Unit 9 - How To Pursue Strategies Flashcards
Reasons for growth
- 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
Retrenchment
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
Organic growth
Expanding internal operations and current business
Ie - franchising
-expanding asset base, new factories
-increasing product range
-employ more staff
-entering new international markets
How is organic growth funded
Could be
Retained profits
Or
Loan
Issue more shares to sell
(Still internal)
Money is external but pay back so
Example of organic growth
Lego
- grown through own sales
External growth
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
Merger example
Facebook and WhatsApp
Joint venture example
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
Business takeover example
Kraft food, took over Cadbury
+ and - of organic growth
+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
When is organic growth most appropriate
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
+ to external growth
+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
+
- to external growth
- 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
Economies of scale
Lower average unit costs - from increasing size of operations - avg cost of each unit falls
Purchasing economies of scale
Bulk buy- discount
Negotiate discounts or longer periods of trade credit - reducing avg costs
Technical economies of scale
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
Managerial economies of scale
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
Diseconomies of scale
Lack of
Communication
Coordination
Motivation
Diseconomy of scale- communication
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
Diseconomy of scale- coordination
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
Diseconomy of scale- motivation
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
Is beneficial for business to grow
Economies of scape
Benefits for a business who produce range of products
Eg- APPLE - iPad, desktop, headphones,
Unilever- many different brands
+ of economies of scope
+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
Experience curve
Lower average production costs as a result of all output over time
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
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
Experience curve depends on
- assumes that experience leads to greater expertise - not guaranteed
-increased size lead to diseconomies of scale
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
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
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
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
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
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
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
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
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
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
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
Criticism of greiner
Simplistic
Duration of each phase will differ
Some b may skip stages
Some may experience more than one at a time
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
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
Backward vertical integration
Grows through - buying suppliers
- working backward
Forward vertical integration
Buy retailer
Ie car dealership
Integrate in supply chain
+ 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
- of backward vertical integration
- high risk, expanding outside core competence
- fewer economies for scale as expansion into diff industry
- less choice of supplier
Horizontal integration
Buying another business that operates in same production process
Ie VW- buy loads of brand ie SKODA
+ 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
Conglomerate integration
Growth through diversification into industries, unrelated
Diversification- (PORTERS STRATEGIES) is Dyson
+ 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
Innovation
Product innovation
Process innovation
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
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
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
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
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
Intellectual property
Patents
Patents
First move advantage
- can be sold, rented
Trademark
Logo, represent brand
- unique to company, cant be used by others,
-apply for trademark at UK INTERLEXTUAL PROPETY OFFICE-
Copyright
Prevents copying- permenantly
- artistic work, music
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
+ 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
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
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
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
-
Offshoring
Relocation of busines to international location
+ 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
- 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
Re-shoring
Relocation of business activities back to home country after they have previously been offfshored
+ 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
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
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
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
Multinational corporations MNCS
Operations outside country
+source of employment
+more choice of consumers
+require supply chain
- impact of CSR and reputation
Buying selling overseas
- cost of production
- protectionism
-cultural diff
-synergies
Bartlett and Goshal
Pressure for local responsiveness
Pressure to reduce costs
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
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
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
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
HOFSTEDE
Individualistic / collectivist
- personal needs vs group goals
Uncertainty avoidance
- how comfortable, less risk adverse
Power distance
E-commerce
Buying and selling of goods and services, electronic payment systems, data- ie emails,
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
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
Data mining
Using software to analyse big data , look for patterns
- analyse prior performance
-predict future sales
-indentify cause and effect - look and trends
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
E-commerce benefits
