Topic 9 - How To Pursue Strategies

Question 1

What are the types of growth ?

Answer 1

Growth can occur organically or externally

Question 2

What is external growth ?

Answer 2

External growth occurs when a business expands by purchasing or taking over other businesses.

For example, Morrisons purchased Safeway which is external growth

Question 3

What is the impact of growth on a business ?

Answer 3

Increased demand for goods and services which affects the decisions made within each business function.
Increased motivation for the management through a sense of achievement which improves employee retention.
Increased market share, sales revenue, and profit.
Investment (for growth) increases the need to secure capital. -The business’ need for labour may increase, which affects workforce planning.
There can be an increased focus on marketing and promotion to ensure the generation of increased demand.

Question 4

What is retrenchment ?

Answer 4

Retrenchment occurs when a business reduces the scale of a specific business area or element within the business operation

Retrenchment can allow a business to re-focus on growing a core activity within its operation.
For example, Morrisons removed a layer of supervisors from its hierarchy to reduce cost so that it could focus on growing its core business offer.

Question 5

What is the impact of retrenchment on HR ?

Answer 5

Retrenchment affects human resources as workforce planning, redundancy and redeployment will need to be considered.

Question 6

What is the impact of retrenchment on operations ?

Answer 6

Retrenchment affects operations as it can offer economies of scale through addressing diseconomies of scale which may have arisen, and this reduced unit cost.

Question 7

What is the impact of retrenchment on marketing ?

Answer 7

Retrenchment affects marketing as promotional campaigns are likely to be refocused on the refined business offer which may include selling from a smaller product portfolio.

Question 8

What is the impact of retrenchment on finance ?

Answer 8

Retrenchment affects finance as the business will need to ensure it is able to fund the short-term increase in the cost of redundancy payments.

Question 9

How do Procter and Gamble use retrenchment ?

Answer 9

Procter & Gamble, the business that owns Pampers is also diversified geographically. It owned the Venezuelan Lavasan laundry brand and the Greek Essex laundry brand. However, they retrenched and sold these brands

Question 10

What are technical economies of scale ?

Answer 10

Technical economies of scale occur when a business is able to adopt advanced technological approaches to production as a result of their scale and size.

For example, Coca Cola’s production line is likely to be more efficient than a competitor with a much less advanced production system; this reduced Coca Cola’s cost for every unit produced.

Question 11

What are purchasing economies of scale ?

Answer 11

Purchasing economies of scale occur when a business is able to take advantage of bulk ordering discounts.

For example, Amazon may buy 30,000 units of a product from a manufacturer and will pay less per unit than an independent retailer only purchasing 100 units.

Question 12

What are managerial economies of scale ?

Answer 12

Managerial economies of scale occur when a business is large enough and able enough to introduce specialist staff for each of its functions.

For example, Tesco will employ a Human Resource director whereas a much smaller retailer may not have the capacity for such a specialist role. Specialist staff members are more efficient, more productive and make fewer mistakes and this reduces cost per unit produced.

Question 13

What economies of scope ?

Answer 13

Economies of scope occur when a business is able to spread its costs over several markets or products.

For example, the cost of McDonald’s advertisements can be spread across its portfolio which reduces the cost of advertisement attributed to each product.

Question 14

What are diseconomies of scale ?

Answer 14

As businesses grow, communication becomes more difficult; decision making becomes slower which can increase overall costs.
As businesses grow, it becomes much harder to motivate staff as relationships are harder to manage; demotivation can affect productivity and therefore increase unit costs.
As businesses grow, it becomes harder to control and co-ordinate and this can cause mistakes and errors, therefore increasing unit costs.

Question 15

What is the experience curve ?

Answer 15

The experience curve suggests that businesses with better knowledge, resulting from experience, can inform a better decision which offers a cost advantage.

Question 16

What are synergies ?

Answer 16

Synergies occur when two or more businesses combine and are worth greater than the individual sum of each.

Question 17

What is overtrading ?

Answer 17

Overtrading occurs when a business experiences liquidity problems associated with the cost of growth.

Question 18

What is the reason for Greiners model of growth ?

Answer 18

Greiner’s model of growth offers solutions to overcoming the challenges of growth experienced by businesses

Question 19

What happens in stage one of the Greiners growth model ?

Answer 19

Growth through creativity occurs as businesses begin to establish themselves but have few employees and an informal structure throughout the business

Question 20

What crisis occurs after stage one (creativity) of Greiners growth model ?

Answer 20

As growth occurs, roles may overlap and there is a leadership crisis which requires structure and direction.

Question 21

What is used to combat the leadership crisis ?

Answer 21

Growth through direction occurs, and as departments become established

Question 22

What crisis occurs after stage two (Direction) in Greiners growth model ?

Answer 22

managers request autonomy, and there is an autonomy crisis.

Question 23

What is used to combat the autonomy crisis ?

Answer 23

Growth through delegation occurs, until senior managers may feel there is too much control delegated throughout the business.

Question 24

What crisis occurs after stage three (Delegation) in Greiners growth model ?

Answer 24

Senior managers may regain control if they are worried about vision and a control crisis occurs.

Question 25

What is used to combat the control crisis ?

Answer 25

Growth through co-ordination occurs as managers begin to introduce centralised systems for budgeting and staff performance management.

Question 26

What crisis occurs at the end of stage four (co-operation) in Greiners growth model ?

Answer 26

A lack of autonomy or a red-tape crisis can then happen

Question 27

What is used to combat the red-tape crisis in Greiners growth model ?

Answer 27

Growth through collaboration then occurs as departments and functions begin to work together, centrally.

Question 28

What crisis occurs at the end of stage five (collaboration) in Greiners growth model ?

Answer 28

further internal growth becomes difficult and a growth crisis occurs

Question 29

What is used to combat the growth crisis ?

Answer 29

Growth through alliances can only occur through external growth: takeovers and mergers, however, present their own challenges to a business pursuing growth.

Question 30

Explain what happens in Greiners growth model ?

Answer 30

Stages 1
Growth through creativity occurs as businesses begin to establish themselves but have few employees and an informal structure throughout the business. As growth occurs, roles may overlap and there is a leadership crisis which requires structure and direction.
Stage 2
Growth through direction occurs, and as departments become established, managers request autonomy, and there is an autonomy crisis.
Stage 3
Growth through delegation occurs, until senior managers may feel there is too much control delegated throughout the business. Senior managers may regain control if they are worried about vision and a control crisis occurs.
Stage 4
Growth through co-ordination occurs as managers begin to introduce centralised systems for budgeting and staff performance management. A lack of autonomy or a red-tape crisis can then happen.
Stage 5

Growth through collaboration then occurs as departments and functions begin to work together, centrally, however further internal growth becomes difficult and a growth crisis occurs.
Stage 5
Growth through alliances can only occur through external growth: takeovers and mergers, however, present their own challenges to a business pursuing growth. Growth through collaboration then occurs as departments and functions begin to work together, centrally, however further internal growth becomes difficult and a growth crisis occurs.
Stage 6
Growth through alliances can only occur through external growth: takeovers and mergers, however, present their own challenges to a business pursuing growth.

Question 31

What did Haynes and Abernathys 1980 paper say about diseconomies of scale ?

Answer 31

Diseconomies of scale happen because decision making becomes slower and less effective. They say that US businesses got worse relative to international businesses between 1960 and 1980 because American managers were ineffective. He says they failed because they were people trained in Law or Finance, instead of the industry where they worked.

Question 32

Tesco is a supermarket. Over the last 20 years, Tesco has entered restaurants (it bought the Giraffe restaurant business). It entered the Telecoms market with Tesco Mobile. It started offering financial services and also entered the US and Thai supermarket industries. In 2016, it sold its Giraffe restaurants and its chain of Turkish supermarkets called Kipa.

What is the most likely cause for this ?

Answer 32

Diseconomies of scale

Question 33

In 1975 what did Holzmann et al reasearch ?

Answer 33

Holzmann et al (1975) did some research that found that businesses containing lots of unrelated businesses (conglomerates) had worse share price and economic returns for investors than businesses that only contained related businesses.

Question 34

What are the ways innovation is approached ?

Answer 34

Product innovation
Process innovation

Question 35

What is innovation ?

Answer 35

Innovation is the development of a new idea which leads to the production of a new product or service which can be sold.

For example, Dyson developed the world’s first bag-less vacuum because of its innovative approach to business.

Question 36

What are the most likely pressures for innovation ?

Answer 36

Social changes may increase the demand for innovative and advanced products to replace current products.

Competition may increase a business’ focus on innovation as competitors seek to develop new products and services which will attract customers.

Question 37

What is product innovation ?

Answer 37

Product innovation involves the development of new products which will be offered for sale to customers.

For example, the development of new camera technology which improves the iPhone is an example of product innovation.

Question 38

What is process innovation?

Answer 38

Process innovation involves improving the process of manufacturing or offering a product or service for sale to customers to add value, decrease costs or improve efficiency.

For example, the development of a new factory production line which improves the production of cars is process innovation

Question 39

What are the advantages of innovation ?

Answer 39

Innovation allows businesses to improve the products in its portfolio which can increase market share, sales revenue, and profit.

Innovation allows a business to improve its processes which can increase efficiency and therefore competitiveness.

Innovation allows businesses to develop a unique selling point which can improve competitiveness and customer loyalty.

Question 40

What are the ways of becoming more innovative ?

Answer 40

Kaizen
Intrapreneurship
Benchmarking
Research and development

Question 41

How is kaizen a way of a business becoming more innovative ?

Answer 41

Kaizen is an approach to innovation and consists of continuous improvements being made to a process so that over time it continues to evolve and develop.

A Kaizen approach requires the support of employees; however, employees must feel passionate about helping the business improve.

Question 42

How is Intrapreneurship a way of a business becoming more innovative ?

Answer 42

Intrapreneurship refers to individuals who have the characteristics of entrepreneurs but work within and contribute their entrepreneurial ideas to their employer instead of pursuing these on their own.

Intrapreneurship can only lead to business improvements if there is an accepting culture of employee contributions.
Intrapreneurship can motivate employees which supports engagement and retention.

Question 43

How is benchmarking a way of a business becoming more innovative ?

Answer 43

Benchmarking refers to the process of identifying an area of expertise or specialism within the industry and using this as a foundation to inform and improve the business’ own process.

Benchmarking allows a business to adopt industry best-practice.
Benchmarking assumes a business is able to implement processes from other businesses and this may be a challenge depending on the business, its expertise, and the wider industry.

Question 44

How is research and development a way of a business becoming more innovative ?

Answer 44

Research and development refer to the process of researching new approaches and products
and developing these to satisfy customer needs.

Research and development allow businesses to update and introduce products and services which are reactive to changes in customer demands and technological advancements.

For example, Dyson’s commitment to research and development underpins its product development. Recently, Dyson released its Eye Bot robot which was an innovative product driven by research and development.

Question 45

In SWOT what can internationalisation do ?

Answer 45

Internationalisation can give businesses greater opportunities

Question 46

What are the advantages of internationalisation ?

Answer 46

Accessing international markets gives businesses access to a larger market of customers which can increase sales revenue and profit.

Accessing international markets can reduce a business’ risk in case demand in the home market declines rapidly following a change in tastes and fashions.

Question 47

What does exporting allow business to do ?

Answer 47

Exporting allows a business to access international markets by selling products abroad.

For example, Foxconn export to markets such as America and the United Kingdom which allows it to access international markets.

Question 48

What does licensing allow businesses to do ?

Answer 48

Licensing allows a business to access international markets by providing overseas businesses with a license to sell and produce its products in that country

Question 49

What do alliances allow businesses to do ?

Answer 49

Alliances allow a business to access international markets through working in partnership together to share risk

Question 50

What does direct investment allow businesses to do ?

Answer 50

Direct investment allows a business to access international markets through investing in facilities, such as a production centre, abroad

Question 51

What are the opportunities that internationalisation allow businesses to do ?

Answer 51

Export
Licensing
Alliances
Direct investment

Question 52

What factors affect a business choosing an international market to enter ?

Answer 52

Size of the local market
Political stability and culture
Local competition

Question 53

How is the size of the local market a factor that affect a business choosing an international market to enter ?

Answer 53

The market’s growth rate and size must be considered as a large or growing market will be more attractive.

Question 54

How is the political stability and culture of a country a factor that affect a business choosing an international market to enter ?

Answer 54

The political stability and culture of the country in which the international market is located must be considered as this can affect the complexity of entering the market.

Question 55

How is the local competition of a country a factor that affect a business choosing an international market to enter ?

Answer 55

Local competition must be considered as this can affect the likelihood of a foreign business being able to access the market with success.

Question 56

What is an example of a culture clash in business when looking into joining an international market ?

Answer 56

Tesco entered the Chinese market but withdrew years later due to cultural clashes between the local and international market.

Question 57

What is an example of political instability in business when looking into joining an international market ?

Answer 57

In 2016, Turkey fell into political instability after a military coup. This has meant that businesses are reluctant to enter the Turkish market.

Question 58

What is off-shoring ?

Answer 58

Off-shoring involves a business moving part of its production process to an overseas manufacturer

Question 59

What are the advantages of off-shoring ?

Answer 59

Off-shoring can reduce cost which allows a business to lower its selling price or increase profit.

Question 60

What are the disadvantages of off-shoring ?

Answer 60

Off-shoring can lead to quality problems if overseas producers do not uphold the same quality standards as the business which outsources.

Question 61

What is re-shoring ?

Answer 61

Re-shoring involves a business bringing its production processes back to the original country

Question 62

What is an advantage of re-shoring ?

Answer 62

Re-shoring can increase quality as production can be monitored more closely which can build a business’ reputation

Question 63

What is a disadvantage of re-shoring ?

Answer 63

Re-shoring can increase cost which means a business may need to increase its selling price or accept reduced profit.

Question 64

What’s an example of re-shoring ?

Answer 64

Hamleys re-shored the production of its toy products after quality concerns associated with off-shoring.

Question 65

What are multinational organisations?

Answer 65

A multinational organisation is a business which has production facilities in more than one country.

Question 66

What’s a benefit of being a multinational organisation?

Answer 66

Businesses can target overseas markets by becoming a multinational organisation.

Question 67

What are the influences on the decision to enter an international market ?

Answer 67

The importance of quality may affect a business’s decision when deciding whether to produce in an overseas market.

The importance of cost reduction may affect a business’s decision when deciding whether to produce in an overseas market.

Question 68

What’s an example of a multinational organisation ?

Answer 68

Adidas produces products in many countries and is therefore a multinational organisation

Question 69

What’s an example of how MNCs can influence the political stability of a country ?

Answer 69

Guatemala - 1950s

A book written by Stephen Kinzer highlights that an American company called United Fruit owned 46% of Guatemala’s railways and 20% of the farming land in Guatemala. A new President, Arbenz, was elected in 1952.
John Cabot and John Foster Dulles were two very influential men in the US government.
John Cabot and John Foster Dulles were both big shareholders in United Fruit.

Arbenz, the new leader of Guatemala wanted to nationalise the railways and seized some of United Fruit’s plantations in Guatemala. The US supported and funded rebels in Guatemala and Arbenz was overthrown.

A report from the CIA into the goings-on in Guatemala ‘concluded that the US had overthrown the government of a country about which it knew almost nothing’.
It seems that the United Fruit business could have influenced the political stability of Guatemala, rather than it being a determinant of whether they should enter Guatemala or not.

Question 70

How are the management and leadership of an international business quite different from the management and leadership of a domestic, or local, business ?

Answer 70

Cultural differences - often influence the management of international businesses as trading may involve dealing with different cultures

Legal differences - often influence the management of international businesses as trading may involve dealing with the laws of different countries.

Markets and customer demands - often influence the management of international businesses as trading may involve dealing with customers and markets which demand different products and services, or adapted products and services.

Question 71

What an example of how there is legal differences in different countries?

Answer 71

Intellectual property law is not the same in every country. The laws in China are much less strict than in the UK. Therefore, Western companies in China have to be careful to protect their intellectual property.

Question 72

What an example of how there is market differences in different countries ?

Answer 72

Wesfarmers, an Australian company, bought Homebase for £340m in 2016 and later sold the chain for £1 in 2018. Wesfarmers applied their knowledge of the Australian industry to Homebase and did not recognise the need to adapt to local demands and customer needs.

Question 73

In India, nodding your head up and down means “no” and shaking your head left to right means “yes”. What type of difference is this?

Answer 73

Cultural

Question 74

What does Bartlett and Ghoshal’s model propose ?

Answer 74

Bartlett and Ghoshal’s model proposes four strategies to support international businesses

Question 75

What does Bartlett and Ghoshal’s model measure ?

Answer 75

Bartlett and Ghoshal use pressure for local responsiveness (the requirement to adapt a product according to location) and pressure for reducing costs to decide the most appropriate strategy for a business to pursue.

Question 76

In Bartlett and Ghoshal’s model what business would adopt a global strategy ?

Answer 76

Global organisations, or global strategy, is for businesses who have high pressure to reduce costs but low pressure for local responsiveness

Question 77

In Bartlett and Ghoshal’s model what business would adopt an international strategy ?

Answer 77

International organisations, or international strategy, is for businesses who have low pressure to reduce costs and low pressure for local responsiveness.

Question 78

In Bartlett and Ghoshal’s model what business would adopt a transnational strategy ?

Answer 78

Transnational organisations, or transnational strategy, is for businesses who have high pressure to reduce costs and high pressure for local responsiveness.

Question 79

In Bartlett and Ghoshal’s model what business would adopt a multinational strategy ?

Answer 79

Multidomestic organisations, or multidomestic strategy, are for businesses who have low pressure to reduce costs but high pressure for local responsiveness.

Question 80

When a business is assessing its pressures for cost reduction and local responsiveness

Answer 80

Local responsiveness
If customer requirements differ significantly in different countries, local responsiveness pressure is high.

Cost reduction
If the business competes based on its efficiency and therefore requires, for example, economies of scale, to operate competitively, there is pressure for cost reduction.

Question 81

What is the most appropriate strategy for a pharmaceutical business ?

Answer 81

Global strategy
A pharmaceutical business may have low pressure for local responsiveness, as its drug products are standardised. At the same time, there is a high pressure for reducing costs and economies of scale can be taken advantage of.

Question 82

What do digital technologies refer to ?

Answer 82

What do digital technologies refer to the use of digital platforms or resources to support the business.

Question 83

What are types of digital technologies that support businesses ?

Answer 83

E-commerce
Data mining
Big data
Enterprise resource planning

Question 84

What is e-commerce as a type of digital technology that support businesses ?

Answer 84

E-commerce is an example of digital technology which allows the business to use online platforms to sell goods and services through the internet.

Question 85

What is data mining as a type of digital technology that support businesses ?

Answer 85

Data mining is an example of digital technology which allows businesses to gather data and use this to look for trends and patterns.

Question 86

What is big data as a type of digital technology that support businesses ?

Answer 86

Big data is an example of digital technology which allows businesses to collect and combine data from many different sources.

Question 87

What is enterprise resource planning (ERP) as a type of digital technology that support businesses ?

Answer 87

Enterprise resource planning (ERP) is a digital technology which allows businesses to use central software to control many different activities of the business including stock management, sales data, and production systems.

Question 88

What are the advantages of digital technologies?

Answer 88

Digital technologies give businesses access to new opportunities such as selling products internationally through e-commerce.
Digital technologies give businesses access to data which can be used to improve and target marketing activities

Question 89

What is the impact of digital technologies on HR ?

Answer 89

Digital technologies can require training so that staff can use new systems, and this affects human resources.

Question 90

What is the impact of digital technologies on finance ?

Answer 90

Digital technologies can require significant investment, and this affects finance.

Question 91

What is the impact of digital technologies on marketing ?

Answer 91

Digital technologies can allow marketing to access and analyse new sources of data and research.
Tools like those provided by Salesforce.com can modernise the sales process.

Question 92

What is the impact of digital technologies on operations?

Answer 92

Digital technologies can provide increased quantities of data about production processes which can allow operations to improve their systems.
Messaging businesses like Slack can modernise operations and communications within a business.

Question 93

What are the advantages of e-commerce ?

Answer 93

E-commerce allows businesses to access customers internationally therefore increasing sales volume and revenue.

Question 94

What are the disadvantages of e-commerce?

Answer 94

E-commerce is less suitable for some businesses, such as those businesses selling products which customers like to see, try or feel before purchasing.

Question 95

What are the advantages of big data ?

Answer 95

Big data allows businesses to access large amounts of data about many aspects of their business and environment.

Question 96

What are the disadvantages of big data ?

Answer 96

Big data provides many challenges for businesses in terms of the legal requirements around data storage, processing and transfer.

Question 97

What are the advantages of data mining ?

Answer 97

Data mining allows recommendations to be made to customers about items likely to be purchased and can therefore increase sales volume and revenue

Question 98

What are the disadvantages of data mining ?

Answer 98

Data mining provides many challenges for businesses in terms of the legal requirements around data storage, processing and transfer.

Question 99

What are the advantages of ERP ?

Answer 99

ERP supports the standardisation of information across the business which supports accurate decision making.

Question 100

What are the disadvantages of ERP ?

Answer 100

Implementing and using ERP software can be expensive and require specialist skills and knowledge.

Question 101

What is a business that help businesses with their marketing?

Answer 101

Salesforce.com