9. Strategic methods: How to pursue strategies

Question 1

When does change occur?

Answer 1

Change occurs when firm alters its structure, size or strategy to respond to internal or external influences

Question 2

Reasons for change

Answer 2

Meet objectives
Respond to external forces
Respond to internal forces
Gain competitive advantage

Question 3

Growth definition

Answer 3

Increasing size of firms operations e.g. new stores, new products, new markets

Question 4

Reasons for growth

Answer 4

Increased shareholder value
Increased market share
Reduce average costs

Question 5

Retrench definition

Answer 5

Downsizing scale of firms operations e.g. closing branches, selling of parts of firm

Question 6

Reasons for retrenchment

Answer 6

Turn around poor performance
Focus on core firm
Restructure to increase efficiency

Question 7

Organic growth

Answer 7

Internal growth - firm expands in size by opening new stores and branches

Question 8

External growth

Answer 8

Firm expands in size by merging or taking over a firm

Question 9

Economies of scale

Answer 9

Firm increases scale of operations leading to fall in unit costs

Question 10

Lower unit costs effects

Answer 10

Reduce prices
Increased sales revenue

Question 11

Economies of scope

Answer 11

Increases scale of operations by expanding range of activities it undertakes leading to fall in unit costs

Question 12

Diseconomies of scale

Answer 12

Increase in scale of operations that causes rise in unit costs

Question 13

Experience curve

Answer 13

Having both managers and employees who are familiar with the running of the firm

Question 14

Synergy

Answer 14

Two firms join together will be able to achieve more than sum of two firms separately

Question 15

Overtrading

Answer 15

Firm expands too quick resulting in operating at level beyond its resources causing liquidity problems

Question 16

Greiner’s growth model

Answer 16

As firm grows in size it will go through series of changes in terms of management and structure
Model shows how firm evolves over time but periodically reaches crisis point where actions are needed

Question 17

Greiner Phase 1

Answer 17

Phase 1 - creativity and lack of formal hierarchy
Crisis 1 - need for direction
Revolution - leadership

Question 18

Greiner Phase 2

Answer 18

Phase 2 - more formal approach including introduction of functional structure
Crisis 2 - autonomy
Revolution - greater delegation

Question 19

Greiner Phase 3

Answer 19

Phase 3 -decentralised decision making and possible introduction of profit centres
Crisis 3 - fear of loss of control
Revolution - introduce more formal procedure

Question 20

Greiner Phase 4

Answer 20

Phase 4 - centralised decision making, introducing more formal policies
Crisis 4 - red tape
Revolution - coordination HQ and functions

Question 21

Greiner Phase 5

Answer 21

Phase 5 - Greater communication and team work between head quarters and functional areas

Question 22

Methods of growth

Answer 22

Mergers
Takeovers
Ventures
Franchising

Question 23

Conglomerate

Answer 23

2 unrelated firms integrate

Question 24

Joint ventures

Answer 24

2 or more firms agree to act collectively to set up new firm venture with all parties contributing equity