Strategic methods: how to pursue strategies flashcards

Topic 9: Strategic methods: how to pursue strategies

Organic growth vs external growth

Organic: growth from the firm's own resources; slow, lower cost and risk, high control. External: merger, takeover, venture or franchising; fast, but costlier and riskier (integration and culture).

Retrenchment

Reducing the scale of the business (closures, disposals, job cuts), for example because of falling demand, losses or debt. Lowers costs, but brings redundancy payments, lower morale and a risk of cutting needed capacity.

Horizontal, backward vertical, forward vertical and conglomerate integration

Horizontal: same industry, same stage. Backward vertical: with a supplier. Forward vertical: with a distributor or retailer. Conglomerate: with an unrelated business.

The three economies of scale listed, and economies of scope

Technical (bigger, more efficient processes), purchasing (bulk-buying discounts), managerial (specialist managers). Economies of scope: lower average cost from a related product range sharing resources.

Experience curve: a 90% curve starting at £100

Unit cost falls with cumulative output: each doubling multiplies cost by 0.9, so £90, then £81. Economies of scale are about output per period; the experience curve is about total output over time.

Synergy and overtrading

Synergy: combined value greater than the parts (profits of £5m and £3m become £10m together: £2m synergy). Overtrading: sales grow faster than the working capital that supports them, causing a cash shortage.

Greiner's model of growth

Growth through creativity (crisis of leadership), direction (crisis of autonomy), delegation (crisis of control), coordination (crisis of red tape), then collaboration. Firms rarely follow it exactly.

Kaizen, benchmarking and intrapreneurship

Kaizen: continuous improvement through small changes by all staff. Benchmarking: comparing with best practice and adopting what works. Intrapreneurship: entrepreneurial behaviour by employees inside the firm.

Product vs process innovation; protecting intellectual property

Product innovation: a new or improved good or service. Process innovation: a new way to make or deliver it. Patents and copyrights give time-limited legal protection.

Bartlett and Ghoshal's four international strategies

International: low local responsiveness, low cost pressure. Multi-domestic: high responsiveness, low cost pressure. Global: low responsiveness, high cost pressure. Transnational: high on both.

Entry methods for international markets

Export (cheap test, little control); licensing (when capital is scarce, but weak brand control); alliances (local knowledge, shared profit); direct investment (for large long-term markets, costly and risky).

Big data, data mining and ERP

Big data: very large, fast-growing data sets. Data mining: searching data for patterns. ERP (enterprise resource planning): integrated software linking functions such as finance, stock and orders.