6

Business Growth
and Strategy
 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
 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
 Porter's Five Forces Model

Industry competitors

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

Potential
entrants

Threat of
new entrants

Bargaining power Industry competitors

of suppliers
Suppliers
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)
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Bargaining power Industry competitors Bargaining power

of suppliers of buyers
Suppliers Buyers
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)
 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
 The value chain

After-sales
service

Marketing
e m r ce and sales

Tec elopm
dev
e nt
nag ou

hno
ma n res

Outbound

lo g
logistics
ma

ical
ent
Hu

Operations

Pro
e
tur

cur
infr Firm
ruc

em
Inbound
ast

ent
logistics
 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 Strategy
 Growth by internal expansion
 product differentiation
 vertical integration
 diversification
 Growth by external expansion: mergers
and takeovers
 horizontal mergers
 vertical mergers
 conglomerate mergers
 Alternative growth strategy

GROWTH OF A FIRM

Internal expansion External expansion

(1) Differentiation (1) Horizontal integration
Horizontal expansion Mergers of firms
(same product, increase producing the same
in market share) product

(2) Vertical integration (2) Vertical integration

Different products, but Mergers of firms producing
belonging to different at different stages of same
stages of same product process

(3) Conglomerate (3) Conglomerate

Diversification - Diversification - merger of
introduction of totally firms producing totally
different products 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
 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
 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'
 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