4Business 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 Analysis

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

Industry competitors

Porter'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 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 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 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 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 Model

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

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

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

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

Inboundlogistics

The value chain

Operations

Outboundlogistics

Marketingand sales

After-salesservice

Fir

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Tech

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develo

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Hu

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Pro

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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

� Growth by internal expansion

� product differentiation

� vertical integration

� diversification

� Growth by external expansion: mergers and takeovers

� horizontal mergers

� vertical mergers

� conglomerate mergers

Growth Strategy

Alternative 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 Strategy

� Growth by internal expansion

� financing internal growth

� borrowing

� share issue

� ploughing-back profit

� the takeover constraint

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

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

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

� 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

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'

Financing Growth and Investment

Staying Small

� EU definition of SMEs

� by number of employees

� micro enterprises

� small enterprises

� medium enterprises

� by turnover

EU SME definitions

EU SME definitions

EU SME definitions

EU SME definitions

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