9 - Strategic methods: how to pursue strategies (Factors influencing the…
9 - Strategic methods: how to pursue strategies
The reasons why businesses grow or retrench
through takeovers or mergers - it is an
and there are a number of reasons for this....
- essential part of growth.
- growth in the form of diversification or moving into new markets can be used to reduce risk.
- increase in share price, greater dividends to shareholders. Positive media attention, greater security for the CEO and board members.
Increase market share
- more dominant market position, greater power over suppliers and prices.
opposite of growth
and means cutting down or
reducing the size of a business
, usually with the aim of becoming
. There are a
number of reasons
a business might pursue this strategy...
- not unsuaual for a takeover to fail and for a business to demerge part or all of the business taken over.
- sometimes this leads to a business retrenching in order to better cope with the changed economic environment.
Changes in the market
- changes in taste and fashion, technological development or the arrival of more competitive businesses.
The difference between organic and external growth
expanding a business by means of opening new businesses, shops or factories
expanding a business by means of merging with or taking over another business.
How to manage and overcome the problems of growth and retrenchment
Issues with growth
Economies of scale
proportionate saving in costs as a result of an increase in the size of an operating unit.
Benefits... (FIT MATE)
-nagerial - managers become expert
-chnological - technology can be used to lower unit costs
-rading - bulk buying becomes possible (purchasing economies of scale)
-nancial - raising finance is easier
Economies of scope
proportionate saving gained by producing two or more distinct products, when the cost of doing so is less than that of producing each separately.
more types of products.
two or more types
of product than it is to produce them
Diseconomies of scale
refer to a situation where economies of scale no longer occur and unit costs begin to increase rather than decrease.
Reasons for this...
Lack of control and coordination
Alienation of the workforce
The experience curve
The idea that the more you do something, the better you get at it, enabling quicker and cheaper production
As a business gets
, it should gain a
competitive cost advantage
which is why this curve is linked to a
cost leadership strategy.
where a business grows too quickly, undertaking more business than its working capital can cope with.
Cash often has to
more cash comes
. Quickly leads to
idea that the value and performance of two businesses combined will be greater than the sum of the two parts.
Greiner's word of growth
describes different phases of a business's growth and provides a framework to help understand different organisational structures and coordination methods.
Link to the model explained:
Issues with retrenchment
, resulting in inevitable
, which leads to the biggest
However, a key
outcome is the
of a retrenchment procedure that
minimising workforce impact
. This requires careful
with trade unions and worker representatives in order to
minimise potential issues.
The impact of growth or retrenchment on the functional areas of business
- relates to decisions regarding
changing marketing objectives
in a growing or declining market and the
- decisions regarding the
finance of growth
in terms of
. Alternatively, it might relate to achieving
market, including the finance of
scale, the impact is likely to be in relation to
and how to
- impact of a
change in size
is likely to be in relation to
, the need for
as well as
how to approach redundancies.
Assessing methods and types of growth
Mergers and takeovers
two or more
businesses agree to
of another business through the
purchase of a controlling interest.
Link to a diagram showing types of mergers and takeovers (explained):
One method of
full takeover or merger
is to form a
with another business.
Joint venture: a business arrangement where two or more businesses agree to pool their resources for the accomplishment of a specific task.
It enables an
local knowledge and expertise
of a business
already in the market.
Franchising: a method of growth where an existing business (the franchisor) grants another party (the franchisee) the right to use its trade name and sell its products or services.
Franchisee usually has to
pay a fee upfront
percentage of sales revenue
, this method of growth brings many
provided by the
The franchisee is likely to be highly motivated.
The pressures for innovation
Innovation: the process of converting an invention into a good, service or process that creates value for a business.
Pressures for change...
Shareholders and the City
- businesses are under
in order to
increase revenues and profit
. One way of achieving this is innovation.
- in order to
of competitors and
improve market share
, innovation is
- many examples of when companies have fallen on hard times due to the failure to innovate. Companies must
continue to innovate
maintain market share
Social and ethical
for change and innovation may come from a
change in social attitudes
, particularly with
regards to the environment.
The value of innovation
Aligned to strategic positioning
The ways of becoming an innovative organisation
Japanese business philosophy of continuous improvement in working practices and efficiency.
Recognises there is always
room for improvement
and wants workers to be
, and worker groups
meet and work
Research and development (R&D)
It is about
developing new products
amount spent on R&D
from industry to industry and business to business, but there's no doubt it is
essential for new product development.
practice of entrepreneurship that exists within an existing business.
this approach, a business can tap into the
strategic and analytical process of continuously measuring an organisation's products, services and practices against a recognised leader.
Quicker way of making improvements
How to protect innovation and intellectual property
(IP) is an
belonging to the owner or organisation. It may be in the form of inventions, symbols, artistic or literary work and
stems from innovation.
Ways of protecting Intellectual property...
- a trademark is a
recognisable name, logo, slogan or design that denotes a specific product or service and legally differentiates it from others.
- a copyright is the
legal protection provided for the work of authors, composers and artists.
- a patent is a
government licence that gives the holder exclusive rights to a process, design or new invention.
of a patent enables a business to
charge higher prices
The impact of an innovation strategy on the functional areas of the business
- innovation requires
no guarantee of a return.
- innovation may
steam from market research
require market research. New
products or services require
, which adds to the
of a business.
- process innovation
directly affects operations
a product is made.
products may require
or perhaps even
- in terms of
skills and training
new products and processes.
May be affected through the
culture of the business
Reasons for targeting, operating in and trading with international markets
World Trade Organization
has helped achieve
between nations, making markets
. Costs of
Economies of scale
- more will be
which may enable the
better use of capacity
economies of scale, i.e.
purchasing, managerial and technological.
- many organisations
gain tax advantages
This may be as a result of
in the country with the
lowest corporation tax.
Growth and profit
of a business,
satisfying a key objective
benefiting its shareholders
Factors influencing the attractiveness of international markets
Legal and political environment
Methods of entry
Reasons for producing more and sourcing more resources abroad
is the primary reason for
from abroad. If resources of the
desired quality, quantity and reliability
can be obtained
makes economic sense
to purchase them.
is also a big
in an organisation's decision to
Off-shoring is the movement of the operations of a business to another country.
Ways of entering international markets and value of different methods
- when a business grants a licence or the right to a business in another country to
produce its product
. Provides a
quick, low-cost method
of entering a
other trade barriers
as well as knowledge of the local producer. However,
- involve a
company and overseas business.
access to a foreign market
as well as benefiting from the
knowledge and technology of the products
- can be
(through agents) where there is
no direct contact
with customers or markets, or
customers and markets are dealt with
and a relationship is
Benefits: relatively little investment is required; entry may be gradual which allows local knowledge to be acquired; avoids any restrictions imposed on foreign investment.
Drawback: suffers from vulnerability to tarrifs and other trade barriers, cost of transport and lack of local knowledge.
over operations while
avoiding tarrifs and trade barriers
Reduces transportation costs
and possibly labour costs. However, it has a
high initial cost,
risk and may create
problems in terms of management
of overseas operation.
A business that has
more than one
country is known as a
Influences on buying, selling and producing abroad
Reasons for choosing international locations to buy, sell and produce...
Greater pool of labour
Access to raw materials
Increased global market opportunities
To avoid trade barriers
Issues relating to international locations...
Level of service and maintaining quality
Supply chain issues
timing, reliability and flexibility.
Language and communication barreirs
Problems can be
when businesses bring back to their home country operations which had been moved overseas
Managing international business including pressures for local responsiveness and pressures for cost reduction
Bartlett and Ghosal's international strategies
identifies four international strategies according to the pressure for local responsiveness (high or low) and the pressure for integration (high or low).
(potential cost savings from being globally integrated) and
pressures for local responsiveness
(to need to respond to local market conditions).
Link to the diagram and an explanation of the four different strategies.
The impact of internationalism on the functional areas of the business
The pressures to adopt digital technology
in a competitive market, digital technology can lead to
quicker and more efficient decision-making
, enabling an organisation to stay
one step ahead
Keep up with the consumer and market trends
- digital technology means a more
business that can
quickly respond to changes
buying and selling
goods and services through an
. It might be business-to-business (
), business-to-consumer (
) or consumer-to-consumer (
have access to
products and services at
, information is
and it enables
participation at auctions.
unable to examine products personally
(dependent on system reliability).
information can be
and some people today aren't
connected to the internet.
In relation to this,
is the same as e-commerce but through
mobile phones and tablets.
ever-increasing amounts of structured, semi-structured or unstructured data that have the potential to be mined for information.
characterised by four Vs...
Link to diagram about Big data:
Allows businesses to
such as stock levels, supply chains and delivery roots can be
of customers and
sports performance, national security and health.
process used by organisations to turn large amounts of data (big data) into useful information.
Enterprise resource planning
Definition: ERP is
the business management software system by which an organisation manages and integrates the important parts of its business.
Integrates all functions and processes.
Better analysis and planning capabilities.
Can be costly as irt needs to be adapted to each individual organisation and takes time to set up and test.
Requires dedicated staff and training.
The value of digital technology
Ability to access a
area for all businesses.
of which products are selling and where.
The impact of digital technology on the functional areas of the business
- opened up new markets, enabled more targeted promotions and reduced marketing costs.
- greater production automation, more efficient inventory control = lower costs, better quality, greater flexibility and reduced waste.
- monitoring and analysis are both quicker and easier to undertake.
- more flexible, multi-skilled workforces who work under better conditions and can be more closely monitored. Comes with a cost in terms of recruitment and training and in some cases can lead to industrial relations problems.