9 - Assessing Change In Scale Flashcards
What Is Change?
(2 Points)
~ Occurs when a business alters its structure, size or strategy to respond to internal or external influences.
~ Must be managed carefully to ensure a business maintains or increases its competitiveness.
What Does Change Create?
(2 Points)
~ Opportunities.
~ Threats.
What Are The Reasons For Change?
(3 Points)
~ Meet objectives.
~ Respond to internal forces.
~ Gain a competitive advantage.
One Reason For Change Is To Meet Objectives, What Can This Mean?
(6 Points)
~ Gain market share.
~ Increase shareholder value.
~ Respond to external forces.
~ Technological advancements.
~ Political and legal changes.
~ Consumer demand.
One Reason For Change Is To Respond To Internal Forces, What Can This Mean?
(2 Points)
~ Employee pressures.
~ Owners power.
One Reason For Change Is To Gain A Competitive Advantage, What Can This Mean?
(2 Points)
~ Economies of scale and scope.
~ Market development.
What Is Growth?
~ Increasing the size of the business operations.
~ E.g. New stores, new products, new markets and buying other businesses.
What Are The Possible Reasons As To Why Businesses Grow?
(5 Points)
~ Increase shareholder value.
~ Increase market share.
~ Reduce average costs.
~ Fulfil an objective of growth.
~ Stakeholders perception of success.
What Is Retrenchment?
(2 Points)
~ Downsizing the scale of the businesses operations.
~ E.g. Closing branches, selling off parts of the business and delayering.
What Are The Possible Reasons As To Why Businesses Retrench?
(4 Points)
~ Restructure to increase efficiency.
~ Turn around poor performance.
~ Focus on core business.
~ Sell off less profitable parts of the business to improve overall performance.
What Is Organic (Internal) Growth?
(2 Points)
~ Occurs when a business expands in size by opening new stores, branches, functions or plants.
~ May be achieved within the UK or on a multinational scale.
What Are The Benefits Of Organic Growth?
(2 Points)
~ Control is easier to maintain.
~ Relatively low risk strategy.
What Are The Drawbacks Of Organic Growth?
~ Time consuming.
What Is External Growth?
(2 Points)
~ Occurs when a business expands in size by either merging with or taking over another business.
~ This may be with other businesses within the UK or on a multinational scale.
What Are The Benefits Of External Growth?
~ Allows a business to expand more rapidly, as it is buying businesses that are already established.
What Are The Drawbacks Of External Growth?
~ Can be high risk if the two businesses are not compatible.
What Are The Types Of External Growth?
(3 Points)
~ Integration.
~ Merger.
~ Takeover.
One Type Of External Growth Is Integration, What Is This?
Bringing together of two or more businesses.
One Type Of External Growth Is Merger, What Is This?
When two or more businesses agree to become integrated to form one business under joint ownership.
One Type Of External Growth Is Takeover, What Is This?
(3 Points)
~ When one business gains control over another and becomes the owner.
~ Can be achieved by buying 51% of the shares.
~ Can be hostile.
What Are The Types Of Integration?
(3 Points + 2 Subpoints)
~ Horizontal.
~ Vertical.
-> Forward vertical.
-> Backwards vertical.
~ Conglomerate.
What Is Horizontal Integration?
When two businesses at the same stage within a process integrate.
What Is Vertical Integration?
When two businesses at different stages within a process integrate.
What Is Forward Vertical Integration?
(2 Points)
~ Joins with another business at the next stage in the process
~ E.g. Manufacturer with a retailer.
What Is Backward Vertical Integration?
(2 Points)
~ Joins with a business at an earlier stage in the process.
~ E.g. A manufacturer with a supplier of raw materials.
What Is Conglomerate Integration?
When two unrelated businesses integrate.
What Are Joint Ventures?
When two or more businesses agree to act collectively to set up a new business venture with all parties contributing equity to fund the set up and purchase of assets.
What Are Advantages Of Joint Ventures?
(4 Points)
~ Risk sharing.
~ Improved relationships.
~ Shared resources and expertise.
~ Synergies.
What Are Disadvantages Of Joint Ventures?
(4 Points)
~ Profit sharing.
~ Financial risks.
~ Slower decision making.
~ Potential for conflict between stakeholder objectives.
What Is A Franchise?
The replication of a successful business formula.
What Is Franchising?
(2 Points)
~ When the owner of a business licenses the use of trademarks and proven business ideas to another party.
~ Can be seen as a less risky option for growth but can mean additional costs and a loss of independence.
Who Is The Franchisee?
(6 Points)
~ The business which is given permission from another business to trade using its name or goods and services in return for a fee and share of the profits.
~ Is given support by the franchisor but will have less autonomy in decision making.
~ Owns and operates each business outlet.
~ Pays the initial fee to the franchisor.
~ Pays an annual fee or royalty payments to the franchisor.
~ Often has to buy supplies from the franchisor.
Who Is The Franchisor?
(4 Points)
~ The business that sells a licence giving permission to another business to trade using its name or goods and services.
~ Allows the franchisor to grow more rapidly but may damage its reputation if standards are not maintained.
~ Remains in control over the way in which goods and services are marketed and sold and also controls the quality standards of the business.
~ Must support the franchisee in a range of areas.
What Are The Benefits Of Franchising For The Franchisor?
(4 Points)
~ Rapid expansion.
~ Investment from others.
~ Motivation.
~ Economies of scale.
What Are The Drawbacks Of Franchising For The Franchisor?
(3 Points)
~ Loss of control.
~ Managing growth and resources.
~ Litigation.
What Are The Benefits Of Franchising For The Franchisee?
(6 Points)
~ Lower risk.
~ Established product.
~ Experienced business.
~ Brand awareness.
~ Proven operation.
~ Assistance with entering a new markets, management, financial, marketing and training.
What Are The Drawbacks Of Franchising For The Franchisee?
(2 Points)
~ Lack of control.
~ High costs.
What Is Economies Of Scale?
The advantages enjoyed by a business as it increases the scale of its current operations leading to a fall in unit costs.
What Do Lower Costs Do For A Business?
(2 Points)
~ Makes a business more competitive.
~ Reduces prices for consumers.
What Are The Types Of Economies Of Scale?
(3 Points)
~ Purchasing.
~ Technical.
~ Managerial.
Describe Technical Economies Of Scale
(5 Points)
~ The benefits enjoyed when a business is able to spend more on larger and more efficient machinery leading to a fall in average costs.
~ Fixed costs spread over a greater level of output.
~ Increased competitiveness.
~ Increased efficiency.
~ Able to spend more money on scientific research and technical development.
Describe Purchasing Economies Of Scale
(2 Points)
~ The benefits enjoyed when a business is able to negotiate greater discounts with suppliers for bulk buying leading to a fall in average costs.
~ Increases the buying power of the business.
Describe Managerial Economies Of Scale
(2 Points)
~ The benefits enjoyed when a business can employ specialist personnel leading to a fall in average costs.
~ The business can employ internal specialists such as an accountant or have its own HR department rather than use the services of external organisations.
What Is Diseconomies Of Scale?
(2 Points)
~ The disadvantages suffered as a result of a business increasing the scale of its operations that lead to a rise in unit costs.
~ E.g. Poor employee motivation, poor communication and poor managerial co-ordination.
What Does Growth Normally Create?
Creates both economies and diseconomies of scale.
What Happens If Growth Creates More Economies Than Diseconomies Of Scale?
Unit costs will fall, vice versa.
What Is Economies Of Scope?
The advantages enjoyed by a business as it increases the scale of its operations by expanding the range of activities it undertakes leading to a fall in unit costs.
What Are Examples Of Economies Of Scope?
(6 Points)
~ Shared expertise.
~ Maximise use of resources.
~ Increase brand loyalty.
~ Entering new markets.
~ Introducing new products.
~Diversification.
What Is Synergy?
(2 Points)
~ Two businesses joined together will be able to achieve more than the sum of two businesses operating separately.
~ 2+2=5.
What Are Examples Of Synergy?
(5 Points)
~ Shared resources.
~ Increased expertise.
~ Joint marketing.
~ Complementary products.
~ Securing a supplier or customer.
What Is Overtrading?
When a business has expanded too rapidly resulting in it operating at a level beyond its resources leading to potential liquidity problems.
What Are Examples Of Overtrading?
(4 Points)
~ Cashflow issues.
~ The need to invest more to expand capacity.
~ New staff.
~ Added layers of management.
What Are The Functional Areas Of A Business?
(4 Points)
~ Finance.
~ Marketing.
~ Operations.
~ Human resources.
What Is The Impact Of Growth & Retrenchment On Finance?
(4 Points)
~ Financial ratios.
~ Cash flow.
~ Budgets.
~ Sources of finance.
What Is The Impact Of Growth & Retrenchment On Marketing?
(3 Points)
~ Marketing mix.
~ Marketing strategy.
~ Brand.
What Is The Impact Of Growth & Retrenchment On Operations?
(5 Points)
~ Technology.
~ Suppliers.
~ Location.
~ Lean production.
~ Quality.
What Is The Impact Of Growth & Retrenchment On HR?
(6 Points)
~ Organisational.
~ Structure.
~ Leadership.
~ Motivation.
~ Employee:employer relations.
~ Pay and working conditions.
