Unit 9 Flashcards
Retrenchment
-Means cutting down the size of a business.
- Likely involves the idea of job losses and reduction in capacity.
Reasons why retrenchment may occur ?
-Changes in the market
-Failed takeover
- Economic downturn with the reaction with the economy the business is in
- Businesses also may retrench to restore their core competencies
Internal types of growth
- Selling more or new products
- targeting a new or wider market
- Mainly uses retained profit
- Slower but less risky
External growth
- Achieved through takeovers or mergers
- Quicker but more risky to issues
Economies of scope
Are the reduction of unit costs because of the production of wider variety of goods and services.
What factors influences the economies of scope
- Joint use of production facilities and other inputs
- joint marketing
- A product providing a by-product e.g. bread manufacturer making sandwiches
Overtrading
Which may occur when a business grows to quickly due to cash more likely to leave the business more often then coming back in which may cause liquidity.
What is Greiner’s growth model
Describes a framework of growth in which businesses can assess the best organisational method will be best suited for them.
Phase 1 of Greiner’s model
- Growth through creativity which can evolve to a leadership crisis.
This occurs due to the business growing rapidly from the start and the leader will have to be innovative with new methods of their business to compliment their growth.
Phase 2 of Greiner’s model
-Growth through direction leads to autonomy crisis.
This occurs due to the business expanding with different sub departments which management need to look over. Therefore greater autonomy is needed as well as control.
Phase 3 of Greiner’s model
-Growth through delegation: As a response to the autonomy crisis, clear hierachy would be made. This would offer new roles such as middle managers. Therefore potential control problems may occur due to senior managers not knowing day to day operations and may lose control of them.
Phase 4 of Greiner’s model
-Growth through coordination: With greater effort being asked to be put in reporting and communication it may make the business too centralised which in turn becomes bureaucratic and causes a crisis of red tape
Phase 5 of Greiner’s model
-Growth through collaboration: Encourages greater collaboration and more focused on organisational goals. Reward systems may be put in place to allow team success to occur and reduce focus on individual performance.
Phase 6 of Greiner’s model
- Growth through alliances: problems that have occurred internally may need to be resolved externally e.g. mergers or takeovers.
Vertical takeovers
Vertical integration is where a business can takeover a business in the same chain of production but at a different stage. E.g. backward integration will be a wheat farm and forward integration will be a baker store.
Horizontal intergration
Where a business integrates with the same stage of production with another allowing to gain greater market power in the industry.
Conglomerate intergration
Occurs when a business mergers or takes over with a unrelated business which creates diversification.
Reasons why takeover or mergers fail
- Lack of detailed research
- Clashes of culture
- Financial pressures
- over-optimistic assessment of the benefits
Franchising Pros
- Relatively quick
- Finance is provided by the franchisee
- The franchisee is highly motivated
- The organisational structure is less complex
Intrapreneurship
The act of acting as an entrepreneur in their own organisation. Companies can act on this and allow innovation to occur with the talent of the workforce.
- Also part of culture of an individual business
Benchmarking
The process of measuring performance against the best performer in your industry. Which allows to learn from others.
But it is not about copying each other its about adapting the best practices to your organisation.
Patents
Gives the inventor rights for 20 years to not let others copy or sell the invention.
- This is done to encourage the industry to have innovation.
- However, a patent does not come effective in the long term as businesses will introduce their own version of the product.
Reasons for operating in international markets
-Growth and profit
- Economies of scale
-Diversity risk- Can allow potential greater opportunities
-Tax- tax rates may be in favour of a business in a different country
Factors to consider in an international market
-Risk
-Competition
-Market potential and how beneficial the reward is to the risk
- Legal and political environment
- Economical factors
-Culture
- How they enter the new market
