3.9.1 assessing a change in scale

Question 1

what is retrenchment?

Answer 1

when a business reduces its costs in order to become more financially stable, increase profits and to move out of loss making areas.

Question 2

how can retrenchment be achieved?

Answer 2

redundancies
closing an unprofitable section of the business
removing a level of hierarchy

Question 3

how did M&S retrench?

Answer 3

closed 30 stores
named 17 more it wants to close
plans to have fewer stores in better location

Question 4

what are technical economies of scale?

Answer 4

ability of larger firms to buy technically advanced equipment to spread the cost over a larger a number of units
may also reduce the number of workers

Question 5

what are purchasing economies of scale?

Answer 5

negotiating discounts with suppliers when buying in bulk
variable cost per unit drops

Question 6

what are managerial economies of scale?

Answer 6

bringing in specialists to focus on parts of the business

Question 7

what are diseconomies of scale?

Answer 7

the disadvantages experienced by a firm as a result of operating beyond optimum output, leading to a rise in average costs

Question 8

reasons for diseconomies of scale:

Answer 8

communication problems
moving to a new site with additional capacity
poor management of departments
poor morale of staff
control and coordination problems

Question 9

what is economies of scope?

Answer 9

when a business gains cost advantages by sharing costs between different products and divisions

Question 10

what is the experience curve?

Answer 10

the more experience a business has in producing a particular product, the lower its costs.

compares cost per unit and cumulative production (units)

Question 11

what is synergy?

Answer 11

when you pick two businesses together and as a combined unit they perform better than they did as individual parts.
2+2=5

Question 12

what is overtrading?

Answer 12

expanding a business rapidly without obtaining all of the necessary finance so that a cash flow shortage develops

Question 13

what does Greiner’s model of growth show?

Answer 13

the challenges that typically occur in managing businesses as an organisation gets older and bigger
compares size of organisation to the age of organisation

Question 14

what are the Greiner’s stages of growth?

Answer 14

creativity
direction
delegation
coordination
collaboration

Question 15

what are Greiner’s stages of crisis?

Answer 15

leadership
autonomy
control
red tape
?

Question 16

what is organic growth?

Answer 16

when a business expands in size by opening new stores, branches, functions or plants.

Question 17

how can external growth be achieved?

Answer 17

integration
merger
takeover

Question 18

what is integration?

Answer 18

bringing together or two or more firms

Question 19

what are the 4 forms of integration?

Answer 19

horizontal
vertical backwards
vertical towards
conglomerate

Question 20

what is horizontal integration?

Answer 20

when a company acquires or merges with another company in the same industry that is operating at the same level in the value chain

Question 21

what is vertical backwards integration?

Answer 21

companies acquire or merge with a supplier in their value chain for raw materials or services

Question 22

what is vertical forward integration?

Answer 22

acquiring a business further up (forward) in the supply chain – e.g. a vehicle manufacturer buys a car retail

Question 23

what is conglomerate integration?

Answer 23

the process by which a company expands its operations into unrelated business areas or industries

Question 24

tesco and giraffe integration example:

Answer 24

vertical forward takeover
tesco has bought giraffe restaurant change
exposes tesco to “lucrative growth”
tesco can implant giraffe into its larger stores

Question 25

what is a joint venture?

Answer 25

businesses sharing information and resources on some projects but retaining their own identity

Question 26

what is a franchise?

Answer 26

when one business sells the rights to another business to use its name and sell its goods and services in return for a fee or royalties

Question 27

examples of franchises:

Answer 27

McDonalds
Subway