Business innovation fawsitt 3.9

retrenchment - definition and when it can occur

when a business decides to significantly cut or scale-back its activities, which can occur to:

• reduce output

• scaling back capital investment

• disposal of business unit

causes of retrenchment

arsis from strategic change, such as:

• new leadership

• high gearing

• loss of market share

• low ROCE

  • high costs and low profitability

impacts of retrenchment: changed management, new leadership and fewer staff

1. changed management - greater workloads, higher stress

2. new leadership - uncerntaincy, previous projects abandoned

   1. fewer staff - loss of moral, de-motivation, bad news for external stakeholders

Overtrading - definition

a business that expands to quickly without having the financial resources to support the quick expansion

overtrading - causes / symptoms

• growth is made by capital investment in production before generating revenue

• use of overdrafts

• poor payable to recievable ratio

• low inventory turnover

  • low capacity utilisaiton

overtrading - how to manage risk

1. reducing inventory

2. scaling back revenue growth until profit margin and net cash flow

3. leasing rather than purchasing

benchmarking - def + what is involved in benchmarking?

understanding and evaluating the position of a business in relation to best practice to identify areas of performance improvement

what is involved?

1. understanding / analysing business process

2. comparing business performance with others

3. implements steps to close performance gaps

types of benchmarking - strategic and performance

strategic benchmarking - examines long-term strategies and general approaches that have enabled high-performers to succeed

performance benchmarking - considering position in relation to performance characteristics

types of benchmarking - process and functional

process benchmarking - comparing best practice organisations that performs similar work

functional benchmarking - comparing with partners drawn from different sectors

types of benchmarking - internal and external

internal benchmarking - benchmarking within the same organisation

external benchmarking - analysis outside organisations that are known for being ‘best in class ‘

Synergy - definition + types of synergy

when the value of two businesses brought together (by merger or takeover) is higher than the sum of the two individual businesses (2+2=5)

types:

cost synergy - reduction in costs as a result in combination e.g better deals from suppliers and higher productivity from shared assets

revenue synergy - increased revenue generated from the combination e.g. cross-selling, brand extension and new distribution markets

IP - Trademark (what it covers, time to allow for application)

trademark - product names, logos and jingles - 4 months

IP - design (what it covers, time to allow for application)

design - apperance of a product e.g. it’s shape, packaging patterns and decoration - takes 3 weeks

IP - copyrighting (what it covers, time to allow for application)

copyright - writing and literacy works, art, photography, films, TV - no application needed

IP - Patent - (what it covers, time to allow for application)

Patent - inventions and products e.g. machines and medicines - 5 years

Innovation: def + types

innovation - development of an idea into a new product or process

product innovation - changing a product that already exists or making an invention a brand new product

process innovation - changing a process of production that already exists or putting into practice a brand new production process

why do businesses need to be innovative?

• competitive advantage

• finding new markets

• developing brand image

• creating an USP

Costs of innovation

• higher risk - very few innovation

• time and finance cost

• opportunity cost

• staff are neede or replaced

• todays innovations are tomorrow

ways of becoming an innovative organisation: Entrepreneurship

where larger businesses enable their employees / managers to demonstrate entrepreneurial behaviour in theri work to benefit the employer.

e,g, Google employees get 10% of their free time to work on their own projects, with Gmail being formed from it

ways of becoming an innovative organisation: Kaizen

a system of lean production that concentrates on small, frequent improvements throughout the production process

• applying Kaizen means all members are involved, needing a highly committed workforce

  • improvements are encouraged throughout the hierarchyways of becoming an innovative organisation:

ways of becoming an innovative organisation: Benchmarking

the process of identifying best practice, normally within an industry

how to benchmark

1. identify areas which can be benchmarke and find data and best practice

2. compare to find areas of weakness, setting new targets

3. implements proceedures to fit these targets

4. review process

globalisation definition

the process of increased interconnectedness and integration of economies, cultures, societies worldwide - increasing for markets to be international rather than domestic

Why has globalisation emerged?

• trade blocs leading to trade liberalisation

  • The WHO ensures trade between nations is legal and ethical between all parties

  • the growth in MNC’s (multi-national companies) that operate in more than one country - it must have business operations in at least 2 countries

Protectionism

any attempt by a country to to impose restrictions on the open trade in goods and services.

this can be done to cushion domestic businesses and industries from overseas competition and prevent the outcome resulting solely from the interplay of free market forces of supply and demand.

off-shoring and re-shoring: definition and reasons

off-shoring - moving business functions away from the origin nations

• lower costs abroad

• entering new markets

• higher productivity

re-shoring - moving previously off-shored business functions back to the country of origin:

reasons to re-shore:

• cost savings not longer significant

• shorter lead times

• government incentives - protectionism

re-shoring example: trunki

Moved back to the Uk due to:

• 2 months re-stocking rate

• brand loyalty of Britain

• higher tech advancements - lots of workers replaced for machinery

ways of entering international markets: divert exporting: adv dis

simplist method: customers located overseas get sent the good by delivery overseas directly.

Adv:

• uses existing systems: e-commerce, onlime promotion

• entire rpofit margin stays within the business

dis:

• customer service may need to be extended to e-commerce

• no direct physical contact with customers

ways of entering international markets: selling via international agents / distributors

Gaininng access to the distribution channels of a foreign nations via agents / distributors in key international markets or areas

adv:

• gain speicalist market knowledge

• can be cost effective

dis:

• loss of profit margin

• agent / distributor can keep customer relaitonship to them

ways of entering international markets: overseas operation

high risk approach with a ‘sales office’ in an international market:

adv:

• local contact is direct and quick

• avoids tariff barriers

dis

1. significant cost and investment time needed to understand host nation

2. higher risk

ways of entering international markets: joint ventures and overseas takeovers

highest risk, often by largest businesses who have the resources nto make risk, often requires a joint venture partnet with a local business

adv:

• buys into existign epertise and market presence

• popular way of entering emerging markets

dis:

1. higher risk especially when wrong partner or takeover is selected

2. costly to withdraw and invest into

Offshoring example - WhatsApp

offshores services to Russian coders to keep costs down in the early years, using them to manage backstage

Offshoring example - Ford

• Offshoring to China due to demand for cars and rising production costs in its home market (Germany)

• corporation manufacturing in Mexico

• tech support to India

strategic positioning matrix - Translational strategy

high-cost pressures and high local responsiveness

e.g. Starbucks

strategic positioning matrix - Global strategy

high cost pressures and low local responsiveness:

• highly centralised, standardised products

• focus on efficiency / economies of scale

strategic positioning matrix - multi-domestic strategy

low cost pressure and high local responsiveness

• meeting local market needs

• often with independent companies running themselves / decentralised businesses

strategic positioning matrix - International strategy

low cost pressure and low local responsiveness

• results in operating abroad but run from the home country