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Business > Unit 9 - How To Pursue Strategies > Flashcards

Unit 9 - How To Pursue Strategies Flashcards

1
Q

Reasons for growth

A
  • 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
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2
Q

Retrenchment

A

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

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3
Q

Organic growth

A

Expanding internal operations and current business

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

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4
Q

How is organic growth funded

A

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

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5
Q

Example of organic growth

A

Lego
- grown through own sales

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6
Q

External growth

A

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

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7
Q

Merger example

A

Facebook and WhatsApp

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8
Q

Joint venture example

A

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

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9
Q

Business takeover example

A

Kraft food, took over Cadbury

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10
Q

+ and - of organic growth

A

+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

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11
Q

When is organic growth most appropriate

A

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

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12
Q

+ to external growth

A

+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
+

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13
Q
  • to external growth
A
  • 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
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14
Q

Economies of scale

A

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

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15
Q

Purchasing economies of scale

A

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

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16
Q

Technical economies of scale

A

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

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17
Q

Managerial economies of scale

A

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

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18
Q

Diseconomies of scale

A

Lack of
Communication
Coordination
Motivation

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19
Q

Diseconomy of scale- communication

A

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

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20
Q

Diseconomy of scale- coordination

A

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

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21
Q

Diseconomy of scale- motivation

A

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

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22
Q

Is beneficial for business to grow

A
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23
Q

Economies of scape

A

Benefits for a business who produce range of products

Eg- APPLE - iPad, desktop, headphones,

Unilever- many different brands

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24
Q

+ of economies of scope

A

+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

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25
Experience curve
Lower average production costs as a result of all output over time
26
When does experience curve occur
- 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
27
Implications ( good or bad ) of experience curve
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
28
Experience curve depends on
- assumes that experience leads to greater expertise - not guaranteed -increased size lead to diseconomies of scale
29
Synergy’s
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
30
Example of synergy from merger
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
31
Evaluate synergy’s- do they always occur
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
32
Overtrading
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
33
How to deal with overtrading
-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
34
Greiner Growth model
As b. Grows - each stage comes to an end with a crisis then has a strategy to overcome Creativity- ended by leadership crisis
35
Creativity - small business, communication informal, spontaneous
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
36
Direction - leadership roles established , ie head of marketing , functional areas - consistency, order
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
37
Delegation - day to day given to management, so leaders can concentrate on strategic planning and direction - formal structures, regularly meet. Long term views
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
38
Coordination- leaders create procedures and policies which help middle managers follow - clear guidelines - increase layers in hierarchy to oversee decisions
Leads to RED TAPE CRISIS - rules and policies too strict, become demotivating - time consuming - too much beaurcracy - disempowered staff Sooo Need more collaboration
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
Leads to GROWTH crisis - reached internal growth limit - Have to create alliances - external growth, merges, takeovers Outsourcing- focus on core competencies
40
Criticism of greiner
Simplistic Duration of each phase will differ Some b may skip stages Some may experience more than one at a time
41
Mergers and takeovers +
- Increase market share - Gain managerial, technological, and purchasing economies of scale - synergies - gain quick access to new markets - eliminate comp - acquire intellectual properties
42
Franchising
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
43
Backward vertical integration
Grows through - buying suppliers - working backward
44
Forward vertical integration
Buy retailer Ie car dealership Integrate in supply chain
45
+ of backward vertical integration
- reduce POWER OF SUPPLIERS (PORTER 5 forces ) - increase certainly in pricing and consistency - suppliers tailored to exact needs of manufacturers -increased added value
46
- of backward vertical integration
- high risk, expanding outside core competence - fewer economies for scale as expansion into diff industry - less choice of supplier
47
Horizontal integration
Buying another business that operates in same production process Ie VW- buy loads of brand ie SKODA
48
+ and - to horizontal integration
+ 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
49
Conglomerate integration
Growth through diversification into industries, unrelated Diversification- (PORTERS STRATEGIES) is Dyson
50
+ and - to conglomerate integration
+ 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
51
Innovation
Product innovation Process innovation
52
Innovation + and -
+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
53
Ways to improve innovation - KAIZEN
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
54
Ways to improve innovation - R AND D
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
55
Ways to improve innovation - INTRAPRENEURSHIP
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 -
56
Example of intrapreneurship in business
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
57
Intellectual property
Patents
58
Patents
First move advantage - can be sold, rented
59
Trademark
Logo, represent brand - unique to company, cant be used by others, -apply for trademark at UK INTERLEXTUAL PROPETY OFFICE-
60
Copyright
Prevents copying- permenantly - artistic work, music
61
Benchmarking
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
62
+ and - of intellectual property
+encouarges innovation, original ideas, hard to copy + patents sold or rented, form of finance -complex, time consuming - breaches of IP hard to prove
63
Impact on innovation on functional areas
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
64
Internationalisation
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
65
Factors affecting attractiveness of internationalisation
-size of market, opp fo growth - cultural similarities / differences - availability of finance -production costs -infrastructure -market gaps- find through a market map - production costs -
66
Offshoring
Relocation of busines to international location
67
+ offshoring
-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
68
- offshoring
-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
69
Re-shoring
Relocation of business activities back to home country after they have previously been offfshored
70
+ to reshoring
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
71
Exporting
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
72
Licensing
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
73
Direct investment
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
74
Multinational corporations MNCS
Operations outside country +source of employment +more choice of consumers +require supply chain - impact of CSR and reputation
75
Buying selling overseas
- cost of production - protectionism -cultural diff -synergies
76
Bartlett and Goshal
Pressure for local responsiveness Pressure to reduce costs
77
International strategy - B and G
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
78
Global strategy - B and G
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
79
Multi-domestic strategy - B and G
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
80
Transnational - B and G
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
81
HOFSTEDE
Individualistic / collectivist - personal needs vs group goals Masc/femm - Uncertainty avoidance - how comfortable, less risk adverse Power distance
82
E-commerce
Buying and selling of goods and services, electronic payment systems, data- ie emails,
83
Impact of e-commerce on revenue and costs
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
84
Big data
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
85
Data mining
Using software to analyse big data , look for patterns - analyse prior performance -predict future sales -indentify cause and effect - look and trends
86
ERP - enterprise resource planning
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
87
E-commerce benefits

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