TOPIC 1 BUSINESS ORGANISATION &

EVOLUTION

Learning Objectives• Analyse the main types of economies and diseconomies of scale

and apply these concepts to business decisions• Evaluate the relative merits of small Vs. large organisations• Recommend an appropriate scale of operation• Explain the difference between internal and external growth• Evaluate joint ventures, strategic alliances, mergers and takeovers• Analyse the advantages and disadvantages of franchising and

evaluate it as a growth strategy• Explain and apply Ansoff’s matrix as a decision-making tool• HL – Evaluate internal and external growth strategies as methods of

expansion • HL – Examine how Porter’s generic strategies provide a framework

for building competitive advantage

• Joint venture – two or more businesses work together on a project and create a

separate business division to do this • Not the same as a merger but may lead

to one• Reasons for joint ventures are:

• Costs and risks of a new business venture are shared

• Different companies, different strengths and experiences

• Major markets in different countries

JOINT VENTURES

BUT…THE RISKS ARE

• Style of management and culture may differ• Errors and mistakes may lead to the blame game• Business failure of one of the partners would put

the whole project at risk

• Agreements between firms in which each agree to commit resources to achieve an agreed set of

results • Can be made with a wide variety of

stakeholders

• With a university – finance provided

• With a supplier – in order to design and produce components

• With a competitor – to reduce risks of entering new markets

STRATEGIC ALLIANCE

Franchising

Advantages Still your own business Tested & developed format

& brand Advice, support, training Easier to raise finance No industry expertise

required Buying power of franchisor Lower risk method of

market entry + lower failure rate

Disadvantages Not cheap! Initial fees +

royalties & commission Restrictions on actions Problems selling business on No industry expertise

required Long-term rewards for hard

work compared with going it alone?

What happens if franchisor fails?

A business that uses the name, logo and trading systems of an existing successful business

Ansoff’s Matrix

Represents the different options open to a marketing manager when considering new opportunities for sales growth

Variables in the matrix

Two variables in Strategic marketingDecisions:

– The market in which the firm was going to operate– The product intended for sale

In terms of the market, managers had two options:– Remain in the existing market– Enter new ones

In terms of the product, the two options are:– selling existing products– developing new ones

Existing PRODUCTS New

INCREASING RISKIN

CREASING

RISKExisting

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET PENETRATION• Low risk growth strategy• This is the objective of higher market share in existing markets

• E.g. in 2000, Mitsubishi announced a 10% reduction in prices in the UK in order to encourage purchases

Existing PRODUCTS New

INCREASING RISKIN

CREASING

RISKExisting

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET DEVELOPMENT

Achieve higher sales/market share of existing products in new markets

MARKET DEVELOPMENT

• Medium risk growth strategy• This is the strategy of selling an existing product

to new markets. This could involve selling to an overseas market, or a new market segment

• Nintendo are making hand held games consoles (e.g. DS) appeal to the adult/grey market by introducing games such as Brain Train

• A completely new pricing strategy could make an existing product appeal to a completely new market

Existing PRODUCTS New

INCREASING RISK

INCREASIN

G RISK

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET DEVELOPMENT

Achieve higher sales/market share of existing products in new markets

PRODUCT DEVELOPMENT

Sell new products in existing markets

PRODUCT DEVELOPMENT• Medium risk growth strategy• New products in existing markets• This involves taking an existing product and developing it in

existing markets

• E.g. Coca-Cola. This has been developed to have vanilla, lime, cherry and diet varieties (amongst others) in the SOFT DRINKS market

Existing PRODUCTS New

INCREASING RISK

INCREASIN

G RISK

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET DEVELOPMENT

Achieve higher sales/market share of existing products in new markets

PRODUCT DEVELOPMENT

Sell new products in existing markets

DIVERSIFICATION

Sell new products in new markets

DIVERSIFICATION• High risk growth strategy • This is the process of selling different, unrelated goods or

services in unrelated markets• This is the most risky of all four strategies

• E.g. the Virgin group

• Risks involved differ substantially• The matrix identifies different strategic

areas in which a business COULD expand

• Managers need to then asses the costs, potential gains and risks associated with

the other options. • The risk involved in growth can differ

greater with regards to the specific industry, products and markets involved.

SUMMARY

Apple Portfolio

Apple Puck mouse – launched in 1998 with the first Imac discontinued a few years later – difficult to use and named one of the most worst ‘tech’ products of all time

Apple Pippin released into a market dominated by SEGA & Playstation sold 42,000 machines

Apple Mac (originally marketed at businesses and graphic designers) has 10% market share in a market, dominated by Microsoft Windows, that at one time had high growth.

Ipod have 70% market share in MP3 market. Originally launched in 2001 to a market where people listened to music on portable cd players and mini disc players. Lots of variations for different markets have been released since then

Iphone’s main competitor in the Smart phone market is Blackberry who are market leaders in this area of high growth. New Iphone in development

The macbook air launched recently has had a massive marketing campaign is the slimmest notebook on sale yet has had to sacrifice other features . Macbooks have also been relaunched to a younger market wanting something sophisticated and easy to use

IPAD to be launched this year

ANSOFF’S MATRIX

You have half an hour to complete the following :

1. Create a table that represents the Ansoff matrix2. Place some of the products made by Apple or

another well known company into the boxes3. Explain why you chose to put them in each

section4. How will this help the company set/achieve the

objective of re-launching a product, diversification