3.2.1 Growth Flashcards
What are the reasons why firms grow?
4
- ^Profitability
- EOS
- ^Market power over customer/suppliers
- ^Market share/brand recog
How can growth increase profit?
2
- ^Customers = ^revenue
- ^Revenue = ^profit if customer spends^ than cost
What are purchasing economies of scale?
1
- Firms negotiate >unit cost for supplies as buy in bulk
What are managerial economies of scale?
1
- Specialist managers bring ^expertise, >unit costs
What are technical economies of scale?
1
- Buys specialised machinery/equipment, >unit costs
What economies may a firm benefit from due to growth?
3
- Purchasing
- Managerial
- Technical
What are the benefits of wider recognition of a company’s brand?
2
- Customers buy brands they recognise, ^sales
- Cut marketing budgets
What are the problems that may arise from growth?
5
- Diseconomies of scale
- Overtrading
- ^Labour turnover, >staff morale
- Capacity utilisation problems
- > Customer satisfaction, >quality = mass production
What are diseconomies of scale?
1
- Inefficiencies related to growth = ^unit costs
What are the different diseconomies of scale?
3
- > Internal comm
- > Employee motivation
- > Managerial coordination
How can growth lead to worse communication?
3
- Rely^ on written comm
- ^Layers of structure
- > Effectiveness through >motivation of sender
How can poor employee motivation result from growth (diseconomies)?
1
- > Personal contact between staff and managers = feel achievements go unoticed)
How can poor managerial coordination result from growth (diseconomies)?
1
- Boss struggle to supervise everything = hire managers = ^meetings (take valuable time)
What is overtrading?
1
- Cash flow problems due to expanding too quickly w/out sufficient cash in bank
How can overtrading occur?
2
- Cash outflow^ as expands
- Firm has to wait months between spending on assets/mats and when the assets generate return
