Strategic methods: How to Pursue Strategies Key Terms

Economies of Scale (Purchasing, managerial, technological & financial)

Cost advantages realised by companies when production becomes more efficient

Organic growth

The process of a business expanding its operations internally, relying on its own resources and increasing sales and revenue gradually over time

External growth

Growth of a company that results from using external resources and capabilities rather than from internal business activities

Economies of scope

When the production of one good reduces the cost of producing another related good

The experience (curve) effect

The more experienced a company is in manufacturing a specific product, the lower its cost of production

Synergy

Where the whole is greater than the sum of its parts

Diseconomies of scale (communication problems, control and co-ordination problems, motivation issues)

When a company or business grows so large that the costs per unit increase

Overtrading

When a business expands too quickly without having the financial resources to support such a quick expansion

Mergers

Occurs when two or more companies combine to form a new company

Takeovers

A process where one company (the acquirer) makes a successful bid to take control of or buy another one (the target)

Joint ventures

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

Franchise

The right given by one business to another to sell goods using its name

Franchisor

A business that gives franchisees the right to manufacture, distribute or sell its branded products in return for a fixed sum of money or royalty payment

Franchisee

A business that agrees to manufacture, distribute or sell branded products under the licence of a franchisor

Vertical integration

The merger of two firms at a different stage of the same industry or process of production or same final product

Horizontal integration

When two companies at the same stage of the production process merge or take over each other

Conglomerate integration

The process of merging or acquiring companies that operate in different industries or markets

Retrenchment

When a business decides to significantly cut or scale-back its activities

Innovation

The development of a new idea which leads to the production of a new product or service which can be sold

Kaizen

An approach of constantly introducing small incremental changes in a business in order to improve quality and/or efficiency

Intrapreneurship

A system within a company or organisation that allows employees to act like entrepreneurs

Benchmarking

A process in business where a company evaluates various aspects of its processes in relation to best practice within the same sector

Intellectual property

Legal property rights over creations of the mind, both artistic and commercial, and the corresponding fields of law. IP includes copyrights, trademarks, patents & trade secrets.

Free trade

International trade conducted without the existence of barriers to trade, such as tariffs and quotas

Tariff

A tax on the import or export of goods between countries

Quota

The time-bound restrictions governments impose on trade

Customs union

A group of countries that agree to eliminate tariffs and other trade barriers on goods and services among themselves, and also agree to adopt a common set of tariffs on imports from non-member countries

Trade agreements

They are made between two or more countries and set out the preferential rules for buying or selling goods or services between them

Multinational company (MNC)

A company that has business operations in at least one country other than its home country and generates revenue outside of its home country

Outsourcing

When a business uses another business to make part of its product or provide part of its service

Re-shoring

Involves a business bringing its production processes back to the original country

Off-shoring

The practice of relocating business operations and functions to another country

E-commerce

The buying and selling of goods or services over the internet

Data mining

The process of analysing data from different perspectives and summarising it into useful information.

Enterprise resource planning (ERP)

A software system that helps organisations streamline their core business processes—including finance, HR, manufacturing, supply chain, sales, and procurement—with a unified view of activity and provides a single source of truth

Big data

The process of collecting and analysing large data sets from traditional and digital sources to identify trends and patterns