Topic 9 - How To Pursue Strategies Flashcards
What are the types of growth ?
Growth can occur organically or externally
What is external growth ?
External growth occurs when a business expands by purchasing or taking over other businesses.
For example, Morrisons purchased Safeway which is external growth
What is the impact of growth on a business ?
Increased demand for goods and services which affects the decisions made within each business function.
Increased motivation for the management through a sense of achievement which improves employee retention.
Increased market share, sales revenue, and profit.
Investment (for growth) increases the need to secure capital. -The business’ need for labour may increase, which affects workforce planning.
There can be an increased focus on marketing and promotion to ensure the generation of increased demand.
What is retrenchment ?
Retrenchment occurs when a business reduces the scale of a specific business area or element within the business operation
Retrenchment can allow a business to re-focus on growing a core activity within its operation.
For example, Morrisons removed a layer of supervisors from its hierarchy to reduce cost so that it could focus on growing its core business offer.
What is the impact of retrenchment on HR ?
Retrenchment affects human resources as workforce planning, redundancy and redeployment will need to be considered.
What is the impact of retrenchment on operations ?
Retrenchment affects operations as it can offer economies of scale through addressing diseconomies of scale which may have arisen, and this reduced unit cost.
What is the impact of retrenchment on marketing ?
Retrenchment affects marketing as promotional campaigns are likely to be refocused on the refined business offer which may include selling from a smaller product portfolio.
What is the impact of retrenchment on finance ?
Retrenchment affects finance as the business will need to ensure it is able to fund the short-term increase in the cost of redundancy payments.
How do Procter and Gamble use retrenchment ?
Procter & Gamble, the business that owns Pampers is also diversified geographically. It owned the Venezuelan Lavasan laundry brand and the Greek Essex laundry brand. However, they retrenched and sold these brands
What are technical economies of scale ?
Technical economies of scale occur when a business is able to adopt advanced technological approaches to production as a result of their scale and size.
For example, Coca Cola’s production line is likely to be more efficient than a competitor with a much less advanced production system; this reduced Coca Cola’s cost for every unit produced.
What are purchasing economies of scale ?
Purchasing economies of scale occur when a business is able to take advantage of bulk ordering discounts.
For example, Amazon may buy 30,000 units of a product from a manufacturer and will pay less per unit than an independent retailer only purchasing 100 units.
What are managerial economies of scale ?
Managerial economies of scale occur when a business is large enough and able enough to introduce specialist staff for each of its functions.
For example, Tesco will employ a Human Resource director whereas a much smaller retailer may not have the capacity for such a specialist role. Specialist staff members are more efficient, more productive and make fewer mistakes and this reduces cost per unit produced.
What economies of scope ?
Economies of scope occur when a business is able to spread its costs over several markets or products.
For example, the cost of McDonald’s advertisements can be spread across its portfolio which reduces the cost of advertisement attributed to each product.
What are diseconomies of scale ?
As businesses grow, communication becomes more difficult; decision making becomes slower which can increase overall costs.
As businesses grow, it becomes much harder to motivate staff as relationships are harder to manage; demotivation can affect productivity and therefore increase unit costs.
As businesses grow, it becomes harder to control and co-ordinate and this can cause mistakes and errors, therefore increasing unit costs.
What is the experience curve ?
The experience curve suggests that businesses with better knowledge, resulting from experience, can inform a better decision which offers a cost advantage.
What are synergies ?
Synergies occur when two or more businesses combine and are worth greater than the individual sum of each.
What is overtrading ?
Overtrading occurs when a business experiences liquidity problems associated with the cost of growth.
What is the reason for Greiners model of growth ?
Greiner’s model of growth offers solutions to overcoming the challenges of growth experienced by businesses
What happens in stage one of the Greiners growth model ?
Growth through creativity occurs as businesses begin to establish themselves but have few employees and an informal structure throughout the business
What crisis occurs after stage one (creativity) of Greiners growth model ?
As growth occurs, roles may overlap and there is a leadership crisis which requires structure and direction.
What is used to combat the leadership crisis ?
Growth through direction occurs, and as departments become established
What crisis occurs after stage two (Direction) in Greiners growth model ?
managers request autonomy, and there is an autonomy crisis.
What is used to combat the autonomy crisis ?
Growth through delegation occurs, until senior managers may feel there is too much control delegated throughout the business.
What crisis occurs after stage three (Delegation) in Greiners growth model ?
Senior managers may regain control if they are worried about vision and a control crisis occurs.
What is used to combat the control crisis ?
Growth through co-ordination occurs as managers begin to introduce centralised systems for budgeting and staff performance management.
What crisis occurs at the end of stage four (co-operation) in Greiners growth model ?
A lack of autonomy or a red-tape crisis can then happen
What is used to combat the red-tape crisis in Greiners growth model ?
Growth through collaboration then occurs as departments and functions begin to work together, centrally.
What crisis occurs at the end of stage five (collaboration) in Greiners growth model ?
further internal growth becomes difficult and a growth crisis occurs
What is used to combat the growth crisis ?
Growth through alliances can only occur through external growth: takeovers and mergers, however, present their own challenges to a business pursuing growth.
Explain what happens in Greiners growth model ?
Stages 1
Growth through creativity occurs as businesses begin to establish themselves but have few employees and an informal structure throughout the business. As growth occurs, roles may overlap and there is a leadership crisis which requires structure and direction.
Stage 2
Growth through direction occurs, and as departments become established, managers request autonomy, and there is an autonomy crisis.
Stage 3
Growth through delegation occurs, until senior managers may feel there is too much control delegated throughout the business. Senior managers may regain control if they are worried about vision and a control crisis occurs.
Stage 4
Growth through co-ordination occurs as managers begin to introduce centralised systems for budgeting and staff performance management. A lack of autonomy or a red-tape crisis can then happen.
Stage 5
Growth through collaboration then occurs as departments and functions begin to work together, centrally, however further internal growth becomes difficult and a growth crisis occurs.
Stage 5
Growth through alliances can only occur through external growth: takeovers and mergers, however, present their own challenges to a business pursuing growth. Growth through collaboration then occurs as departments and functions begin to work together, centrally, however further internal growth becomes difficult and a growth crisis occurs.
Stage 6
Growth through alliances can only occur through external growth: takeovers and mergers, however, present their own challenges to a business pursuing growth.
What did Haynes and Abernathys 1980 paper say about diseconomies of scale ?
Diseconomies of scale happen because decision making becomes slower and less effective. They say that US businesses got worse relative to international businesses between 1960 and 1980 because American managers were ineffective. He says they failed because they were people trained in Law or Finance, instead of the industry where they worked.
Tesco is a supermarket. Over the last 20 years, Tesco has entered restaurants (it bought the Giraffe restaurant business). It entered the Telecoms market with Tesco Mobile. It started offering financial services and also entered the US and Thai supermarket industries. In 2016, it sold its Giraffe restaurants and its chain of Turkish supermarkets called Kipa.
What is the most likely cause for this ?
Diseconomies of scale
In 1975 what did Holzmann et al reasearch ?
Holzmann et al (1975) did some research that found that businesses containing lots of unrelated businesses (conglomerates) had worse share price and economic returns for investors than businesses that only contained related businesses.
What are the ways innovation is approached ?
Product innovation
Process innovation
What is innovation ?
Innovation is the development of a new idea which leads to the production of a new product or service which can be sold.
For example, Dyson developed the world’s first bag-less vacuum because of its innovative approach to business.
What are the most likely pressures for innovation ?
Social changes may increase the demand for innovative and advanced products to replace current products.
Competition may increase a business’ focus on innovation as competitors seek to develop new products and services which will attract customers.
What is product innovation ?
Product innovation involves the development of new products which will be offered for sale to customers.
For example, the development of new camera technology which improves the iPhone is an example of product innovation.
What is process innovation?
Process innovation involves improving the process of manufacturing or offering a product or service for sale to customers to add value, decrease costs or improve efficiency.
For example, the development of a new factory production line which improves the production of cars is process innovation
What are the advantages of innovation ?
Innovation allows businesses to improve the products in its portfolio which can increase market share, sales revenue, and profit.
Innovation allows a business to improve its processes which can increase efficiency and therefore competitiveness.
Innovation allows businesses to develop a unique selling point which can improve competitiveness and customer loyalty.
What are the ways of becoming more innovative ?
Kaizen
Intrapreneurship
Benchmarking
Research and development
