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L6 Business Management > 1.5 Growth and Evolution > Flashcards

1.5 Growth and Evolution Flashcards

1
Q

growth

A

expansion

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2
Q

what does growth do

A

creates new opportunities to increase market share and make more profit

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3
Q

advantages of growth

A
  • can achieve economies of scale to reduce costs
  • new customers and markets reached, increasing market share/ sales/ revenue
  • allows company to influence prices of products and services
  • face competitors and external changes
  • reduces risks and increases stability
  • attract talented employees
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4
Q

external economies of scale

A

cost-savings that occur in a region or industry that aren’t under the control of the business

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5
Q

innovation (ext. economies of scale)

A

industry becomes significant for society

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6
Q

infrastructure (ext. economies of scale)

A

good transportation network, increases productivity

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7
Q

specialisation (ext. economies of scale)

A

workers start to focus on a particular industry due to its size.
easier to find better workers, reducing costs related to recruiting and training.

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8
Q

external economies of scale list

A

innovation
infrastructure
specialisation

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9
Q

internal diseconomies of scale

A

increase in unit costs as output increases, due to becoming too big and less efficient

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10
Q

managerial (int. diseconomies of scale)

A

hard to efficiently run enterprise as it is too big
- lack of coordination and cooperation may create inefficiencies and increase costs

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11
Q

increase in size of workforce (int. diseconomies of scale)

A

complicated organisational structure
- large number of managers increases costs
- overcrowding
- employees alienated

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12
Q

communication (int. diseconomies of scale)

A

too many layers of management
- makes efficient communication difficult

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13
Q

internal diseconomies of scale list

A

managerial issues
increase in workforce size
communication

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14
Q

external diseconomies of scale

A

increased unit cost of production for a business due to the expansion of the industry in which the business operates

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15
Q

limited natural resources (external diseconomies of scale)

A

as output of a business grows, they need more inputs of natural resources.
demand for raw materials may increase in industry.
–> higher costs of production

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16
Q

limited infrastructure (ext. diseconomies of scale)

A

as industry expands, businesses use infrastructure more often. thus, increased use of infrastructure can slow down deliveries and raise costs of production.

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17
Q

increased regulation (ext. diseconomies of scale)

A

industry expands, so government pays more attention to it. laws and regulations related to that industry may increase, raising production costs.

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18
Q

external diseconomies of scale list

A

limited natural resources
limited infrastructure
increased regulation
pollution

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18
Q

benefits of internal growth

A
  • less expensive (uses internal sources of finance, avoid interest)
  • less risky (no other parties, so no dilution of control)
  • maintains more control
  • respects company’s values (culture maintained)
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18
Q

pollution (ext. diseconomies of scale)

A

emissions cause climate change. natural disasters may damage natural resources and infrastructure. the cost of production increases.

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19
Q

disadvantages of growth nationally and globally

A
  • increased pollution and negative environmental consequences
  • (economies of scale and) replace workers with machines
  • lose control over operations and don’t monitor worker conditions/pay, leading to exploitation of human labour
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19
Q

internal growth

A

expansion carried out by the organisation itself, without working with a partner

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19
Q

marketing economies of scale

A

cost of market campaign is spread over a larger quantity of output

19
Q

disadvantages of growth

A
  • quality: quality may fall
  • loss of control of business
  • higher labour turnover
19
Q

advantages of growth nationally and globally

A
  • more tax revenue to build public infrastructure
  • reduce unemployment
  • increase consumption and improve living standards
19
Q

economies of scale

A

unit (average) cost of production decreases as the level of output increases

20
Q

internal economies of scale

A

cost reductions inside company when output expands

20
Q

purchasing economies of scale

A

buys inputs at lower cost by purchasing larger amounts
(buying in bulk)

21
Q

managerial economies of scale

A

cost of hiring a manager spread over a larger output
(specialists are more efficient)

22
Q

technical economies of scale

A

invest in equipment which is more efficient and lowers average cost of production

23
Q

financial economies of scale

A

larger loan for investment with lower interest rate

23
Q

joint venture

A

new enterprise created by 2 or more businesses which hold onto their distinct identities

24
Q

internal economies of scale list

A

purchasing
marketing
managerial
technical
financial

24
Q

limitations of internal growth

A
  • slower (larger competitors might enter in the meantime)
  • can cause cashflow problems
  • limited: if it is in a small market, it may not be able to reach a size that results in acceptable profits
24
Q

strategies for growing internally

A
  • increasing production and gaining market share (promotions or better distribution)
  • developing new products (or improve existing products)
  • finding new markets: sell in new location or to new target audience
24
Q

merger

A

two businesses agree to form a new business together

24
Q

acquisition

A

one company purchases another with the permission of the board of directors

25
Q

takeover

A

one company purchases another company without permission of board of directors or company

25
Q

external growth

A

involves another organisation, allowing objectives to be realized more quickly and efficiently

25
Q

strategic alliance

A

two or more businesses work together to achieve a common objective but don’t create a new enterprise

25
Q

disadvantages of external growth

A
  • riskier
  • hard to realise cost reductions (if companies are too different)
  • culture clash
  • proprietary info and technology could be lost
25
Q

advantages of external growth

A
  • faster
  • economies of scale
  • increase employee talent pool, widen range of expertise
  • competitor may be eliminated
26
Q

franchising

A

arrangement between 2 parties: franchisor and franchisee
franchisor: company with successful business model that wants to expand
franchisee: pays royalties and runs outlets

27
Q

advantages of franchising (for franchisor)

A
  • faster to grow
  • cheaper
  • franchisees fund growth of franchisor
  • franchisees more motivated to succeed than managers
  • gain from franchisee’s local knowledge
28
Q

advantages of franchising (for franchisee)

A
  • very high success rate
  • gains from brand recognition and brand loyalty
  • franchisees receive ongoing support and expert advice
  • gain from purchasing economies of scale
29
Q

disadvantages of franchising (for franchisor)

A
  • corporate image and brand reputation at risk is franchisee is incompetent
  • needs to ensure quality standards are met
  • franchisee keeps all profits
  • franchising isn’t applicable to all businesses
30
Q

disadvantages of franchising (for franchisee)

A
  • very expensive (+ royalties)
  • constrained by standards and practices (no innovation)
  • individual franchisee is at risk of damaged reputation if another franchisee makes a blunder
31
Q

reasons for staying small

A
  • avoiding risk, maintaining control
  • smaller market size
  • limited access to sources of finance
  • sustainability
  • strong social networks
32
Q

disadvantages of staying small

A
  • higher costs of production
  • harder to access finance
  • harder to recruit and retain skilled workers
33
Q

generative/ regenerative business

A

business that aims to strengthen its social and environmental ecosystems by creating opportunities for other businesses and communities to develop
- share know-how
- nurture network of relationships between stakeholders
- create shared purpose

34
Q

ansoff matrix layout

A

mrkt develop ———- diversification

35
Q

market penetration

A

selling more of the same product to the same customers

36
Q

product development

A

selling new products within organisation’s existing market

37
Q

market development

A

selling existing products to new customers
(new geographic market, new demographic)

38
Q

diversification

A

selling new products in a new market
- riskiest

L6 Business Management (8 decks)

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