Unit 9

• Internal Economies of Scale

  Increase efficiency in the firm

  - technical: production of large volumes is more efficient, able to buy better and quicker machinery

  - Managerial: Employ more skilled managers increases efficient of work and speed it is complete

  - Purchasing large volumes allows for a discount on price

  - Marketing: Large businesses can afford to produce more marketing
• External Economies of Scale

  When industries are concentrated in small geographical areas

  - Locating near lots of suppliers allow for easy negotiation - increases quality and reduces price

  - a good skilled labour supply will improve efficiency
• Diseconomies of Scale


  when the business becomes too large

  1, Control - Difficult monitoring productivity, work wuality and causes increased wastage of materials.

  2, Co-operation - workers may develop a feeling of alienation due to the businesses large size

  3, Negative effects of internal politics - info overload, unrealistic expectations and culture clashes
• Economies of Scope


  Where it is cheaper for a business to have a range of products rather than specialising in a limited number of products

  - specialising in multiple products means a business will only have to expand the product department which decreases unit costs and gives a competitive advantage.
• Synergy

  When 2 businesses join together they are able to achieve more due to compiled resources, increased enterprise and joint marketing
• Reentrenchment


  Cutting back or reducing the business size provides more benefits than continued growth

  Achieved through

  - Redundancies ( + Able to restructure - Job Security issues)

  - Recruitment Freeze (+ Non threatening strategy - ageing workforce)

  Delayering (+creates better streams of communication - Intensifies work on remaining workers)
• Joint Ventures


  a business agreement when 2 or more parties agree to pool resources to complete a specific task.

  1, To Combine Expertise

  2, Reduce Costs

  3, Enter a foreign market
• Advantages and Disadvantages to Joint Ventures

  Advantages

  - allows access to each businesses resources for free

  - each company is able to keep its identity

  - shares risk

  disadvantages

  - limits outside activity of participant companies

  - may have to sign a non-compete
• Takeovers


  When a business makes a successful bid to assume control or acquire another business by purchasing a majority stake

  Takeovers can be:

  1, Hostile

  2, Friendly

  3, Reserve Takeover - an LTD takes over a PLC

  4, Creeping Takeover - a firm slowly buys shares until it has over 50% or has to declare the shares
• Conglomerate Mergers


  A merger between 2 or more companies engaged in unrelated business activities operating in different markets or regions
• Horizontal Mergers


  Between 2 businesses in the same industry

  part of a consolidation between 2 or more competitors offering the same product

  e.g. the unification of facebook, whatsapp and instagram
• Vertical Mergers


  Forwards Vertical - a vendor attempts to secure a company ahead of itself on the supply chain e.g. BP buying fuel stations

  Backwards vertical - a vendor acquires a company before it on the supply chain e.g. Apple Inc buying Carnegie Steel
• Product Innovation + Advantages

  The improvement of products or services in a market

  Advantages

  - gains first movers advantage

  -able to charge higher prices

  - added value

  - enhanced reputation
• Process Innovation


  Finding better or more effiicent ways of producing existing products or delivering existing services
• Advantages + Disadvantages of Process Innovation

  Advantages

  - Reduced Costs

  - Improved Quality

  - Greater Flexibility

  - Higher Profits

  
  

  Disadvantages

  - High cost of development

  - Attention of Competitors

  - Creates expectation of consumers
• Kiazen

  Type of Process Innovation

  The constant improvement of the business processes through improvements made by employees
• Benchmarking


  Process Innovation

  Comparing processes and operations against another company in order to make improvements
• Intrapreneurship


  A process which allows employees to act to solve problems by coming up with innovative new ideas
• What is a Patent

  The sole legal right to an invention and its profits.

  Others are unable to copy the product and its production method unless they have a license for it which businesses can sell.

  Products can be easily changes slightly to get around a specific patent.
• Trademarks


  Allows a business to product its name, logo or slogan.

  Slogans can be difficult to trademark of it does not include the businesses name.

  Mcdonalds was able to trademark its famous Golden Arches Logo but fails to trademark its slogan "Im lovin' it"
• Copyrights


  Makes it illegal to reproduce other peoples work without their permission.

  Usually used for Authors and Musicians who gain royalties from their products.

  Original writing, music, videos, images, photos are automatically products under UK copyright laws.
• How Innovation Impacts the Functional Areas

  Finance: R&D for innovative products is expensive meaning they will need to raise extra Working Capital to pay for it

  Operations: Innovation in product methods means they will be forces to set some budget aside for new, expensive machinery. They will also need to organise training for employees.

  Marketing: Will need increased Market Research for the new ideas. The cost and risk is high so they must be sure customers want or need the product. Innovative products require changes to the Marketing Mix

  HR: Innovation means there is more demand for skilled workers and must ensure the business has the right culture. HR must encourage workers to take risks for the innovation to work.
• Methods of Entering International Markets

  Importing and Exporting

  Licensing

  Alliances

  Direct Investment
• Why do businesses produce abroad

  To reduce costs: able to use that countries labour laws and pay workers less

  Targeting new international markets: Able to absorb blocal knowledge meaning marketing errors are less likely to occur, New international markets make distribution easier

  Able to avoid trade barriers: Countries create trade barriers to protect domestic companies from foreign competition. They can get round these by locating in the country

  Made easier by improved transport and communication: Price and availability of air travel means it is easier to locate abroad
• Factors affecting the attractiveness of international markets

  1, Size of the market: Countries with large populations and developing markets are more attractive as the market is larger. Businesses will need to consider demographics and assess the size of the market.

  2, Political and Economical Factors: Businesses will need to understand and comply to national laws. They will need to understand the political environment preferring stable countries and the Economic Conditions.

  3, Culture, Ethics and Environmental Factors: Businesses will do better in countries with similar cultures and languages.

  The cost of raw materials and transport will be checked: countries with environmental limits will be unfavourable as its likely raw materials will be more expensive. Ethical Companies will agree with this while unethical businesses will choose countries they can exploit
• Offshoring and Reshoring


  Where businesses export some of their departments such as call centres or payment processing departments to a different country as a way to cut costs.

  This can however damage the businesses reputation and image.

  
  

  Reshoring: where a business reverses its decision to offshore departments.
• Pressures to adopt Digital Tech

  1, Use of new digital technology aids in providing the business with a higher return on investment

  2, If the business makes the right decisions to adopt the right tech at the right time they can gain an advantage over competitors (Kodack)

  3, If a business does not follow the development of digital technology they can be left behind and loss market share (blockbuster)
• Digital Technology and Innovation

  R+D can use up-to-date digital tech to make innovate products

  Dig Tech can offer small upgrades to existing products as an extension strategy to retain market share

  Businesses can use the internet to monitor updates of digital technology globally
• Disadvantages of Dit tech for innovation

  1, Its very expensive to develop new products with new digital tech

  2, New tech has not yet been fully tested and thus carries large amounts of risk

  3, Problems with new digital tech can be difficult to diagnose
• E-Commerce


  Digitally enabled Commercial Transactions between and among organisations and Individuals

  - able to reach need customers in new locations

  - Access, analyse and action data provides key insights into customer needs and business performance
• Enterprise Resource Planning (ERP)

  Business management software which allows the business to monitor activities in every department through the collection and interpretation of data.

  HR: Track work rates to understand who needs extra training or when productivity falls

  Finance: Uses data from previous infrastructure changes to budget for upcoming changes

  Marketing: See how promotional products are selling and comparing sales before and after promotion

  Operations: Tracks Stock levels, distribution networks and productivity
• Big Data


  Vast quantities of data from all sources
• Data Mining


  The process of analysing data to extract correlations and trends not offered by the raw data alone
• Digital Techs impact on the 4 functional Areas

  Finance: Significant Investment into Digital Tech and E-Commerce with no confirmed success - would have to upgrade company systems.

  Marketing: Product life cycle is shortened due to Digital Tech, greater use of digital promotion

  Able to target niche market segments online using E-commerce

  Able to use Dynamic Pricing

  HR: Employees need more digital skills,

  Workforce planning to support higher seasonal demand

  Concerns for working conditions inside E-Commerce Warehouses

  Operations: