Innovation - Unit 9

• What is internal growth in a business context?

  Expanding capacity using own resources
• What is external growth in a business context?

  Expanding by merging or taking over
• What are the benefits of internal growth?

  • Less risk involved
  • Financed through internal funds
  • Builds on business strengths
  • Allows sensible growth rate
• What are the disadvantages of internal growth?

  • Depends on market growth
  • Faces intense competition
  • Slow growth may frustrate shareholders
  • Hard management if franchises are used
• What is a merger?

  Mutual decision to combine two companies
• What is a takeover?

  One business purchases another
• What is a hostile takeover?

  Targeted company advises shareholders to reject
• What are joint ventures and alliances?

  • Agreements between 2+ companies
  • Combine strengths for mutual benefit
  • Can be strategic alliances or joint ventures
• What are the advantages of joint ventures and alliances?

  • Local knowledge from venture partner
  • Shared capital injections
  • Reduced red tape in some countries
• What are the disadvantages of joint ventures and alliances?

  • Potential culture clashes
  • Shared profits
  • Difficulty in choosing local partners
  • Loss of control over operations
• What is franchising?

  Franchiser gives rights to franchisee
• What are the advantages of franchising?

  • Franchisee has local knowledge
  • Franchisee contributes to capital costs
  • Easier to manage and expand quickly
• What are the disadvantages of franchising?

  • Loss of centralized control
  • Careful selection of franchisees needed
  • Brand name in hands of franchisees
• What are the types of integration?

  • Vertical integration
  • Horizontal integration
  • Conglomerate integration
• What is vertical integration?

  • Firms in the same industry at different production stages
  • Can be backward or forward
  • Improves planning and communication
• What is horizontal integration?

  • Firms at the same production stage in the same market
  • Achieves economies of scale
  • Reduces competition and increases market share
• What is conglomerate integration?

  • Firms in unrelated markets come together
  • Spreads risk and shares good practices
  • Offers growth opportunities in different markets
• What are the motives for external growth?

  • Acquire knowledge and expertise
  • Cost of acquisition vs. internal growth
  • Faster growth method
  • Gain brand and intellectual property
• What is diseconomies of scale?

  Increased average costs due to growth
• How can poor communication impact a business?

  Leads to lost productivity and increased costs
• How can a business overcome poor communication?

  By using paternalistic decision-making
• How does coordination affect employee motivation?

  Less motivation leads to decreased coordination
• What is the impact of increased staff training on coordination?

  Improves coordination among employees
• Why do larger firms require more management?

  To effectively control and run the business
• How does motivation affect labor turnover?

  Low motivation increases labor turnover
• What is economies of scope?

  Lower unit costs from producing a wider range
• What is synergy in business integration?

  Combined output greater than individual outputs
• What is overtrading?

  Growing too quickly without sufficient funds
• What are symptoms of overtrading?

  • High revenue growth, low profit margins
  • Persistent bank overdraft use
  • Increased payable and receivable days
  • Low inventory turnover ratio
• How can a business manage the risk of overtrading?

  • Reduce inventory levels
  • Scale back revenue growth pace
  • Lease rather than buy equipment
  • Improve payment terms with suppliers
• What is retrenchment?

  Strategy to reduce overall size of operations
• What are methods of retrenchment?

  • Reductions in output and capacity
  • Redundancies
  • Product or market withdrawal
  • Outsourcing and demergers
• What drives retrenchment?

  • Uncompetitive cost structure
  • Inadequate returns on investment
  • Poor competitive position
  • Financial problems and market decline
• How did Blockbuster fail to innovate?

  Focused on brick-and-mortar stores only
• What was Nokia's retrenchment strategy focused on?

  Refocusing on core strengths in telecom
• What are the arguments for retrenchment strategy?

  • Focus on core strengths
  • Cost reduction through downsizing
  • Resource reallocation to promising areas
• What are the arguments against retrenchment strategy?

  • Loss of innovation capacity
  • Weakened competitive position
  • Reduced economies of scale
  • Massive job cuts
• What is the PESTLE analysis in retrenchment?

  • Political: Government spending cuts
  • Economic: Declining sales and profits
  • Social: Poor working environment impacts productivity
  • Technological: Rapid changes lead to layoffs
• How does financial problems drive retrenchment?

  • Companies cut costs to improve bottom line
  • Streamlining operations for efficiency
  • Mitigating risks during downturns
• What is an uncompetitive cost structure?

  • Higher costs than competitors
  • Difficult to maintain profitability
  • Impacts competitiveness in the market