unit 9 Flashcards
1
Q
reasons for growth
A
- increase shareholder value
- increase market share
- decrease average costs
- fulfil an objective of growth
- stakeholders perception of success
2
Q
reasons for retrenchment
A
- downsizing the scale of business
operations (closing, delayering,
selling off parts) - possible reasons include
- restructure to increase
efficiency
- restructure to increase
- turn around poor business
- focus on core business
- sell off less profitable parts of
business to improve overall
performance
3
Q
what is organic growth
A
when a firm grows with its existing businesses (increasing capacity and outlets)
4
Q
what is external growth
A
is growth that is dependent on other businesses and may be via merges, takeovers or joint ventures
5
Q
economies of scale
A
economies of scale arise when unit costs fall as output increases
6
Q
concept links to economies of scale
A
- efficiency
- unit costs
- productivity
- market share
- competitive advantage
7
Q
unit cost formula
A
total output in period (units)
8
Q
internal economies of scale
A
arise from the increased output of the business itself
9
Q
external economies of scale
A
occur within an industry: all competitors benefit
10
Q
technical economies of scale
A
as firms grow, they are often able to invest heavily I automatic in order to further improve their efficiency and productivity
11
Q
managerial economies of scale
A
smaller firms are often unable to afford manager with specialist expertise (finance, HR, marketing)
12
Q
what is marketing economies of scale
A
spring a fixed marketing spend over a larger range of products, markets and customer
13
Q
what is network economies
A
- adding extra customers or users to a
network that is already established
(netlfix) - adding an extra customer adds little
extra cost to the business and spreads
the fixed costs over more customer
14
Q
what is financial economies
A
larger firms benefit from access to more and cheaper finance
15
Q
what’s external economies of scale
A
- occur when a whole industry grows
larger ad firms benefit from lower
long-run average costs - associated with particular geographic
areas - examples
(having many specialists suppliers
close by,
access to research and development
facilities,
pool of skilled labour to choose from)
16
Q
economies of scope
A
where its cheaper to produce a range of products rather than specialise in a very limited number.
- hypermarkets
- amazon
- proctor & gamble
17
Q
what is overtrading
A
happens when a business expands too quickly without having the financial resources to support such a quick expansion
18
Q
when is overtrading most likely to happen
A
- growth is achieved by making significant capital investment in production or operations capacity before revenues are generated
- sales are made on credit and customers take too long to settle amounts owed
- significant growth I investors is required in order to trade from the expanding capacity
- a long-term contract requires a business to incur substantial costs before payments are made by customers under the contract
19
Q
symptoms of overtrading
A
- high revenue growth but low
gross and operating profits - persistent use of bank overdraft
facility - significant increases in the
payable days and receivables
days ratio - significant decrease in the
current ratio - very low inventory turnover
ratio - low levels of capacity utilisation
20
Q
what are the most effective steps to avoid overtrading are essentially those that would be taken as part of a sensible cash flow and working capital management
A
- reducing inventory level
- scaling back the pace of growth until
profit margin and cash reserves have
improved - leasing rather than buying capital
equipment - obtaining better payment terms from
suppliers - enforcing better payment terms with
customers
21
Q
synergy definition
A
happens when the value of two businesses brought together us higher than the sum of the value of the two individual businesses. in other words, when synergy happens, 1+1 = more than 2!
22
Q
what are the two types of synergy
A
cost saving :
- eliminate duplicated functions and
services
- better deals from suppliers
- higher productivity and efficiency
from shared assets
revenue:
- cross-selling to customers of both
businesses
- access to new distribution
- brand extensions
- new geographic markets opened up
23
Q
what is retrenchment
A
- to cut down or reduce something
- use resources more carefully
24
Q
examples of retrenchment in business
A
reduce output & capacity
- product/market withdrawal
- disposal of business unit
- job losses
- calling back investment
25
what drives retrenchment
- costs too high
- low ROCE
- high gearing
- loss of market share
- failed takeover
- economic downturn
- change of ownership
26
implication for change management
- will depend on the scale and scope of
the retrenchment
- small-scale, incremental retrenchment
has only limited impact
- significant retrenchment is often
associated with a fundamental
reappraisal of the business
27
what is organic growth
involves expansion from within a business, for example by expanding the product range, or number of business units and locations
28
advantages of organic growth
- less risk than external growth
- can be financed through internal
funds
- builds o a business strengths
29
disadvantages of organic growth
- growth achieved may be dependent
on the growth of the overall market
- hard to build market share if business
is already a leader
- franchisees can be hard to manage
effectively (McDonalds)
30
what is franchising
arises when a franchisor grants a licence to another business to allow it trade using the brand/business format
31
advantages of franchising
- running your own business
- tried & tested brand
- advice, support, training
- easier to raise finance
- buying power of franchisor
- lowers the risk of market entry
32
disadvantages of franchising
- not cheap! initial fees + royalties &
commission
- restrictions on actions, including
selling
- franchisor owns the brand
- franchisor may fail
33
why does franchising work for the franchisor
- a classic growth strategy for a proven
business format
- enables much quicker geography
growth for a relatively low investment
- still have the option to open locations
that are operated by the franchisor
- capital investment by franchisees is an
important source of growth finance
34
potential benefits of a joint venture
- JV partners benefit from each others
expertise and resources (market,
knowledge, customer base,
distribution channels, R&D expertise)
- each JV partner might have the option
to acquire in the future the JV
business based on agreed terms if it
proves successful
- reduces the risk of a growth strategy -
particularly if it involves entering a
new market to diversification
35
potential drawbacks of a joint venture
- there may be an imbalance in the
level of expertise, investment and
assets bought to venture
- the objectives pf each party may differ
- different cultures and management
styles may hinder progress
36
what is a takeover
involves pone business acquiring control of another business
37
possible reasons for takeovers
- increase market share
- access economies of scale
- secure better distribution
- acquire intangible assets
- spread risks by diversifying
- overcome barriers to entry to
target market
- defend itself against a takeover
threat
- enter new segments of an
existing market
- to eliminate competition
38
types and direction of integration
- forward vertical
- horizontal
- backwards vertical
- conglomerate
39
what is forward + vertical direction
acquiring a business further up in the supply chain - manufacturing buys a distributor
40
what is backward + vertical direction
acquiring a business operating earlier in the supply chain - a retailer buys a wholesale
41
what is horizontal directions
acquiring a business at the same stage go the supply chain eg a manfucature buys a competitor
42
what's conglomerate directions of integration
where the acquisition has no clear connection to the business buying it
43
potential benefits of horizontal integration
- achieve economies of scale
- cost synergies from the rationalisation of the business and revenue synergies
- wider range of products
- reduces competition
44
potential benefits of vertical integration
- enables a business to capture a
greater share of the profit on each
sale
- secures important sources of supply
or distribution
- create a barrier to entry to potential
new competitors
- Gai greater insights into customer
needs and wants at each stage of the
supply
45
what is invention
formulation of new ideas for products or processes
46
what is innovation
practical application of new inventions into marketable products or services
47
what are the two main types of innovation
product - launching new or improved products too the market
process - finding better or more efficient ways of producing existing products, or delivering existing
48
what are the advantages if product innovation
- higher prices and profitability
- opportunity to build early
customer loyalty
- enhanced reputation as an
innovative company
- PR coverage
- increased market share
49
what are the advantages of process innovation
- reduced costs
- improved quality
- more responsive customer
service
- greater flexibility
- higher profits
50
what is kaizen groups
- linked with developing an innovative
culture in business
- another kind of quality assurance
- based on concept/culture of
continuous improvement
- encourages employees to engage fully
with finding ways to improve quality
processes
51
what must innovative firms protect intellectual property to
- keep control of intellectual property
- maintain "unique selling point"
- maximise return on investment
- reduce threat of competition
52
whats copyright
- important protection for many
creative industries - e.g. media,
design, publishing
- lasts for 70 years after author death
- can control how copyrighted work is
exploited
53
what is globalisation
a process in which national economies have become increasingly integrated and inter-dependent
54
reasons for greater globalisation
- containerisation
- trade agreements
- reduced tariffs and protectionism
- expansion of global trading blocks
- improved technology
55
benefits of globalisation on companies
- access to new markets
- economies of scale
- source cheaper
- access to finance
- greater economic growth
- spread risk
56
disadvantages of globalisation on companies
- greater global competition
- exchange rates
- cultural consideration
- geopolitical development
- global supply chains and coordination
57
what are emerging economies
an emerging market economy is transitioning from a low-income, less developed, often pre-industrial economy toward a modern, industrial economy with a higher standard of living
58
positive characteristics of emerging markets
- high economic growth (7-10% per
year)
- large populations
- rising middle incomes
- greater openness to trade
- developing regulatory systems
59
limitations characteristics of emerging markets
- political volatility
- economic volatility - inflation,
exchange rates
- poor infrastructure
60
what makes them an attractive market
- high economic growth - higher
incomes, greater disposable income
- market not yet served domestically
and little competition
- first mover advantage, potential for
significant sales - established market
share
- own domestic markets may be
saturated
- scope for economies of scale
61
what is the bartlettt and ghoshal model
indicates the strategic options for business wanting to manage their international operations based on two pressures: local responsiveness and global integration
62
what are the two factors in this model
- force for local responsiveness
- do customers in each country
expect the product to be adapted
to meet local requirements
- do lock have an advantages based
on heir ability to be more responsive
- force for global integration
- how important is standardisation of
the product in order to operate
efficiently
- is consistent global branding
required in order to achieve
international success
63
what is global strategy
- where there is high need to keep
costs down and products
standardised
- low pressure for local responsiveness
- high pressure for global integration
- key features
- highly centralised
- focus on efficiency
- little sharing of expertise locally
- standardised products
64
what is multi-domestic strategy
- where there is a strong need to meet
local demands
- high pressure for local responsiveness
- low pressure for global integration
- key features
- aims to maximise benefits of
meeting local market needs through
extensive customisation
- decision making decentralised,
- local businesses treated as separate
businesses,
- strategies for each country
65
what is offshoring
relocation of business activities from the home country to a different international location
66
key features of offshoring
- its the changed international location
of where the business activity is
performed that is key
- associated with the relocation of
manufacturing activities from a
domestic economy overseas
- also increasingly common with
business services
67
offshoring
work done overseas
68
outsourcing
someone else does the work
69
why do business move production overseas
- manufacturing costs lower
- potentially better skilled and
higher quality
- makes use of existing capacity
overseas
- take advantage of tree trade areas
70
potential drawbacks with offshoring
- longer lead times for supply
- implications for CSR
- additional management costs
- impact of exchange rates
- communication: language and time
zones
71
what is reshoring
involves the repatriation of business activities from overseas back to the home county
72
reasons for reshoring
- greater certainty around delivery
times
- easier to collaborate with home
suppliers
- greater certainty about the quality of
inputs and components
- cost advantages of producing or
sourcing overseas is not as significant
as it used to be
73
key pressures on business to adopt digital technology
- serve existing customers better via
data analysis
- tech new customers in new segments
and locations
- offer new ways of delivering products
and services using digital technology
- reduce costs by integrating digital
technology into operations - inventory
control
- the need to respond to digital
innovation by competitors
74
what is e-commerce
involves digitally enabled commercial transactions between and among organisations and individuals
75
created destruction
innovation challenges existing business models
76
examples of creative destruction
- music and book retailing (amazon)
- grocery retailing (Ocado,tesco)
- holidays (Expedia, trip advisor)
- music streaming (Spotify)
- media consumption (Netflix, YouTube)
77
key impacts of e-commerce on marketing
- marketing strategy of differentiation
increasingly effective
- product life cycle are shortened
- greater use of digital promotion
- brands and retailers increasingly
using multiple distribution channels
- greater use of dynamic pricing
- increased need for localisation
- ability to sell a much wider product
range
78
key impacts of e-commerce on HRM
- need for employees to have a broader
range of digital skills
- workforce planning - to support highly
seasonal demand
- concerns over the working conditions
of staff working in e-commerce
warehouse
79
key impacts of e-commerce on operations
- logistics behind large-scale e-
commerce platforms are complex
- economies of scale are becoming
increasingly important
- it is now relatively easy for smaller
firms to sell online
80
key impacts of e-commerce on finance
- significant investment required to set
up e-commerce platforms and to
integrate them with other systems
- e-commerce likely to involve greater
use of multi-currency transactions
81
what is big data
generation of humongous amounts of data that are too large for many software applications to handle
(analysis of these is known as data mining)
82
reasons for the exponential growth of big data
- retail e-commerce database
- user interactions with website, mobile
apps, social media
- usage within logistics, transportation
systems, financial and health care
- location data (GPS-generated)
- internet of things (IoT) data generated
83
key business application of big data
- tracking and monitoring the
performance, safety and reliability of
operational equipment (data
generated by sensors)
- generating marketing insights into the
needs and wants of customers
- improved decision making - analysing
the real-time impact of pricing
changes (dynamic pricing)
- better security of business systems: ca
identify unusual activity, for example
on secure-access systems
- more efficient management of
capacity: can inform decision-making
about capacity management
84
what is data mining
the process of analysing data from different perspectives and summarising it into useful information, including discovery of previously unknown interesting patterns, unusual records or dependencies
85
examples of data mining can help a business improve competitiveness
- sales forecasting
- databade marketing
- market segmentation
- e-commerce basket analysis
86
examples of data mining
- Dunnhumby & Tesco
- club card loyalty program
- using data about pasty customer purchase habits, Tesco was able to stock its stories with precisely what customers might want in the future. It was revolutionary for the UK retail scene
87
example of data mining
- pop tarts and hurricanes
- increased 7 times prior to a hurricane
- Walmart places the strawberry pop-
tarts at the checkouts prior to a
hurricane
88
