Orgs 1 7 Growth Evol

7/21/2019 Orgs 1 7 Growth Evol

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IB Business &Management SL

Introduction to Organizations

1.7 Growth and Evolution


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Learning Outcomes

Applythe concets o! economies and diseconomies o! scale to "usinessdecisions.

Evaluatethe relative merits o! small versus large organizations.Recommendan aroriate scale o! oeration !or a given situation.

Explainthe di#erence "etween internal and e$ternal growth.

Evaluate%oint ventures strategic alliances mergers and ta'eovers asmethods o! achieving a (rm)s growth o"%ectives.Analysethe advantages and disadvantages o! a !ranchise !or "oth

!ranchisor and !ranchisee.Evaluatethe use o! !ranchising as a growth strateg*.

Explainthe value o! the +nso# matri$ as a decision,ma'ing tool.Applythe +nso# matri$ growth strategies to a given situation.


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Growth is a continual aim and can "emeasured "*

Sales turnover -sales revenue

Mar'et share

/aital emlo*ed

0um"er o! emlo*ees


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h* "usiness see' to grow

2ea "ene(ts o! larger scale roduction-economies o! scale 3 to "e discussed soon

4o gain mar'et share Survival against rivals in the industr*

Sread ris' "* diversi!*ing into new

mar'ets or industries4O M+5E MO2E 62OI4 O2

MO0E8


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Economies o! scale Lower average cost o! roduction as a

(rm oerates on a larger scale

Imrovements in roduction e9cienc*

2educe cost "* volume urchasing

Selling !or less and having larger ro(t

margin


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Economies o! scale vs. :iseconomieso! Scale 3 4he illustration

/osts-;

Otimal level o! outut

Outut

+verage costs


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Economies o! scale

4wo main categories

Internal EOS E$ternal EOS


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Internal economies o! scale

Secialization economies

Larger (rms can divide la"or intosecialized wor'!orce

Mar'eting economies

/an sell in "ul'

/an advertise to larger mar'et

Monoson* economies

4ime to learn a new word<


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Internal economies o! scale

Monoson*economies

Large (rms with strong "u*ing owercan negotiate with suliers

Mc:onalds -worlds largest urchaser o!"ee! or' and otatoes

I5E+ contracts out manu!acturing to mostcost,e9cient suliers

4hese comanies can negotiate !orhuge "ul' urchases -cheaer !or the

sulier


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Externaleconomies o! scale

4echnological rogress

/onsider the savings o! e,commerce Imroved transortation &

communication

aster more relia"le deliver* -:=LedE$

/ommon language !or "usiness-E>2O


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E$ternal economies o! scale

Better trained la"our

More gov)t training rograms

Secialized training !acilities -rearingwor'ers with needed s'ills

2egional secialization

+rea well 'nown !or roduct

+utomaticall* s'illed la"or

Strong reutation means remium

ricing


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Internal diseconomies o! scale

Lac' o! control & coordination

Greater ?san o! control) !or managers Slower decision ma'ing rocess

6oorer wor'ing relationshis

Senior management more detached!rom wor'!orce -lower morale

2educed @ualit* o! communication


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:isadvantages o! division o! la"or

Boredom with a reetitive tas' More ?slac') in wor'!orce

More "ureaucrac*

Increased administration aerwor'and coman* olicies

Slows decision,ma'ing

Ma* worsen mgt.Awor'!orce relations


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/omlacenc* !rom dominance

Ma* reduce roductivit* Ma* increase costs

Ma* result in reduced aggressiveattitude

Some comanies have used?!ranchising) to overcome

diseconomies o! scale


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E$ternal diseconomies o! scale

Increasing mar'et rents

Increased demand !or sace highercost

4ra9c congestion

Increased deliver* costs

More choices !or wor'!orce Increased cometition to hire @uali(edwor'ers

Ma* have to a* more to get emlo*ees


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:ealing with diseconomies o!scale

2educe outut -and review growth2emove roductive ine9ciencies


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:ealing with diseconomies o!scale

Sac'ing emlo*ees Outsource

6er!ormance related a* s*stems

Motivational strategies

4raining

Emowerment

Grou wor'

4o "e discussed in =2 4oic


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Small versus large organizations

:i#erent scales o! oerations ma*

"e aroriate deending onmar'et

Mo"ile hones vs. an IB Business &Management te$t"oo'


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Economies o! ?scale)

/ost savings !rom roducing the sameroduct on a larger scale

Economies o! ?scoe)

/ost savings !rom roducing a rangeo! related roducts.


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Economies o! scoe

6u"lishing 3 a variet* o! genres Online sales 3 +mazon.com is not %ust

"oo's an*more

Savings in shared sta9ng and

management

Savings in sharing !acilities and otherresources


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Small versus large organizationsBene(ts o! "eing "ig

Brand recognition

Image 3 record o! relia"ilit* trusted

/onvenient 3 more !acilitiesC longerhours instant credit -i.e. Larger

grocers wAother stu# Greater discounts 3 imroved

customer lo*alt*

More choices !rom varied roducts


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+ctivit*

1.7.1 age 11D


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Internal -Organic & E$ternalGrowth

hat is ?Organic) growth Internal growth o! a "usiness using its

own resources to increase the scale o!its oeration and sales

=O :O 8O> 4=I05 I4 IS I0+0/E:

4*icall* through ro(ts


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Internal -Organic & E$ternalGrowth

hat is ?E$ternal) growth Growth through mergers and

ac@uisitions -M&+.

+lso calledF +malgamation or

Inorganic growth


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=ow Internal -Organic GrowthoccursF

Pricechange 3 i! the is ?riceelasticit* o! demand)

I! !ew roduct su"stitutes rices

can "e raised I! highl* cometitive mar'et riceis used to comete


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+dvertising and promoting In!orms

2eminds

6ersuades

4ell class a"out rigle* gum

romotions


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Imrove or uni@ue products >se mar'et research

:evelo new roducts

Ma'e roduct more aealing toconsumers


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Sell in di#erent locations (Place)

I! more locations easier to urchase

hat is the latest placeavaila"le tosell roducts that is "ecoming morecommon almost dail*

O0LI0E 6>2/=+SI0G or

E,/OMME2/E


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Pricechange 3 i! the is ?rice elasticit*o! demand)

+dvertising and promoting

Imrove or uni@ue products

Sell in di#erent locations (Place)

Product, Price, Place, Promotion

The 4Ps of marketing


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redit terms Bigger tic'et items

/ustomers li'e ?"u* now a* later)

O#er installment urchasing O#er dela*ed a*ment -!urniture

Must "e care!ul to 'ee a cash How


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=ow Internal -Organic Growth occursF

Increasecapital expenditure

+dd locations

+dd new roducts

Imrove technologies !or e9cienc*

+nother e$ensive and ris'* otion

Should lan with investment appraisal


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Training and development Better trained sales sta# means

More motivated sta# 3 con(dent andcometent

Better treated -haier customers

More sales -Bomar /asuals

+lso true in other areasAdeartments


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Bene(ts o! organic growth

Better control and coordination

0ot deendent on e$ternal!actors

2elativel* ine$ensive -6s

Maintains cororate culture +c@uiring another coman* hasdi#erent cororate culture


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Limitations o! organic growth

:iseconomies o! scale

Overtrading+ need to restructure

+t some oint more mgt. needed

+dding location ma*"e multinational4his ta'es time e#ort and mone*

Must maintain @ualit*

communication


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Limitations o! organic growth

:ilution o! control and ownershi

Shi!t !rom rorietorshi orartnershi to u"lic limitedcoman*

Longer decision ma'ing rocess

More conHicts li'el*

:elegation o! authorit* needed


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E$ternal growth

+lso 'now as ?inorganic) growth

Generall* involves +lliances

Mergers

+c@uisition -ta'eover

M&+ a'a amalgamationAintegrationo! (rms


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+ctivit*

1.7.J age 1K


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Bene(ts o! e$ternal growth

uic'er wa* to grow or evolve

2educes cometitionImroves mar'et share


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Bene(ts o! e$ternal growth

or'ing wAother "usiness hels

sharing o! good ractices or ideas Generates new s'ills e$eriencesand customers

Sreads ris's across severaldistinct mar'ets.

2is',"earing economies o! scale


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Other otions !or e$ternalgrowth

Noint venturesStrategic alliances

M & +

ranchising


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Noint ventures 3 the de(nition

hen K or more "usinesses

decide to slit costs ris'scontrol and rewards o! a"usiness ro%ect


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Noint venture e$amles/oca,/ola and San Miguel share

ownershi o! "ottling lant in6hiliines

BM and /hina)s Brilliance

+utomo"iles share a aint !acilit*


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Noint venture e$amles

!ony

Naanese electronics(rmOld and esta"lished

Ericsson

Swedish mo"ile comm.(rm0ewer

!onyEricssonEsta"lished KPP1/ometes in mo"ile comm. Industr*Success!ul in reducing mar'et share o!0o'ia Motorola and Samsung


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Noint venture "ene(ts 5ee identit*

S*nerg* -1Q1R shared resourcesC

distri"ution technolog* Sread cost & ris'

Ease entr* into !oreign mar'ets

2elative chea

/ometitive advantage 3reducescometition

E$loitation o! local 'nowledge

=igh success rate


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Strategic +lliance 3 thede(nition

Similar to Noint entureMem"ers share costs o! roduct

develoment oerations and

mar'eting

Mem"ers remain indeendentorganizations & 'ee identit*


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Strategic +lliance 3 e$amles

Ocean 6ar' and Seven,Eleven

O6 tic'ets T 7,11 =ong 5ong-KPP1

Star +lliance

Several airlines -1DD7


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Strategic +lliance 3 ourstages

easi"ilit* stud* :etermine rationale o"%ectives!easi"ilit*

6artnershi assessment :etermine otential o! otentialartners in =2 and ;;;


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Strategic +lliance 3 our stages

/ontract negotiation

:etermine mem"ercontri"utionsArewards

Imlementation

Initiate oerations withcommitment to the contract "* allmem"ers


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M & + -ta'eover 3 the de(nitions

Merger

hen two comanies agree to !orm anew coman*

E$amles

E$$on,Mo"ile =6 3 /oma@

0orthwest +irlines 3 :elta


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M & + -ta'eover 3 the de(nitions

+c@uisition -4a'eover

hen one coman* "u*s a controllinginterest in another coman*

O!ten at a rice a"ove share value

E$amle

Google 8ou4u"e

8ou4u"e was 1P mos. Old -;1.UJ "illion


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+c@uisition -4a'eoverh* a coman* "ecomes a ta'eover

target

Lac' o! !unds !or organicAinternal growth

Seen a rival with growth otential

ell "randed "ut with (nancial ro"lems

ulnera"ilit* 3 dro in ro(ts sharerices

6urchaser is a ?white 'night) to targetcoman* -e$lain ?"lac' 'night) too


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M & + integration 3 our t*es

1. ertical integration

+t di#erent stages o! roductionE$amle

/and* manu!acturer

Forward integration- cand* shos

Backward integration3 sugarlantations


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K. =orizontal integration

In the same industr*E$amle

4ime Inc. & arner /ommunications

4ime arnerIncreased media mar'et share

4ime arner /00 Fortune Magazine


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R. Lateral integration

In the similar industr* "ut notcometing

E$amle

ord and NaguarBoth automa'ers

h* do the* not comete


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. /onglomerate M & +

In distinctl* di#erent industries or the urose o! diversi(cation

Sreads ris'


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M & + integration 3+dvantages

Greater Mar'et shareEconomies o! scale

S*nerg* -1Q1R

Survival

:iversi(cation


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M & + integration 3 :isadvantagesLoss o! control/ulture clash 3 cororate culture

/onHict 3 more i! hostile ta'eover2edundancies 3 dulicate %o"s

"oards managers:iseconomies o! scale 3 "ureaucrac*2egulator* ro"lems 3 can)t create a

monool*0O4EFma* cause need !or ?demerger)


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ranchising 3 the de(nition

hen a erson or "usiness

"u*s a license to trade usinganother (rm)s name logo"rands and trademar's.


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ranchising 3 e$lained

Franchisee3 a*s a license !ee tothe franchisor

Franchisor3 a*s a ro*alt* a*mentto franchisee-li'e a commission

E$amles

Su"wa*

4he Bod* Sho


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4he +nso# Matri$

+n anal*tical tool to hel

managers devise roduct andmar'et growth strategies-1DJ7

0amed a!ter 6ro!essor Igor +nso# -1D1,KPPK

6roduct


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6roduct6ort!olio +nal*sis

Anso" #atrix $se %y companies looking for gro&th

An analysis of markets and products

6roduct


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The

Anso" #atrixProductsProducts

E$istingE$isting 0ew0ew

#arket#arket

ss

E$istingE$istingMar'etMar'et

enetrationenetration6roduct6roduct

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0ew0ew Mar'etMar'etdevelomendevelomen

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6roduct


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Market

penetration

6roduct


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#arket penetration Attempt to increase sales &ith existing

products in an existing market'

There is no change in the product or marketsegment'

The company changes market strategy (price,promotion, distri%ution place)'

$se &hen* +verall market is gro&ing

ompany in a strong market position

$se instead of investing in ne& products ormarkets

6roduct


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Product

Development

6roduct


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Product development

The marketing of ne& products in existingmarkets

$se &hen* The product is in a market &ith potential

gro&th

irm has a high market share and a

competitive advantage -t is necessary to meet the changing needs

of the consumer

The company has strong R./ department

6roduct


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MarketDevelopment

6roduct


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#arket development (or extension)

The marketing of existing products in ne&markets

!egments 0eographic locations

$se &hen*

The product is an advantage of the company

ompany has strong marketing a%ility 1e& opportunities are identi2ed

3etter to add production to current productand avoid startup expense of a ne& product


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6roduct


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/iversi2cation

The marketing of ne& products in ne&markets

$se &hen* 1ecessary to meet o%ectives

There is a large amount of cash in reserve

-t promises to %e especially pro2ta%le

5ou need to avoid dependence on oneproduct

5ou &ant to compete completely &ith a rival

6roduct


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/iversi2cation

This is a particularly risky strategy*

67ere the company has given up all hope

of %uilding on the kno&n and introducesne& products to ne& markets 8 adesperate move' 7istory is littered &ithepitaphs to companies &ho failed to

make diversi2cation &ork'9

(#' #c/onald and :eppard, Marketing by MatrixButerworth Heinemann, 1992)

6roduct


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Documents

Orgs 1 7 Growth Evol