3.2.1 growth

Question 1

Problems of rapid growth

Answer 1

• drain on resources (huge cost) and overtrading
• loss of control or coordination (diseconomies of scale)
• poor investment decisions
• coping with change (cultural clashes)
• alienation of customers - don’t associate with the other company
• shortage of resources (skilled labour) - might drive up prices

Question 2

How can a business avoid the problems of rapid growth?

Answer 2

-sceuring access to a source of finance

Question 3

How can a business avoid the problems of rapid growth?

Answer 3

good planning and leadership

Question 4

How can a business avoid the problems of rapid growth?

Answer 4

use of investment appraisal techniques - quantitive and qualitative information

Question 5

How can a business avoid the problems of rapid growth?

-coping with change (cultural clashes)

Answer 5

kotter change management process, get staff to but in through giving control of change to employees

Question 6

How can a business avoid the problems of rapid growth?

-alienation of customers - don’t associate with the other company

Answer 6

employ customer relationship management systems, keep customers informed

Question 7

How can a business avoid the problems of rapid growth?

-shortage of resources (skilled labour) - might drive up prices

Answer 7

work with staff to maintain productivity and implement effective recruitment and selection processes

Question 8

Advantages of growth

Answer 8

• Market share
• Economies of scale – improves profitability – improves competitiveness
• Global brand recognition – can charge premium prices, low PED
• Increase price setting power over customers
• Increased purchasing power over suppliers – better payment terms, fast delivery – monopsony

Question 9

Disadvantages of growth

Answer 9

• Diseconomies of scale – communication, co-ordination and control
• Overtrading – cash flow issues from over-commitment of cash to fund investment and growth
• Consultation is needed – Kotter – employees need to buy into the change (employee resistance)
• Employee resistance

Question 10

External economies of scale

Answer 10

• Unit costs falling as the industry grows
• Technology
• Infrastructure, education and supplier’s cluster

Question 11

how can you prevent the disadvantages of growth?

Answer 11

• Can use computer systems to co-ordinate stock re-order and delivery
• Can use effective management strategies and leadership such as strong team building
• Tools to improve communication and control – regular line management
• Long term sources of finance can be used to avoid over-trading
• Effective cash flow forecasting and sales forecasting
• Contingency plans if projects deliver late
• Effective CPA/project planning