9.1 Asessing A Change In Scale

Question 1

What is organic growth?

Answer 1

Growing a business from within.
E.g. expanding the product range.

Question 2

Why do business grow organically?

Answer 2

Control over growth rate - able to allocate resources responsibly.
Can build on strengths - able to control rate to prevent going beyond what is manageable, can avoid relying on external methods of funding.

Question 3

What is external growth?

Answer 3

Outside of the business.
Usually involves merger or takeover.

Question 4

Name the 4 types a of integration.

Answer 4

Forward and vertical.
Backwards and vertical.
Horizontal.
Conglomerate.

Question 5

What is forward and vertical integration?

Answer 5

Acquiring a business further down the supply chain.

Question 6

Define backward and vertical integration.

Answer 6

Acquiring a business earlier in the supply chain.
E.g. retailer buys supplier.

Question 7

What is horizontal integration?

Answer 7

Acquiring a business at the same stage of the supply chain.

Question 8

Give a successful example of horizontal integration.

Answer 8

Disney acquired Pixar.
Shared technological innovation.
Now able to produce upwards of 8 movies a year.

Question 9

What is a conglomerate?

Answer 9

When a business buys another with no clear connection.

Question 10

Give an example of a conglomerate.

Answer 10

Procter and Gamble owns Aussie, Fairy, and Oral B

Question 11

Why do businesses commit to external growth?

Answer 11

Enter into new markets.
Reduce competition.

Question 12

Define retrenchment.

Answer 12

Cutting back.

Question 13

What are the types/steps of retrenchment?

Answer 13

Recruitment freeze/voluntary redundancy.
Delayering.
Close factories.
Redundancies.

Question 14

Why may a business retrench?

Answer 14

Financial issues.
Capacity reached.

Question 15

Why may a business choose to do a recruitment freeze?

Answer 15

Non threatening - no affect on morale, motivation.
Saves costs.

Question 16

What are the downsides to a recruitment freeze?

Answer 16

Good people leave and need to be replaced - or work may become too much for employees remaining.
No opportunity to restructure.

Question 17

What is delayering?

Answer 17

Removing a layer of management from the hierarchy.

Question 18

What are the drawbacks of delayering?

Answer 18

May intensify work for remaining employees.
Loss of promotional opportunities - demotivating.

Question 19

Name 2 potential benefits of delayering.

Answer 19

Enrich remaining jobs.
Faster communication.

Question 20

Why may a business chose to close a factory?

Answer 20

Reduces fixed costs.
Improve capacity utilisation elsewhere.

Question 21

What are advantages of making redundancies?

Answer 21

Opportunity to reshape organisation - enrich some jobs, increase motivation.
Keep good staff - increase labour productivity.

Question 22

Why are redundancies risky?

Answer 22

Creates job security issues - demotivating.

Question 23

What are the issues with growth?

Answer 23

Economies of scale.
Economies of scope.
Diseconomies of scale.
Synergy.
Overtrading.

Question 24

What are purchasing economies of scale?

Answer 24

Buying in bulk.

Question 25

What are technical economies of scale?

Answer 25

Use of specialist equipment to boost productivity.

Question 26

Explain managerial economies of scale.

Answer 26

Department specialists managers are used to boost efficiency and reduce unit labour costs.

Question 27

Define diseconomies of scale.

Answer 27

A rise in unit costs due to expanding beyond efficiency.

Question 28

Define synergy.

Answer 28

When the value of 2 businesses brought together is higher than the two individually. 2+2=5.

Question 29

What is economies of scope?

Answer 29

When it is cheaper for a business to have a range of products rather than a limited number. E.g. clothing manufacturer uses spare fabric to create scarfs.

Question 30

Define overtrading.

Answer 30

When a business expands too quickly for financial resources to keep up.

Question 31

How could a business manage overtrading?

Answer 31

Limit customers paying on credit. Negotiate longer payment terms or discounts with supplier. Share capital.

Question 32

Define a merger.

Answer 32

Two businesses join together to form a larger business.

Question 33

Name one example of a merger.

Answer 33

Disney and Pixar.

Question 34

Define a takeover.

Answer 34

When an existing business buys more than 50% of shares meaning they gain control over decision making.

Question 35

Define franchising.

Answer 35

Franchisor grants a licence to another business to allow it to trade under the brand and follow brand formats.

Question 36

Advantages of franchising?

Answer 36

Cheaper way to grow - franchisee pays set up costs. Improve reputation - franchises adapt to local needs.

Question 37

Issues with franchising.

Answer 37

Cannot monitor quality. Behaviour of one franchise can impact reputation of all.

Question 38

What is a joint venture?

Answer 38

Two or more firms join and create a new project for a specific amount of time - usually temporary.

Question 39

Advantages of JV.

Answer 39

High risk but spread across companies. Benefit from expertise of both.

Question 40

Issues with JV.

Answer 40

Conflict. Cannot exploit previous economies of scale.

Question 41

Where do synergy’s come from?

Answer 41

Mergers or takeovers.

Question 42

Advantages of economies of scope.

Answer 42

Reduced waste - more ethical/lean. Decrease cost.

Question 43

Benefits of mergers?

Answer 43

Economies of scale. Customer base from both companies - increase market share.

Question 44

Issues with mergers.

Answer 44

Resistance to change - culture of company, processes, policies. Culture clash.

Question 45

Advantages of takeovers.

Answer 45

Quick access to new markets - diversification.

Question 46

Potential issues with takeovers?

Answer 46

Risk of overpaying. Less expertise in field - make wrong decisions.