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Buisness > 3.2 Business Growth > Flashcards

3.2 Business Growth Flashcards

1
Q

Name 4 reasons why businesses grow

A

-to increase profitability; growth means ^ custokmers -> ^ revenue -> ^ profit

-to achieve economies of scale;

-increased market power over customers & suppliers

-increased market share and brand recognition

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2
Q

Name 5 problemes that sometimes arise from growth

A

-diseconomies of scale

-poor internal communication

-poor employee motivation

-poor managerial co-ordination

-overtrading

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3
Q

What is diseconomies of scale

A

inefficiencies related to growth -> upward pressure on unit costs

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4
Q

What is inorganic growth

A

growth that occurs due to taking over/ merging with another business

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5
Q

What is organic growth

A

growth which takes place internally within the business

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6
Q

Name 3 methods of organic growth

A

business can finance the griwth through retained profits

-

-

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7
Q

Name 3 advantages of organic growth

A

-leaders influence stays strong; greater chance of preserving original organisational culture -> likely to be successful -> has put company in position to grow

-reduction of financial risk;

-secure career paths;

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8
Q

Name 3 disadvantages of organic growth

A

-limited speed leading to limited size

-failing to fully exploit a short-lived opportunity

-predictability

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9
Q

What are synergies

A

benefits of 2 things coming together that could not exist when they are seperate

-e.g. economies of scale reuslting from a merger

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10
Q

Name 4 common reasons for mergers & takeovers

A

-growth-

-cost synergies

-diversification

-market power

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11
Q

What is a merger

A

when 2 businesses agree to come together to create brand new single business

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12
Q

What is a takeover

A

when 1 business buys over 50% of another businesses shares

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13
Q

Name the 3 types of integration

A

-vertical integration- merger/ takeover involving 2 companies at diff stages of same supply chain:
forward vertical integration; when company buys customer
backward vertical integration; when company buys supplier

-horizontal integration- when business buys/ merges with rival

-conglomerate integration- where merger/ takeover involve coming together of 2 unrelated businesses

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14
Q

Name 2 benefits & disadvantages of backward vertical

A

+secures supplies
+should lower the cost of supplies

-can tie the business into a supplier that may not always offer the best option

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15
Q

Name 2 benefits & disadvantages of forward vertical

A

+guaranteed outlet for the businesses products

-can lead to diseconomies
-could be confusion over which firms culture should be adopted in some areas

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16
Q

Name benefits & disadvantages of horizontal integration

A

+likely to provide clear economies of scale

-xan lead to diseconomies
-could be confusion over which firms culture should be adopted in some areas

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17
Q

Name benefits & disadvantages of conglomerate

A

+diversifies the business - spreading risk into diff markets

-potential faiure to understand target company as it will be in an unfamiliar market
-may distract management from original business due to unfasmiliarity and slowness to integrate

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18
Q

How can Ansoff’s Matrix be used for decisions concerning takeovers

A

-matrix allows for analysis of the market & products being sold by firm being taken over

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19
Q

Financial rewards of mergers and takeovers?

A

A
- Speedy Growth –> large market share, lower costs resulting from economies of scale, more market power and higher profitability

  • Increased profitability
20
Q

Name 3 issues of rapid growth inorganically

A

-with new management structures in place staff may find themsleves working for a new boss

-staff may need to adjust to operate in new business culture; may feel uncomfortable

-customers & suppliers -> may feel discomforted by dealing with new suppliers and customers

21
Q

How do businesses survive in competitive markets

A

-lowests costs due to price competition evident

-strong point of differentiation due to product innovation being common

22
Q

Name 4 reasons for a business to stay small

A

product differntiastion & USPS ->when business finds point of differentiation, selling to niche market -> can spend all time deepening point of differentiation -> don’t need to grow

flexibility in responding to customer needs -> fewer layers between bosses & managment, communications quicker -> descision-makers liekly to know about changes sooner

greater customer service -> staff part of a small close-knit workforce -> understand how performance affects success of business -> more motivated -> better service

e-commerce -> ability to reach a global amrket -> allows for specialist niche market -> which wouldn’t be large enough to support business on national scale

23
Q

business objectives and size

A
24
Q

Why do firms grow by increasing profitability

A
  • growth means more customers
  • more customers more revenue
  • more profit
25
Q

Types of economies of scale

A
  • purchasing (negotiate cheaper unit costs from supplier)
  • managerial (specialist managers)
  • technical (firm can afford to buy specialised equipment)
26
Q

Explain overtrading

A
  • occurs when a business experiances cash flow problems as a result of expanding too quickly without sufficient cash in bank
27
Q

Give some methods of growing organically

A
  • staff devlopment
  • using retained profits
28
Q

Three advanatages of organic growth

A
  • leaders influence stays strong (preserve organisational structure)
  • reduction of financial risk
  • secure career paths ( better management positions, internal promotions)
29
Q

Disadvantages of organic growth

A
  • limited speed leading to limited size
  • failing to fully exploit a short lived opportunity
  • predictability
30
Q

How can growth lead to poor internal communication

A

-larger organisations rely on more written forms of communication -> harms effectiveness of communication

-messages need to pass through more layers of the organisational structure

-> could lead to resources wasted due to ineffective comm

31
Q

How can growth lead to poor employee motivation

A

->employees may feel like their work goes unnoticed

->may struggle to see how their achievements impact the success of the business

-> can lead to falling motivation

32
Q

How can growth lead to poor managerial co-ordination

A

-as business grows -> boss may struggle to maintain regular contact with everyone

-this is bcs meetings take up valuable time

-failure to co-ordinate effectively -> mistakes -> ^ costs

33
Q

How can growth lead to overtrading

A

-if business grows rapidly -> levels of cash outflows rises consistently as it expands

-after those assets generate a return -> is when cash inflows start to rise -> this could take months

-creates a situ where business is trying to fund large-scale operation with very little cash

34
Q

What is overtrading

A

when a business experiences cash flow problems due to expanding too quickly with little cash in bank

35
Q

What is diversification

A

-new product, new market

-does this to reduce its reliance on on market/ product in case of issues

36
Q

What is market power

A

When 2 firms in same market come together -> ^ power over customers -> ^ prices charged -> boost margins

37
Q

What are cost synergies

A

When business grows through merger/ takeover -> ^ size -> economies of scale -> reduced unit costs

38
Q

What is growth

A

stage where the business reaches point for expansion and seeks additional options to generate more profit

39
Q

What is economies of scale

A

reductions in unit cost caused by growth of a business

40
Q

How does a business gaining market power affect their customers?

A

-charge higher prices

-less competitive forces -> less need to spend money on new products -> reduces need to spend money on innovation & development

41
Q

How does a business gaining market power affect their suppliers?

A

-dominant businesses can force cost reductions

-positive impact -> ^ growth -> ^ sales

42
Q

How does a business increasing market share affect its brand image?

A

growth -> ^ market share -> ^ power over customers -> ^ brand recognition

43
Q

What are 3 benefits of brand recognition

A

-customers buy brands they recognise -> ^ recognition -> ^ in sales

-can charge ^ prices

-create customer loyalty

-

44
Q

What are the benfits of increased profitablity

A

-allows for further innovation and invetsment

45
Q

What are the Financial Risks of Mergers and Takeovers?

A
  • Resistance from employees –> can result in job loss also there might be disrupting such as strikes
  • Integration costs –> technical changes, system changes, severance pay for dismissed workers, training etc.

Buisness (22 decks)

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