Unit 9 - How To Pursue Strategies

Question 1

Reasons for growth

Answer 1

• take advantage of their brand image , USP
  -increase sales revenue -increase market share
  -enter new markets
  -be more competitive by gaining economies of scale and reduce costs
  -compete with rivals
  -may be attractiveness in new market

Question 2

Retrenchment

Answer 2

Reduction in size of organisations operations- selling off bits of business

To
- focus on core competences, so reduce losses or sell of less profitable parts of the business
- leave high risk, unprofitable markets
-experiencing diseconomies of scale(not managing growth very well) and reduce costs, to maximise profits by focusing on core competencies

Eg- Tesco sells Giraffe restaurant chain - wanted to focus on there core competence of understanding the UK grocery market - refocus on this

Question 3

Organic growth

Answer 3

Expanding internal operations and current business

Ie - franchising
-expanding asset base, new factories
-increasing product range
-employ more staff
-entering new international markets

Question 4

How is organic growth funded

Answer 4

Could be
Retained profits
Or
Loan
Issue more shares to sell
(Still internal)
Money is external but pay back so

Question 5

Example of organic growth

Answer 5

Lego
- grown through own sales

Question 6

External growth

Answer 6

Increase sales through intergrating with other businesses

Ie
-merger -FB and WhatsApp
-takeover
-strategic alliance, joint venture (google and Nasa, developed google earth)

Benefits through share expertise

Funded through external sources of finance- selling shares, loans

Question 7

Merger example

Answer 7

Facebook and WhatsApp

Question 8

Joint venture example

Answer 8

NASA and google- google earth

Nestle and Starbucks- global coffee alliance - Starbucks capsules for Nescafé and nespresso - shared expertise, from cafe style to at home

Question 9

Business takeover example

Answer 9

Kraft food, took over Cadbury

Question 10

+ and - of organic growth

Answer 10

+more controlled
+maintain culture, management style, brand image, USP
+less risky
+higher worker morale, doing well, pay could be increasing, motivating
+good for high uncertainty avoidance (HOFSTEDE NATIONAL CULTURES)

-slower than external
-risk of missing out opportunities in fast growing market,
As .. takes time to increase product range or number of stores

Question 11

When is organic growth most appropriate

Answer 11

When
-strong USP and Culture, best to retain this instead of diluting it by mixing with another business
- in slow moving market, have time to come out with new product, increase number of stores
-competition issues, legal say too big, cant merge

Question 12

+ to external growth

Answer 12

+gain sales and market share quickly - basically buying that organisations customers - assuming they will stay
+ gain SYNERGIES , combined effort is better than when alone ie merge to marketing departments, share expertise, collaborate, meet obj quickest, eliminating any roles that dont add value, reduce costs, more experienced (experience curve) , lower average costs- economies of scale, more powerful
+gain expertise ie joint venture, nestle and Starbucks, created GLOBAL COFEE ALIIANCE, from cafe cofee to at home pods in Nescafé, nespresso machines

+new tech, produce goods more efficiently
+new intellectual property, patent goods, often used in silicone valley high tech, big business takes over small business that has a patent, simple to gain their intellectual property

+reduce comp
+

Question 13

• to external growth

Answer 13

• difficult to merge cultures, managerial systems , can collide , not efficient
• impact on motivation, job losses, redundancies, work reorganised
  -risk of unknown
  -not for high uncertainty avoidance ( HOFSETDE)
• buying another businesses liabilities , and debts - be prepared to have to pay off
  -ethical risks, in emerging markets, where staff have less ethical treatments, have to improve this to prevent any negative publicity
• high cost of integration - time , spenny

Question 14

Economies of scale

Answer 14

Lower average unit costs - from increasing size of operations - avg cost of each unit falls

Question 15

Purchasing economies of scale

Answer 15

Bulk buy- discount
Negotiate discounts or longer periods of trade credit - reducing avg costs

Question 16

Technical economies of scale

Answer 16

Large organisation can afford for sophisticated tech- better the tech - more efficient-
Ie inventory stock level - automatic, dont need to manually count - cut cost of time involved recording stock
- increase productivity, lower average costs

Question 17

Managerial economies of scale

Answer 17

Big businesses, afford to pay higher wages for more specialist, experienced employees to fulfil particular roles
Ie employing qualified accountant, reduce outsourcing costs and increase efficiency, lower average costs

Question 18

Diseconomies of scale

Answer 18

Lack of
Communication
Coordination
Motivation

Question 19

Diseconomy of scale- communication

Answer 19

Bigger the business- harder and costly, have to make sure everyone understands
- ie international growth, employees don’t speak same language, takes time to translate

Average costs will rise as loss of effiency

Question 20

Diseconomy of scale- coordination

Answer 20

Hard to coordinate everyone- making sure everyone knows corperate objectives
- monitoring systems and junior managers
-especially if decentralised, flat structure, join leadership style, everyone wants to input own ideas, hard to navigate
- if new strategy, hard to implement
- need to add layers to hierarchy- more tall structure, more costly - increasing average costs

Question 21

Diseconomy of scale- motivation

Answer 21

Ass communication and coordination becomes more centralised- motivation decreases
- dotn feel as valued
-lost in big business
- employees feel disempowered
- they don’t see how their efforts will contribute towards the achievement of corporate objectives

Question 22

Is beneficial for business to grow

Question 23

Economies of scape

Answer 23

Benefits for a business who produce range of products

Eg- APPLE - iPad, desktop, headphones,

Unilever- many different brands

Question 24

+ of economies of scope

Answer 24

+same production facility’s can be used - ie apple, similar factories
+ same staff utilised- ie apple hired very skilled staff, use them from many products not just one
+same distribution networks used
+same raw materials - tech

Lead to lower average costs
Increased revenue streams
Increase profit - more satisfied shareholders as more dividends

Higher customer satisfaction- ie grocery stores, all get from one supplier, easy- BUT power of supplier (porter), reliant on one can be bad
+improve brand awareness

Question 25

Experience curve

Answer 25

Lower average production costs as a result of all output over time

Question 26

When does experience curve occur

Answer 26

- refine production process overtime, becoming more efficient -worker skill level increases the more units of output that are produced - more efficient, lower avg unit costs - power of experience memory, more efficient solutions to problems, lower average unit costs

Question 27

Implications ( good or bad ) of experience curve

Answer 27

Cost benefits- increased market share - econ of scale - expertise, lowers production cost becoming a good barrier to entry - less attractive for comp to enter, lower production costs than anyone can compete with

Question 28

Experience curve depends on

Answer 28

- assumes that experience leads to greater expertise - not guaranteed -increased size lead to diseconomies of scale

Question 29

Synergy’s

Answer 29

Cost synergy - cut cost when come together - -purchasing economies of scale as can negotiate deal with suppliers- businesses in same industry -managerial economies of scale, appoint the best experts from bits companies, cut employment costs, more efficient as one doing best job- experience curve , more output quicker, lower average costs -integrate functional activities , don’t need two HR departments - delayering Revenue synergy - opening new markets, ie Argos distribution network, opening up more fro Sainsbury’s - complementary goods, ie want product from Argos and Sainsbury’s, delivered in same truck, consumer satisfaction - share learning, improve innovation and marketing

Question 30

Example of synergy from merger

Answer 30

Salisburys and Argos - Argos delivery network, efficient, Sainsbury’s get Argos distribution network Argos get brand awareness and some of Sainsbury’s floor space -more exposure

Question 31

Evaluate synergy’s- do they always occur

Answer 31

Often more complex to achieve - not that easy to cut down departments, have to make hard cuts, may loose experienced people - impact on motivation- teammates made redundant

Question 32

Overtrading

Answer 32

Grow so quick, run out of cash Causing cash flow issues Occurs when - significant investment in new capacity, (fixed assets) , not generating revenues yet, new shops, factories - spending on new capacity was more expensive than budgeted -new capacity takes longer to build the anticipated, not generating cash yet -business accepts a contract that requires a significant investment before revenues are generated- get into financial difficulties- cash flow issues - too many outflows - payable days are shorter than receivable days- customers not paying as quickly as anticipated

Question 33

How to deal with overtrading

Answer 33

-sell buffer stock - sell unused assets- ie new factories or shops, in return for cash -chase up debtors, use debt factoring - reduce trade credit- shorter receivable days - get a bank loan - improve liquidity at the expense of gearing - allows immediate cash, can pay off over years when company expanded and gains revenue- helps financial cash flow in short term and liquidity position Or -reduce expenditure

Question 34

Greiner Growth model

Answer 34

As b. Grows - each stage comes to an end with a crisis then has a strategy to overcome Creativity- ended by leadership crisis

Question 35

Creativity - small business, communication informal, spontaneous

Answer 35

Ended by leadership crisis - poorly defined job roles -lack of organisation -leader is overworked and stressed, can’t handle making all leader decisions Soo Bring in DIRECTION

Question 36

Direction - leadership roles established , ie head of marketing , functional areas - consistency, order

Answer 36

But - ended by AUTONOMY crisis - poor dealing with rapid growth - as gets bigger, needs strategic direction -management team - functional, tactical, not strategic, need more forward planning Sooo DELEAGATE structure

Question 37

Delegation - day to day given to management, so leaders can concentrate on strategic planning and direction - formal structures, regularly meet. Long term views

Answer 37

Leads to CONTROL crisis - chaotic as top managers become distanced from clients -functional areas not very well coordinated - inexperienced managers, lack of control - decisions not aligning with functional objectives Sooo Coordination

Question 38

Coordination- leaders create procedures and policies which help middle managers follow - clear guidelines - increase layers in hierarchy to oversee decisions

Answer 38

Leads to RED TAPE CRISIS - rules and policies too strict, become demotivating - time consuming - too much beaurcracy - disempowered staff Sooo Need more collaboration

Question 39

Collaboration - more decentralised decision making to junior managers, combine own ideas to work effectively with functional objectives - adapt MATRIX structure, informal communication - reestablish creativity, innovation

Answer 39

Leads to GROWTH crisis - reached internal growth limit - Have to create alliances - external growth, merges, takeovers Outsourcing- focus on core competencies

Question 40

Criticism of greiner

Answer 40

Simplistic Duration of each phase will differ Some b may skip stages Some may experience more than one at a time

Question 41

Mergers and takeovers +

Answer 41

- Increase market share - Gain managerial, technological, and purchasing economies of scale - synergies - gain quick access to new markets - eliminate comp - acquire intellectual properties

Question 42

Franchising

Answer 42

Internal/ organic growth Other people run a branch of your business Ie -McDonald’s +rapid expansion +less risky as less financial borrow +can use economies of scale - risk of damage to brand name, bad franchisee -rapid expansion can be difficult to control - diseconomies of scale - profits shared with franchisee

Question 43

Backward vertical integration

Answer 43

Grows through - buying suppliers - working backward

Question 44

Forward vertical integration

Answer 44

Buy retailer Ie car dealership Integrate in supply chain

Question 45

+ of backward vertical integration

Answer 45

- reduce POWER OF SUPPLIERS (PORTER 5 forces ) - increase certainly in pricing and consistency - suppliers tailored to exact needs of manufacturers -increased added value

Question 46

- of backward vertical integration

Answer 46

- high risk, expanding outside core competence - fewer economies for scale as expansion into diff industry - less choice of supplier

Question 47

Horizontal integration

Answer 47

Buying another business that operates in same production process Ie VW- buy loads of brand ie SKODA

Question 48

+ and - to horizontal integration

Answer 48

+ purchasing, tech, and managerial economies of scale +synergies +economies of scope + increased market share + accsess to new market +purchase a well known established brand - diseconomies of scale, lack of communication coordination, motivation - difficulties integration of cultures, systems -employee resistance

Question 49

Conglomerate integration

Answer 49

Growth through diversification into industries, unrelated Diversification- (PORTERS STRATEGIES) is Dyson

Question 50

+ and - to conglomerate integration

Answer 50

+ loyal following, more willing to try new products +expertise and brand image applied in new markets + Even though diversification is very high risk, businesses like Dyson may use it as they belive that their core competence, in Dyson case, their design techniques, can be successful in new ,markets, with new products. Dyson, has diversified, through vacuums, hairdryers, fans. + If the business has a trusted brand image that is transferable across a new market, high trust- ie VIRGIN, core comp of entertainment, trusted stakeholders - loose focus of core competence - may lack experience in expertise in new market - potential damage to brand image

Question 51

Innovation

Answer 51

Product innovation Process innovation

Question 52

Innovation + and -

Answer 52

+comp advantage, enhance brand image +differention + market share +charge premium price + motivational +reduce environmental impact -time consuming -market research -product testing -training -long term benefits -need to protect intellectual property- difficult and expensive Depends on - mission statement -obj -skills -culture

Question 53

Ways to improve innovation - KAIZEN

Answer 53

KAIZEN- small continuous improvement, regular staff meetings- motivates -encourage workers to put forward ideas of innovation - empowerment -culture of listening and implementing - but, ideas may not ve used, some may not work, some not skilled enough

Question 54

Ways to improve innovation - R AND D

Answer 54

Collect data- market reserach, consumer prefenrces Idea generation Initial design Prototype Product testing Final design and launch + new designs, differentiation +improve brand image +comp advantage + long term survival +motivation - opportunity cost -risk of fail -time consuming

Question 55

Ways to improve innovation - INTRAPRENEURSHIP

Answer 55

Encourage employees to think and act like an entrepreneur - business dedicates time and resources for employees to explore and develop new b. Ideas , may become more innovative MATRIX STRCUTURE - meet more customers needs , increase customer satisfaction -identify opportunities to be more competitive ie tech changes -empowerment of employees encourage intrapreneurship - delayering and flat structure encourages it -open plan offices -encourage risk taking Good example- GOOGLE INTRAPRENEURSHIP POLICY - can be lost in larger business, too beuarctratioc and hierarchal -

Question 56

Example of intrapreneurship in business

Answer 56

GOOGLE intrapreneurship policy - allows employees to dedicate 20% of their work time to pursue innovative projects that could benefit business - lead to successful products like GMAIL - contributed significantly to googles Competativness

Question 57

Intellectual property

Answer 57

Patents

Question 58

Patents

Answer 58

First move advantage - can be sold, rented

Question 59

Trademark

Answer 59

Logo, represent brand - unique to company, cant be used by others, -apply for trademark at UK INTERLEXTUAL PROPETY OFFICE-

Question 60

Copyright

Answer 60

Prevents copying- permenantly - artistic work, music

Question 61

Benchmarking

Answer 61

Identifying other business with high level performance - compare to your performance, in order to improve outcomes - but may encourage copying rather than innovative thinking - may be unrealistic for your company

Question 62

+ and - of intellectual property

Answer 62

+encouarges innovation, original ideas, hard to copy + patents sold or rented, form of finance -complex, time consuming - breaches of IP hard to prove

Question 63

Impact on innovation on functional areas

Answer 63

FINANCE - high cost for R and D, - opportunity cost -short term costs vs loan term revenues - forecast issues MARKETING - market research, OPERATIONS- new tech, labour to capital intensive -quality HR- recruitment, training, skilled, impact on organisational structure, need flat, de layered, decentralised

Question 64

Internationalisation

Answer 64

Operations outside of country - economic growth overseas -market development -synergies - increased in comp - economies of scale, experience curve advantages -cheaper suppliers -favourable external environment PESTLE

Question 65

Factors affecting attractiveness of internationalisation

Answer 65

-size of market, opp fo growth - cultural similarities / differences - availability of finance -production costs -infrastructure -market gaps- find through a market map - production costs -

Question 66

Offshoring

Answer 66

Relocation of busines to international location

Question 67

+ offshoring

Answer 67

-accsess lower production costs Particularly in emerging market, lower labour costs- could have rep damage though ethical - make it easier to supply to target international markets0 located near the markets , - if they have a high pressure for local responsiveness - multi domestic and transnational

Question 68

- offshoring

Answer 68

-longer lead times, could be a risk as slow to respond to changing trends liek fashion, fast changing business - implications from CSR- harder to control if far away - communication- language and time zones Places liek Bangladesh and Vietnam

Question 69

Re-shoring

Answer 69

Relocation of business activities back to home country after they have previously been offfshored

Question 70

+ to reshoring

Answer 70

Shorter lead times, greater flexibility - lead times fall, as production is closer to company - offshoring to places like Vietnam and Bangladesh- long lead times and LESS flexibility- especially if market has fast changing trends - restoring- allows fro flexible responses to changing trends , quicker delivery - if business wants to test new products, can order small batch of designs, test with small group , without having to make large investory orders overseas - increased agility, if clothing is popular lead to higher sales - higher profits due to higher contribution achieved - better publciiity - more CSR

Question 71

Exporting

Answer 71

Sell good in another county Low risk- dont set up operations overseas -increase target market - economies of scale But - lack of knowledge on local market - tariffs, transport costs

Question 72

Licensing

Answer 72

Authorises another manufactures or sell product, tech, + gain access to existing distribution -avoid tariffs +gain revenue from licensing fee - risk of damage to brand if licensee mismanages product - share profits with license

Question 73

Direct investment

Answer 73

Headquarters in one country - operations in another Through both organic and external growth liek overseas takeover +company retains control +all profits remain +investment could be vertical integration, gain greater control of supply chain -lack of expertise -lack of local knowledge

Question 74

Multinational corporations MNCS

Answer 74

Operations outside country +source of employment +more choice of consumers +require supply chain - impact of CSR and reputation

Question 75

Buying selling overseas

Answer 75

- cost of production - protectionism -cultural diff -synergies

Question 76

Bartlett and Goshal

Answer 76

Pressure for local responsiveness Pressure to reduce costs

Question 77

International strategy - B and G

Answer 77

Low low -r and d decisions are centralised - demand from products similar to MNC”S home market where held quarters are, little pressure to lower avg production costs MCDONALDS

Question 78

Global strategy - B and G

Answer 78

High cost pressure Low local response pressure - need for econ of scale to be used globally -products can be standardised - used fro commercial goods, low price industrial goods -centralised decision making BP- petrol, max profit margains, econ of scale

Question 79

Multi-domestic strategy - B and G

Answer 79

High pressure for local response Low cost pressure - high demand from customisation, adapted -low pressure for economises of scale - r and d , decisions all DECENTRALISED -local branches have expertise, local market research VIRGIN- airline DYSON

Question 80

Transnational - B and G

Answer 80

High cost pressure High local response - adapt products and benefit from economies of scale e -mass customisation - decentralised decisions and centralised- mix -coordination of separate functions aswell as delayered management GOOGLE- centralised decision making, Also decentralised

Question 81

HOFSTEDE

Answer 81

Individualistic / collectivist - personal needs vs group goals Masc/femm - Uncertainty avoidance - how comfortable, less risk adverse Power distance

Question 82

E-commerce

Answer 82

Buying and selling of goods and services, electronic payment systems, data- ie emails,

Question 83

Impact of e-commerce on revenue and costs

Answer 83

Revenue +lower selling price , increase demand for elastic goods + increase size of target market- website, global Collect data- better for target marketing + 24/7 storefront Cost +lower barriers to entry, lower start up costs +accsess to more suppliers +lower waste , match supply to demand

Question 84

Big data

Answer 84

All info that is generated, stored and analysed by business - customer data -loyalty cards =, track consumer spending habits - sales info - rev generated -operational ie faulty products - marketing- effectiveness of ads - HR-histroy of performance

Question 85

Data mining

Answer 85

Using software to analyse big data , look for patterns - analyse prior performance -predict future sales -indentify cause and effect - look and trends

Question 86

ERP - enterprise resource planning

Answer 86

Use of software to integrate key business processes, increase coordination and efficiency Operations- order right amount of supplies , monitor quantity HR_ track staff skills, see what training tehy need, any pay rises Finance- ensure all invoices on time Marketing- allows customer to personalise shopping experience Ie - local store, loyalty cards, stock teh products that people who regularly shop there have

Question 87

E-commerce benefits