Unit 9 Flashcards

Strategic methods: how to pursue strategies

1
Q

What are the ways that businesses can increase efficiency by gaining more experience? (With an example)

A
  • Labour efficiency - workers make less mistakes therefore less waste (less materials used)
  • Labour specialisation - workers become specialised in certain tasks and therefore produce at a faster rate.
  • Input mix - over time inputs such as raw materials may be optimised to reduce the cost of production.
  • Ford cut Model T’s costs by 3/4 by integrating vertically, dividing labour and eliminating model changes.
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2
Q

What’s the benefit of the experience curve?

A

Increasing efficiency can reduce unit costs, therefore the business can get a cost advantage. This could mean you can decrease prices which will increase demand and therefore market share. Increasing market share can also lead to becoming a monopoly.

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3
Q

What is the experience curve?

A

The idea is that as a business increases its experience in producing a product, it becomes better at it, increasing efficiency.

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4
Q

What is offshoring?

A

Business activities or processes moved abroad. E.g manufacturing in China or IT services in Poland.

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5
Q

Why would a business choose to offshore?

A

To reduce costs
- Production costs
- Raw material costs: location
- Labour costs: lower wages
- Labour skills - better quality
Increase revenue
- Gloser to a growing market
- Overcome protectionism

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6
Q

What are the disadvantages/problems with offshoring?

A
  • Initial transition costs
  • CSR risks
  • Exchange rate risks
  • Logistics pressures (lead times?)
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7
Q

What is reshoring?

A

Bringing business activities back tot he home country (e.g UK).

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8
Q

Why would a business re-shore?

A
  • To avoid offshoring risks:
    CSR, exchange rate, transition costs, logistics risks.
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9
Q

How can overtrading occur?

A
  • When growth is achieved through a significant capital investment in production or operations capacity before revenues are generated
  • Sales are made on credit and customers take too long to settle amounts owed
  • A long term contract requires a business to incur substantial costs before payments are made by customers under the contract
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10
Q

What is overtrading?

A

Overtrading happens when a business expands too quickly without having the financial resources to support such a quick expansion

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11
Q

What are some symptoms of overtrading?

A
  • High revenue growth but low gross and operating profit margin
  • Persistent use of overdraft
  • increase in payables and receivable days ratios
  • increase in current ratio
  • low inventory turnover ratio
  • low levels of capacity utilisation
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12
Q

How can a business avoid overtrading?

A
  • Reduce inventory levels
  • Scaling back the pace of revenue growth
  • Leasing rather than buying capital equipment
  • Enforcing better payment terms with suppliers and customers
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13
Q

What are the six phases and five crises in Greiner’s model?

A

Creativity
Direction - Leadership -> Business now too large for leader to get involved in everything
Delegation - Autonomy -> Business now has functional management
Coordination - Control -> More formal management structure in place but new layers of hierarchy needed to keep control
Collaboration - Red Tape -> A dangerous growth in organisational bureaucracy, slowing decision making and missing external changes
Alliances - Growth -> Growth slowing as business runs out of ideas

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14
Q

What is synergy?

A

Synergy happens when the value of two businesses brought together is higher than the sum of the value of two individual businesses. eg when 1+1 equals more than 2

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15
Q

What are the two sources to create synergy/lead to synergy?

A

Cost savings
- eliminate duplicated functions and services
- better deals from suppliers
- higher productivity and efficiency from shared assets
Revenues
- cross selling to customers of both businesses
- access to new distribution
- brand extensions
- new geographic locations open up

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16
Q

What is retrenchment?

A

Retrenchment means the reduction in costs or spending in response to economic difficulty eg making employees redundant

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17
Q

What are some examples of retrenchment?

A
  • Reducing outfit and capacity
  • Job losses
  • Product/market withdrawal
  • ## Disposal of business unit
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18
Q

What drives retrenchment?

A
  • Costs too high
  • Low roce
  • high gearing
  • loss of market share
  • failed takeover
  • economic downturn
  • change of ownership
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19
Q

What are some retrenchment actions and the possible implications for change?

A

Change in organisational structure
- changed responsibilities, greater workloads, higher stress, new team and colleagues
New leadership or ownership
- uncertainty, different leadership style, new priorities, aims objectives.
Fewer people
- Loss of morale and increased demotivation, bad news for some external stakeholders

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20
Q

What are the two methods of growth?

A

Organic growth and external growth

21
Q

What is organic growth?

A

Involves expansion from within a business

22
Q

What are some benefits of organic growth?

A
  • less risk than external growth
  • can be financed through internal funds eg retain profits
  • builds on a brands strengths
  • allows the business to grow at a more sensible rate (avoid overtrading)
23
Q

What are some drawbacks of organic growth?

A
  • growth achieved may be dependent on the growth of the market
  • hard to build market share if business is already a leader
  • slow growth
  • franchises can be hard to manage effectively
24
Q

What are some benefits of franchising?

A

Running your own business
easier to raise finance
lower risk method of market entry + lower failure rate

25
Q

What is a joint venture?

A

A separate business entity created by two or more parties involving shared ownership, returns and risks

26
Q

What’s a takeover?

A

Involves one business acquiring control of another business

27
Q

Why pursue a takeover?

A
  • Increase market share
  • Aquire new skills
  • Access economies of scale
  • Spread risks by diversifying
  • to eliminate competition
  • enter new segments of an existing market
28
Q

Why do takeovers fail?

A

Cultural incompatibility between the two businesses
Poor communication

29
Q

What is forward and vertical integration?

A

Acquiring a business further up in the supply chain
-> manufacturer buys a distributor

30
Q

What is backward and vertical integration?

A

Acquiring a business operating earlier in the supply chain
-> retailer buys a wholesaler

31
Q

What is horizontal integration?

A

Acquiring a business in the same stage of supply chain
e.g manufacturer buys a competitor

32
Q

What are benefits of horizontal integration?

A

Achieve economies of scale
cost synergies
wider range of products

33
Q

What are the benefits of vertical integration?

A

Business can capture greater share of profit
creates barrier to entry

34
Q

What’s the difference between internal vs external economies of scale?

A

Internal - arise from the increase output of the business itself
External - Occur within an industry e.g all competitors benefit

35
Q

What are the different types of internal economies of scales?

A

Purchasing economies - buying in greater quantities resulting in lower price
Technical - use of specialist equipment or processes to boost productivity
Managerial - Specialist managers can be employed to help reduce unit costs and boost efficiency
Marketing - Spreading a fixed marketing spend over a larger range of products, markets and customers
Network - adding extra customers to a network that’s already established (phones)
Financial - Larger firms benefit from access to more and cheaper finance

36
Q

What is external economies of scale with example?

A

Having many specialist suppliers close by
- Access to research and development facilities
- Pool of skilled labour to choose from

37
Q

What is economies of scope?

A

Where it is cheaper to produce a wide range of products rather than specialise in a very limited number

38
Q

What is the difference between an invention vs innovation?

A

invention is the formulation of new ideas for products or processes
innovation is the practical application f new inventions into marketable products or services

39
Q

What are the 2 main types of innovation?

A

Product innovation
- launching new or improved products
Process innovation
- finding better or more efficient ways of producing existing products/services

40
Q

What are advantages of product innovation?

A

First mover advantage
- higher prices and profitability
- added value
- opportunity to build early customer loyalty
- enhanced reputation

41
Q

What are advantages of process innovation?

A

reduced costs
flexibility
improved quality
example: amazon prime (amazon also have copyright)

42
Q

How do you protect IP (intellectual property)?

A

The invention must be:
- new an innovative step, capable of industrial application

43
Q

What is intrapreneurship?

A

Where large businesses enable employees and managers to demonstrate entrepreneurial behaviour in their work to the benefit of their employer

44
Q

What are some examples of intrapreneurship?

A
  • Employees at google are allowed time for personal projects, one being gmail
  • Ken Kutaragi created the playstation from tinkering with a Nintendo
45
Q

What is benchmarking?

A

The objective of benchmarking is to udnerstand and evaluate the current position of a business or organisation in relation to best practice

46
Q

What are benefits of innovation?

A

improved productivity
building a brand
higher sales and profit
establishing an advantage over competitors
builds a strong organisational culture which should attract more talent

47
Q

What are the main types of benchmarking?

A

Strategic
internal
external

48
Q

What is ERP?

A

Enterprise Resource Planning - a software system that helps businesses manage their financial, supply chain, manufacturing, operations, reporting and human resource systems.

49
Q

Benefits and drawbacks of ERP?

A

-Streamlined processes so better control
- Increased productivity and efficiency
- Improved communication
- Cost savings on reducing waste, inventory management)
But:
- Significant investment therefore potential high costs
- High training requirement