topic 9 Flashcards
what are the 4 strategic methods involved in unit 9 ?
- change in scale
- innovation
- internalisation
- greater use of digital technology
what are the 2 different types of growth ?
- inorganic
- organic
what is organic growth ?
involves expansion from within a business
what is the other name for organic growth ?
internal growth
what is inorganic growth ?
joining with another business through 3 methods
what are the 3 methods of inorganic growth ?
- mergers
- takeovers
- acquisition
what is the other name for inorganic growth ?
external growth
what are 4 advantages to organic growth ?
- less risk than inorganic
- can be financed through internal funds
- builds on the business strengths
- allows a business to grow at a more sensible and controlled rate
what are 4 drawbacks to organic growth ?
- growth achieved may be dependent on the growth of the overall market
- hard to build market share if a business is already a leader
- slow growth and shareholders prefer rapid growth
- if a franchise is used it can be hard to manage
what is the experience curve ?
more experience a business has in producing a particular product, the lowers its costs
what happens to experience as a business grows ?
it gains experience
what can experience provide as an advantage ?
an advantage over competition
who is the ‘experience curve’ particularly strong for ?
for large successful business
( market leader )
what are the 2 implications of the experience curve ?
- businesses with significant experience will have a significant cost advantage
- businesses with the highest market share likely to have the most? best experience
what is the therefore of the implications of the experience curve ?
- experience is a key barrier of entry
- firms should try to maximise their market share
- external growth might work if a business can acquire firms with strong experience
what are the 3 criticism of the curve ?
- market leaders are often complacent and perhaps cause of their experience
- experience may cause resistance to change and innovation
- it is relatively old theory which is less relevant in an environment that changes so rapidly
what is franchising ?
it arises when a franchiser grants a licence to another business to allow it to trade using their brand/business format
who is franchising a growth strategy for ?
the franchisor rather than a franchisee
what are the 4 advantages of franchising ?
- set ways and standards set by the franchisor
- franchisee likely to be very motivated and entreprenual
- low risk as franchisee is taking most of the risk
- quick growth as funds provided by franchisee
what are the 4 disadvantages of franchising ?
- lose control of the franchise
- difficult to control
- not maximising profits for the franchise
- impact on reputation if franchisee does something wrong
what are the 4 reasons franchising works for the franchisor ?
- classic growth strategy for a proven business format
- enables much quicker geographical growth for a relatively low investment
- still have the option to open locations that are operated by the franchise
- capital investment by franchises is an important source of growth
what is joint venture ?
a separate business entity created by 2 or more parties
- involves shared ownership and returns and risks
what are 5 benefits to joint venture ?
- learn from each others expertise
- more cost effective for R and D
- increase competitiveness within the market
- reduces risk of a growth strategy
- may be able to acquire in the future with that business
what are the 4 drawbacks of joint venture ?
- imbalance between partners
- vague objectives
- unreliable partners
- may be difficult to leave due to contract
what is a takeover ?
business acquiring control of another business
what are 7 possible reasons for a takeover ?
- increase market share
- acquire new skills
- access economies of scale
- secure better distribution
- acquire intangible assets
- spread risk by diversifying
- eliminate competition
what is MCC ?
motivation
communication
coordination
what are the 4 preferences of takeovers ?
- existing products are in the later stages of their life cycle
- businesses lacks knowledge or resources to develop organically
- speed of growth is a high prioty
- competitors enjoy significant advantages that are hard to overcome
what are 6 drawbacks to takeovers ?
- high costs
- upset customers and suppliers
- problems of integration
- resistance from employees
- may not be approved by CMA especially if in different markets
- incompatibility if management styles, structures and culture
what is synergy ?
the concept where the combined effect of a group or system is greater than the sum of its individual parts
what is the economies of scope ?
the cost advantage that a business experiences when it produces multiple products or services together rather than separately
what are the 3 different types of direction of integration ?
- forward + vertical
- backward + vertical
- horizontal
what is forward + vertical integration ?
acquiring a business further up in the supply chain
- further towards the market
what is backward + vertical integration ?
acquiring a business operating earlier in the supply chain
- towards the supply chain
what is horizontal integration ?
acquiring a business at the same stage of the supply chain
- same stage + same type of firm
what does conglomerate mean ?
where the acquisition has no clear connection to the business buying it
what are 5 potential benefits of horizontal integration ?
- achieve economies of scale
- cost synergies from the rationalisation of the business
- wider range of products
- reduces competition
- buying an existing and well-known brand can be cheaper than organically growing a brand
what are the 4 potential benefits of vertical integration ?
- enables the business to capture a greater share of the profit on each sale
- secures important sources of supply or distribution
- create a barrier to entry to potential new competitors
- gain greater insights into customers needs and wants at each stage of the supply chain
what is retrenchment ?
to cut down or reduce something to use resources more carefully
what are 5 examples of retrenchment ?
- reduce output/ capacity
- job loses
- product/ market withdrawn
- disposal of business units
- scaling back investments
what is an invention ?
making something entirely new, something that didn’t exist before
what is innovation ?
it improves or makes significant contribution to something that has already been invented thereby turning the results of invention into a product
what are the 2 main types of innovation ?
- product innovation
- process innovation
what is product innovation ?
launching new or improved products or services on to the market
what is process innovation ?
finding better or more efficient ways of producing existing products or deriving existing services
what are the 6 advantages of product innovation ?
- higher prices
- added value
- opportunity to build early customer loyalty
- enhanced reputation as an innovation company
- pr coverage
- increased market share
what are the 5 advantages of process innovation ?
- reduces costs
- improved quality
- more responsive customer loyalty
- greater flexibility
- higher profits
what are the 5 innovation benefits ?
- improved productivity and reduced costs
- building a brand
- establishing an advantage over competitors
- higher sales and profits
- builds a strong organisational culture which should attract more talent
what are the 6 factors for the environment to fail ?
- its acceptable to fail
- funding available for experimentation
- innovative organisations need to attract and retain talented people
- opportunities for teamwork’s and sharing ideas across departments
- leadership values innovation
- listening culture in organisations
what is intrapreneurship ?
where larger business enable employees and managers to demonstrate entreprenual behaviours in their work to benefit of their employer
who carries out intrapreneurship ?
employees and managers
who carries out entrepreneurship ?
entrepreneurs
who takes the risk in intrapreneurship ?
the business
who takes the risk in entrepreneurship ?
the entrepreneur
who takes the reward in intrapreneurship ?
the business mostly
who takes the reward in entrepreneurship ?
all goes to the entrepreneur
