Promoting active learning

1
6 Business Growth and Strategy
2
Strategic Analysis

• Strategic management
• strategic and day-to-day management
• the components of strategic management
• strategic analysis
• strategic choice
• strategic implementation
• Importance of the business environment
• PEST analysis

3
Strategic Analysis

• Porter's five forces model
• the five forces
• the bargaining power of suppliers
• the bargaining power of buyers
• the threat of potential new entrants
• the threat of substitutes
• the extent of competitive rivalry

4
Porter's Five Forces Model
Industry competitors
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
5
Porter's Five Forces Model
Industry competitors Rivalry among existing
firms
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
6
Porter's Five Forces Model
Potential entrants
Threat of new entrants
Industry competitors Rivalry among existing
firms
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
7
Porter's Five Forces Model
Potential entrants
Threat of new entrants
Industry competitors Rivalry among existing
firms
Threat of substitutes
Substitute products
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
8
Porter's Five Forces Model
Potential entrants
Threat of new entrants
Industry competitors Rivalry among existing
firms
Bargaining power of suppliers
Suppliers
Threat of substitutes
Substitute products
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
9
Porter's Five Forces Model
Potential entrants
Threat of new entrants
Industry competitors Rivalry among existing
firms
Bargaining power of suppliers
Bargaining power of buyers
Buyers
Suppliers
Threat of substitutes
Substitute products
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
10
Strategic Analysis

• Porter's five forces model
• the five forces
• the bargaining power of suppliers
• the bargaining power of buyers
• the threat of potential new entrants
• the threat of substitutes
• the extent of competitive rivalry
• factors affecting each of the forces

11
Strategic Analysis

• Porter's five forces model
• the five forces
• the bargaining power of suppliers
• the bargaining power of buyers
• the threat of potential new entrants
• the threat of substitutes
• the extent of competitive rivalry
• factors affecting each of the forces
• limitations of the five forces model

12
Strategic Analysis

• Value chain analysis
• nature of value chain analysis
• primary activities
• inbound logistics
• operations
• outbound logistics
• marketing and sales
• service
• secondary activities
• procurement
• technological development
• human resources management
• firm infrastructure

13
The value chain
Technological development
Human resource management
Firm infrastructure
Procurement
Inbound logistics
14
Strategic Choice

• Environment or market-based strategy
• types
• cost leadership
• differentiation
• focus
• importance of establishing-
• the basis of a firm's competitive advantages
• the nature of the target market
• Resource-based strategy
• exploiting core competencies
• defining establishing core competencies

15
Growth Strategy

• Growth by internal expansion
• product differentiation
• vertical integration
• diversification
• Growth by external expansion mergers and
  takeovers
• horizontal mergers
• vertical mergers
• conglomerate mergers

16
Alternative growth strategy
GROWTH OF A FIRM
Internal expansion
External expansion
(1) Differentiation Horizontal expansion (same
product, increase in market share)
(1) Horizontal integration Mergers of
firms producing the same product
(2) Vertical integration Different products,
but belonging to different stages of same product
(2) Vertical integration Mergers of firms
producing at different stages of same process
(3) Conglomerate Diversification - introduction
of totally different products
(3) Conglomerate Diversification - merger of
firms producing totally unrelated products
17
Growth Strategy

• Growth by internal expansion
• financing internal growth
• borrowing
• share issue
• ploughing-back profit
• the takeover constraint

18
Growth Strategy

• Growth by internal expansion (cont.)
• growth through vertical integration
• backward integration ('upstream' integration)
• forward integration ('downstream' integration)
• why vertically integrate?
• economies of scale
• reduced uncertainty
• monopoly power
• barriers to entry
• growth through diversification
• advantages
• when existing market is saturated
• spreads risks

19
Growth Strategy

• Growth through mergers and takeovers
• types of merger and takeover
• horizontal
• vertical
• conglomerate
• motives for mergers and takeovers
• growth
• economies of scale
• monopoly power
• increased market valuation
• reduced uncertainty
• other motives
• effects of mergers on consumers

20
Financing Growth and Investment

• Sources of business finance
• internal sources
• ploughed-back profit
• external sources
• banks
• mainly short- and medium-term finance
• stock market
• longer-term finance
• problem of 'short-termism'
• international sources

21
Financing Growth and Investment

• The role of the Stock Exchange
• primary market
• secondary market
• advantages
• brings together savers firms seeking finance
• regulates firms and helps encourage confidence
• facilitates mergers and takeovers
• reduces transaction costs of investment finance
• disadvantages
• cost of getting listed
• possible short-termism and instability

22
Financing Growth and Investment

• Is the stock market efficient?
• the efficient market hypothesis
• share prices reflect information about companies'
  current and expected future performance
• implications of stock market efficiency
• benefit of speculation diminishes as efficiency
  increases
• perfect efficiency and share prices following a
  'random walk'

23
Staying Small

• EU definition of SMEs
• by number of employees
• micro enterprises
• small enterprises
• medium enterprises
• by turnover

24
EU SME definitions
25
EU SME definitions
26
EU SME definitions
27
EU SME definitions
28
Staying Small

• Competitive advantage and small firms
• flexibility
• quality of service
• production efficiency and low overheads
• product development and innovation
• Problems facing small businesses
• selling and marketing
• funding RD
• management skills
• less ability to gain economies of scale