6

Business Growth

and Strategy

6

Business Growth

and Strategy

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

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

Strategic AnalysisStrategic Analysis

Strategic AnalysisStrategic 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

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

Industry competitors

Porter's Five Forces ModelPorter's Five Forces Model

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)

Industry competitors

Rivalry amongexisting firms

Porter's Five Forces ModelPorter's Five Forces Model

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)

Potentialentrants

Industry competitors

Rivalry amongexisting firms

Threat ofnew entrants

Porter's Five Forces ModelPorter's Five Forces Model

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)

Substituteproducts

Potentialentrants

Industry competitors

Rivalry amongexisting firms

Threat ofnew entrants

Threat ofsubstitutes

Porter's Five Forces ModelPorter's Five Forces Model

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)

Suppliers

Substituteproducts

Potentialentrants

Industry competitors

Rivalry amongexisting firms

Threat ofnew entrants

Bargaining powerof suppliers

Threat ofsubstitutes

Porter's Five Forces ModelPorter's Five Forces Model

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)

BuyersSuppliers

Substituteproducts

Potentialentrants

Industry competitors

Rivalry amongexisting firms

Threat ofnew entrants

Bargaining powerof suppliers

Bargaining powerof buyers

Threat ofsubstitutes

Porter's Five Forces ModelPorter's Five Forces Model

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)

Strategic AnalysisStrategic 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

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

Strategic AnalysisStrategic 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

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

Strategic AnalysisStrategic Analysis

Value chain analysis nature of value chain analysis primary activities

inbound logisticsoperationsoutbound logisticsmarketing and salesservice

secondary activitiesprocurement technological developmenthuman resources management firm infrastructure

Value chain analysis nature of value chain analysis primary activities

inbound logisticsoperationsoutbound logisticsmarketing and salesservice

secondary activitiesprocurement technological developmenthuman resources management firm infrastructure

Inboundlogistics

The value chainThe value chain

Operations

Outboundlogistics

Marketingand sales

After-salesservice

Fir

min

fras

tru

ctu

re

Tech

no

log

ical

develo

pm

ent

Hu

man

res

ou

rce

man

agem

ent

Pro

curem

ent

Strategic ChoiceStrategic Choice

Environment or market-based strategy types

cost leadershipdifferentiation 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

Environment or market-based strategy types

cost leadershipdifferentiation 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

Growth by internal expansion product differentiation

vertical integration

diversification

Growth by external expansion: mergers and takeovers horizontal mergers

vertical mergers

conglomerate mergers

Growth by internal expansion product differentiation

vertical integration

diversification

Growth by external expansion: mergers and takeovers horizontal mergers

vertical mergers

conglomerate mergers

Growth StrategyGrowth Strategy

Alternative growth strategyAlternative growth strategy

GROWTH OF A FIRM

Internal expansion External expansion

(1) DifferentiationHorizontal expansion

(same product, increasein market share)

(1) Horizontal integrationMergers of firms

producing the sameproduct

(2) Vertical integrationDifferent products, butbelonging to different

stages of same product

(2) Vertical integrationMergers of firms producing at different stages of same

process

(3) ConglomerateDiversification -

introduction of totally different products

(3) ConglomerateDiversification - merger of

firms producing totally unrelated products

Growth StrategyGrowth Strategy

Growth by internal expansion

financing internal growth

borrowing

share issue

ploughing-back profit

the takeover constraint

Growth by internal expansion

financing internal growth

borrowing

share issue

ploughing-back profit

the takeover constraint

Growth StrategyGrowth 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 uncertaintymonopoly power

• barriers to entry growth through diversification

advantages• when existing market is saturated• spreads risks

Growth by internal expansion (cont.) growth through vertical integration

backward integration ('upstream' integration) forward integration ('downstream' integration)

why vertically integrate? economies of scale reduced uncertaintymonopoly power

• barriers to entry growth through diversification

advantages• when existing market is saturated• spreads risks

Growth StrategyGrowth Strategy

Growth through mergers and takeovers types of merger and takeover

horizontalverticalconglomerate

motives for mergers and takeoversgrowtheconomies of scalemonopoly power increased market valuation reduced uncertaintyother motives

effects of mergers on consumers

Growth through mergers and takeovers types of merger and takeover

horizontalverticalconglomerate

motives for mergers and takeoversgrowtheconomies of scalemonopoly power increased market valuation reduced uncertaintyother motives

effects of mergers on consumers

Financing Growth and InvestmentFinancing 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

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

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

disadvantagescost of getting listedpossible short-termism and instability

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

disadvantagescost of getting listedpossible short-termism and instability

Financing Growth and InvestmentFinancing 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'

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'

Financing Growth and InvestmentFinancing Growth and Investment

Staying SmallStaying Small

EU definition of SMEs

by number of employees

micro enterprises

small enterprises

medium enterprises

by turnover

EU definition of SMEs

by number of employees

micro enterprises

small enterprises

medium enterprises

by turnover

EU SME definitionsEU SME definitions

EU SME definitionsEU SME definitions

EU SME definitionsEU SME definitions

EU SME definitionsEU SME definitions

Staying SmallStaying 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 R&D management skills less ability to gain economies of scale

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 R&D management skills less ability to gain economies of scale