unit 9 - Strategic Methods

What is Retrenchment

when a business shrinks the business in order to cut costs, or stop diseconomies of scale

benefits of retrenchment

• cost reduction

• refocus of core compencies

• improves efficiency

Negatives of retrenchment

• employee morale may go down due to redundancies

• customer loyalties may drop

• Market share may decrease

What is Organic growth

When a business grows internally through increasing size

What are the 3 ways a business can organically grow

• new products

• new markets

• franchising (other businesses using the services)

Benefits of organic growth

• less risky, with costs aswel

• No intergration needed meaning no compromising of core compencies ect

Limitations of organic growth

• slower than external growth (slower payback period)

• less purchasing economies of scale , less discounts of bulk buy

• rivals may grow faster, lose out on first mover advantage

What is External growth

when a firm expands by integrating with another firm as a result of either a merger or a takeover

benefits of external growth

• fast change

• quick payback period

What is a merger

when 2 businesses of similiar size and market shar emerge to grow and gain large market share quickly

What is a takeover

When a business buys all the shares in another business to takeover their operations

What are economies of scale

when there is higher levels in a business it reduces costs

what are the 5 types of economies of scale

• purchasing

• marketting

• technical

• managerial

• financial

What is purchasing economies of scale

bulk buying, reduced unit costs due to purchasing more and getting discounts from supplier

What is marketing economies of scale

marketting costs split , can produce larger campaigns that reach more people

What is technical economies of scale

When a business has access to more efficient technology , improving efficiency reduces cost per unit

What is managerial economies of scale

Acess to best managers due to size and ability to pay higher wages. increasing productivity and employee motivation

What is financial economies of scale

can negotiate lower interest rates and have higher overtrade limit

What are the external economies of scale (effects the whole market, in a positive way)

• infastructure changes (transport links)

• technological advancements

• Knowledge

why are infastructure changes an economy of scale

When government invest in new infastructure it means all businesses benefit from more efficiency,ie transport links improved

What is knowledge and why is it an external economy of scale

most businesses share on geographical location meaning any improvements in understanding will benefit the whole market, ie new uni students needing jobs after graduating (benefit for all businesses

what are diseconomies of scale

When a business gets so large that it becomes inefficient and mistakes are made

What are the 3 diseconomies of scale

• communication issues

• coordination issues

• motivation issues

What are communication issues

More levels in the hierarchy , meaning messages take longer to get through the chain. Resulting in slower decision making and more impersonal styles of communication

What are coordination issues

less supervision, wider span of control, managers may become un aware of issues

What are motivation issues

Employees get less recognition from management, leading to alienation and insignificance. Low employee motivation can lead to low productivitty and absenteeism

What does synnergy mean

term used when dicussing the benefits of external growth

What are the 6 stages of growth in greiners model of growth

• growth through creativity

• growth through direction

• growth through delegation

• growth through coordination and monitoring

• growth through collaboration

• growth through alliances

What are the impacts of growth on the marketing function

• more investment into the marketing mix to increase sales

What are the impacts of retrenchment on the marketting function

• marketing reduces their product range or exiting specific markets

What are the impacts of growth on the finance function

rapid expansion can lead to cash flow problems, need to be careful when cutting prices as profit margins will be reduced

What are the impacts of retrenchment on the finance function

redundancies can increase cash outflows, however smaller workforce means lower fixed costs

What are the impacts of growth on HR

more staff will have to be hired

what are the impacts of retrenchment on HR

Hr have to effectively manage morale so that talented staff don’t leave due to fear of redundancies

Impact on operations when growth happens

new production methods to increase scale

Impacts of retrenchment on operations

investment in new machinery will be stopped. productivity from staff will be lower

Example of a company takeover

kraft took over cadbury in 2010

What is a franchise

when the owner of a bsuiness allows individuals to use their business model in return for a small fee and percent of profit

What is horizontal intergration

when a business takes over or merges with a business in the same industry and at the same stage in production process, ie two suppliers merging

What is vertical intergration

when one business takes over or merges with another in the same industry but at different production points, ie supplier and brand

Advantages of forward vertical intergration

• control of competition, means they own that supplier

advantages of backward vertical integration

closer links with suppliers, more control over quality and timing of supplies

disadvantages of forward vertical intergration

consumers amy resent the dominance of one firms products and stop buying from them

Disadvanatges of backward vertical integrations

no longer competing for customers, meaning suppliers may up their prices and cut quality

Why is innovation important for businesses

enables businesses to retain their competitive advantage by consistantly devloping mew products or services

What are the two types of innovation

Process innovation and product innovation

What is process innovation

Improving methods of manufacturing so a business can be more efficient and produce better quality products

What is product innovation

Developing new products or improving existing ones that consumers have shown an interest in

What are the 4 main benefits of innovation

• monolopy power

• high prices

• improved rep

• cost reduction

What is monolopy power

if a business uses a patent, they can protect being copied by competitiors meaning that consumers can only buy from that one business increasing revenue

What is high prices as a value of innovation

Can adopt a price skimming strategy where they set high price for new products so they can make high profit before competitors lower prices

How does innovation improve reputation

gain a good rep means less cost spent on marketting, and consumers will stay loyal due to the consistant release of new products

How does innovation lead to cost reduction

process innovation leads to more efficiency with less wastage, decreasing costs

What are the 4 ways to become an innovative organisation

• Kaizen

• Research and development

• Intrapreneurship

• Benchmarking

What is kaizen

means continuous improvement, based on ideas from people. implementing incremental change over time

what is kaizan culture based on

• one employee, two jobs, employees think about ways to improve their working

• team working, consistant discussions

• empowerment, employees given power to implement their ideas

What is research and development

scientific research that boosts innovation

What is intrapreneurship

When large businesses encourage their employees to act like entreprenurs in the business by coming up with ideas that theyll support finacially

Example of a business who uses intrapreneurship

Google, allows employees to spend one day per week working on individual ideas

What is benchmarking

When a business finds out how the best companies achieve their outstanding peformance, and uses their ideas

What are the two types of protecting intellectual property and innovation

• copyrights

• patents

What are copyrights

applies to written materials like newspapers and music

What is a patent

Inventor has 20 years where their work can’t be copied , increasing innovation as businesses can gain first mover advantage

impact of innovation on the finance division

innovation requires significant long term investments menaing they need to be sure they are getting significant returns

impact of innovation on the HR division

need to implement strategies that increase employee ideas and intrapreneurship

What is internationalisation

Trading internationally to cut costs and increase profitability

Why are international markets attractive to target

• reduces dependance on domestic markets

• fast growth

• larger economies of scale

What are the 4 ways to enter international markets

• exporting directly to international customer

• selling through an agent by giving licensing rights in exchange for royalties

• Joint venture, mergers with international business

• Operations overseas, produces and sells abroad

benefits of exporting directly

• uses existing factories ect

• customer relationships established directly

• more cost effective through online promotion

Drawbacks of exporting directly

• risk of non payment

• no physical stores, may reduce customer base

Benefits of licensing

• physical store for employees to visit and purchase

• increased customer reputations

Drawbacks of licensing

• domestic company don’t get the full sales profit

Advantages of joint ventures

the international business provides knowledge and functions like HR legal and marketing

Disadvantages of joint ventures

• have to share profits

• have to compromise which could lead to loss of core compencies

Advantages of operations overseas

• can share spaces like offices ect, spreading costs and risk

Disadvantages of operations overseas

• Can have legal and tax issues as they are moving to a new area

What is globalisation

• the increasing trend for businesses to move production overseas

Why did globalisation start

• removal of trade barriers

• political changes

• lower transport costs

Why has globalisation boomed

• Migration, lower skilled workers accepting lower wages

• FDI increase, investment in overseas companies

• multinational businesses moving production overseas

What are the key features of emerging economies

• larger populations

• fast economic growth

• rising GDP

• Potential growth rise

What is BRICS MINT

Brazil, Russia, India, China, South africa

Mexico, Indonesia, Nigeria, Turkey

why are emerging economies attracitve

rising GDP, more consumer that will be buying, less competition so first mover advantages

Benefits of moving to an emerging economy

• high profits

• large population so increased economies of scale

• better profitability

Drawbacks of emerging economies

• can be volatile

• exchange rates may fluctuate

• high risk

What is offshoring

• rellocating production to another country

benefits of offshoring

• lower manufacturing costs, lower wages

• acess to new skillset, potentially higher skills

drawbacks to offshoring

• longer lead times for supply

• exchange rates may fluctuate

• less control over supply chain with wider spans of management controls

What is reshoring

• business moves production back to domestic company due to issues when moving production overseas

Benefits of reshoring

• greater certanity over supply chain and lead times

• minimizes disruptions in transport

drawbacks of reshoring

• increased costs

• lowering brand rep

What are exchange rates

the value of the £ against another currency

what does a rising exchange rate mean

• increasing cost to import products into uk

What does a falling exchange rate mean

• cheaper to export products overseas, domestic markets benefit from this

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