3.9.1 Assesing A Change In Scale / Manegin Growth / Types And Methods Of Growth Flashcards
When do diseconomies of scale occur
When unit cost will rise as business expands
Identify factors of diseconomies of scale
Communication problems - harder to communicate clear messages across orgnisation
Control. - in order to control organisation layers of management is added (this may slow down decision making and quality becomes harder to monitor
Flexibility - issues revolving around flexibility and control makes a business less flexibility and makes it harder to adapt to changing environment
Motivation - workers in large firms may find it difficult to see the impact they have and feel less significant
When does overtrading occur
When a business grows too fast and overstretch their financial resources e.g cash
What are the problems associated with overtrading
Overtrading refers to the business growing too fast and overstretches its financial resources such as cash. Overtrading can leas to operational inefficiencies, such as lost orders and cash flow problems
What is retrenchment and why may businesses seek to do it
When a business seeks to reduce its scale - may be to counteract the problems of diseconomies of scale or to improve efficiency and reduce costs as demand falls (possible due to downturn in economy)
5 things retrenchment may involve
- redundancies
- closure of branches
- discounting product line
- delayering
- reallocating business resources
What does Greiners growth model consider and what are its six phases
Indicates some of the issues a business may face as it grows in scale. The model can help and plans for different issues as the business grows Phase 1 - growth through creativity Phase 2 - growth through direction Phase 3 - growth through delegation Phase 4 - growth through coordination Phase 5 - growth through collaboration Phase 6 - growth through alliances
What is meant by phase 1?
Informal business practices - business is driven by creativity and all employees understand the impact they have on the business. Rules are not clear
What is meant by phase 2
Leadership crisis - as the business grows some tasks may get missed or jobs will be duplicated. At some point, clear direction is needed along with leadership.
What is meant by phase 3
Autonomy crisis - as the business grows, there is a need for more delegation as managers desire autonomy to make their own decisions and respond to localised issues
What is meant by phase 4
Crisis of control - as the business continues to grow, directors may feel they are losing control of some aspects of the business and they worry about strategic direction.
What is meant by phase 5
Red tape crisis - as the leaders put in place systems and mechanisms of control, bureaucracy leads to inefficienciesand a distraction from the core business activities.
What is meant by phase 6
Growth crisis - as the business reaches its potential for internal growth it may look for growth through external collaboration. This brings with its new set of dilemmas
Impact growth will have on business functions
Marketing - growth will lead to launch of new products and movement into new markets. Business needs to understand new customers and effectively promote new ventures
Operations - will looks to maximise capacity and put in place systems to manage increase production and sales. May need to find additional capacity to cope with expansion
Finance - growth means cash flow is essential. Capital investment required needs to be identified to finance growth and find suitable sources of finance.
Human resource - growth in business leads to growth in workforce. Human resource will recruit and train new employees
Methods of external growth
Franchise - sell rights of a business (name, product, assets) to a third party (franchisee) who will run business independently. Franchisee pays % of revenue. Requires little investment but close monitoring
Takeover (acquisition)- One business will acquire another along with its assets / if hostile the takeover is riskierthan acquiring the business
Joint venture - two businesses work together e.g on a product launch / information and expertise will be shared but businesses remain independent
Merger - businesses join together to form one benefiting off of each other’s strength. The business will seek synergies off the merger
