving existing
process innovation
new processes or delivery methods or improving existing ones
benefits of innovation
stay ahead of competition
change high prices
reputation
economies of scope
disadvantage of innovation
costly
time consuming
wasting resources
no guaranteed ROI
risk
new product development process
idea
analysis and screening
development
value analysis
test marketing
launch
how to protect ideas
patent - of a product or process
trademark - logo, slogan , name
copyright - writing and music
ERP
business management tool that connects all functions of the business
demerger
a company sells it assets and parts of the business
