BUSINESS 3.9 - Strategic methods: how to pursue strategies

What is organic growth?

expansion from within a business, like an increase in machinery

What are the benefits of organic growth?

Lower risk, can be financed internally, builds on business strengths, steady business growth

What are the disadvantages of organic growth?

Depends on the growth of the market, slow growth may upset shareholders

What is external growth?

two or more businesses creating a partnership

What are advantages of external growth?

quicker than organic growth, access to new markets

What are disadvantages of external growth?

high costs, differing business cultures, legal competition barriers

What is franchising?

An established company giving another company the right to use its brand for a fee

What are the advantages of franchising?

Running your own business, known brand, easier to raise finance, lower risk method of market entry

What are the disadvantages of franchising?

Expensive, restrictions on selling, franchisor owns the brand

Why does franchising work for the franchisor?

quicker geographical growth, capital investment from franchisees is an important source of growth finance

What is a joint venture?

When two businesses collaborate on a new project

What are the advantages of a joint venture?

having each other’s resources, both partners can acquire the joint business, reduces risk because both businesses take on risk 

What are the disadvantages of a joint venture?

partner conflict, limited external opportunities

What is a takeover?

A business taking control of another by buying most of its shares

What are reasons for takeover?

increased market share, access economies of scale, spread risks by diversifying, entering new markets, eliminating competition

What are disadvantages of takeover?

high cost, may upset stakeholders, high failure rate

Why do takeovers fail?

price paid for takeover is too high, incompatibility of two businesses

What are the four types of integration?

Forwards, backwards, horizontal, vertical

What is forwards and vertical integration?

Buying a business further up in the supply chain

What is backwards and vertical integration?

Buying a business lower in the supply chain

What is horizontal integration?

Buying a business at the same stage of the supply chain

What is conglomerate integration?

Where the acquisition has no clear connection to the business buying it.

What are advantages of vertical integration?

greater share of profits, greater insights into customer needs at each stage of supply chain

What is innovation?

The development of a new/ improved idea to increase revenue

What are the different forms of innovation that businesses can use?

Product innovation, process innovation

What is product innovation?

Creating new or improved products

What is process innovation?

Creating new methods to the way a product is delivered

What is the difference between invention and innovation?

inventions are created from scratch, innovation takes an idea and applies it in a new way

What are advantages of product innovation?

higher prices, added value, customer loyalty, increased brand image

What are advantages of process innovation?

lower costs, better quality, better customer service, higher profit

What are the methods of becoming an innovative organisation?

Kaizen, research and development, intrapreneurship, benchmarking

What is intellectual property (IP)

artistic innovations and inventions that are protected by law

What is a patent?

Legal right to give an inventor control over their invention

What is copyright?

legal work protecting original creative work

What is intrapreneurship?

businesses letting their employees act as entrepreneurs and be innovative

What is the difference between entrepreneurship and intrapreneurship?

entrepreneurship: entrepreneur receives any rewards, while intrapreneurship: rewards would go to company

How can intrapreneurship be encouraged?

time away from work to develop ideas, staff competition/ innovation days

Why are large businesses not entrepreneurial?

reward systems don’t provide incentives/motivation, short-termism

How can large businesses use intrepreneurship?

reward systems, business culture of innovation

What is retrenchment?

cutting down costs/ using resources more carefully

What are examples of retrenchment?

reducing output, unemployment, product withdrawal

What causes retrenchment?

high costs, decreased market share, change of ownership, external environment

What are benefits of retrenchment?

improved efficiency

What are disadvantages of retrenchment?

decreased employee motivation

What is the difference between internal and external benchmarking?

internal: comparisons within an organisation, external: comparing with rivals

What is benchmarking?

comparing a business’ performance against competitors to see if they are better or worse

What are the steps of benchmarking?

analyse business, analyse rivals, compare to rivals, implement improvements

What are the types of benchmarking?

strategic, competitive, process, functional, internal, external

What are the types of economies of scale?

internal and external, managerial, technical, purchasing

What is internal economies of scale?

a business reducing its own costs and improving efficiency

What are external economies of scale?

cost advantages benefitting all businesses in an industry

What is managerial economies of scale?

larger firms hiring specialist managers to improve efficiency

What is technical economies of scale?

larger businesses investing in better machinery to reduce cost per unit

What are purchasing economies of scale?

bulk buying at discounted prices

What are diseconomies of scale?

output and cost per unit increasing as a result of business growth

What causes diseconomies of scale?

business growth, miscommunication

What are economies of scope?

spreading costs over a range of products

What is synergy?

value of combining businesses being greater than value of individual businesses

What is overtrading?

business growing too fast and not having enough resources

What are the features of globalisation?

increased trade, foreign direct investment, rising number of global brands, global supply chains, connections through the internet

What is containerization?

businesses using shipping containers to reduce global trade costs

How does tax impact globalisation

different tax systems have an influence on where businesses set up

What is protectionism

restricting trade to protect domestic industries from competition