Week 6 - Business growth Strat Flashcards
What are the factors influencing organisational purpose?
Organisational purpose
- Corporate governance
- Stakeholders
- Business ethics
- Cultural context
What are Porter’s five factors of competition?
Modelling technique used to analyse the decision of business strategy
- Rivalry among existing firms
- Threat of new entrants
- Threat of substitutes
- Bargaining power of suppliers
- Bargaining power of buyers
What are “profit satisfiers”
Why do they exist?
Profit satisfiers
- Firms that target a profit level rather than profit maximisation
Exist:
- Hard to derive demand curve
- Market conditions change
- Hard to know price elasticities and customer reactions
What is Managerial Utility maximisation?
An alternative strategy to profit maximising for Profit satisfiers
- Once profits are satisfied, managers choose alternative policies to persue
- Normally their own interests
Theory suggests enhancement of managers utility benefits the firm
What is Sales revenue maximisation?
An alternative strategy to profit maximising for Profit satisfiers
- Managers look to maximise short-run revenue
- Displays the firms potential and ability
What is growth maximisation?
An alternative strategy to profit maximising for Profit satisfiers
- Firms look to grow into the largest firm or achieve maximum capacity
- requires clear objectives and timelines
What are the constraints of business growth?
Traditional theory
- Firms limited by upward sloping MC curve and supply/demand limits
- Financial conditions
- Firms need to generate revenue or debt to fund expansion - Shareholder confidence
- Shareholders need to believe the firms can generate profits otherwise they wont lend - Demand conditions
- Market needs t be growing/favourable
If not => export / diversify - Managerial conditions
- Efficient number/types of management to allow growth
What are the 3 types of expansion?
- internal expansion
- External strategic alliances
- External mergers and Acquisitions
What are the three types of internal expansion?
- Internal Differentiation
- Expansion within a market - Internal Vertical integration
- Produce products for different stages of a final product - Internal Conglomerate
- Diversify into completely new products and markets
What are the three types of external mergers and acquisitions
- External Horizontal Integration
- Merger with a firm producing within the same market - External vertical integration
- Merger of firm producing different stages of a product - External conglomerate
- merging with firm producing uncorrelated product
What are the three types of external strategic alliances?
- Horizontal alliances
- Alliances between firms producing at the same stage of production - Vertical alliances
- alliance with firm at different stages of production - Networks
- Informal alliance between firms across industries to for supply chain
What are the two types of vertical integration?
Forward integration
- Distribution and sale of product
Backward integration
- making components of a final product
What are the incentives for vertical integration?
What are the issues of VI?
Pros
1. Greater efficiency = Lower LR-ATC
2. Reduced uncertainty of inputs
3. Innovation from communication
4.. Increased market power
5. Creation of barriers of entry (scale)
Cons
- Harder to change direction
What is tapered vertical integration?
Partial integration of early-stage production
What are the benefits of internal conglomerate diversification?
- Stability
- Spread risk - Maintains Profitability
- Unrelated profits across firms - Growth
- Opportunity to further grow
