9.1 Asessing A Change In Scale Flashcards
What is organic growth?
Growing a business from within.
E.g. expanding the product range.
Why do business grow organically?
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.
What is external growth?
Outside of the business.
Usually involves merger or takeover.
Name the 4 types a of integration.
Forward and vertical.
Backwards and vertical.
Horizontal.
Conglomerate.
What is forward and vertical integration?
Acquiring a business further down the supply chain.
Define backward and vertical integration.
Acquiring a business earlier in the supply chain.
E.g. retailer buys supplier.
What is horizontal integration?
Acquiring a business at the same stage of the supply chain.
Give a successful example of horizontal integration.
Disney acquired Pixar.
Shared technological innovation.
Now able to produce upwards of 8 movies a year.
What is a conglomerate?
When a business buys another with no clear connection.
Give an example of a conglomerate.
Procter and gamble.
Originally sold soap and candles.
Now owns companies selling cleaning products, skincare and drinks.
Why do businesses commit to external growth?
Enter into new markets.
Reduce competition.
Define retrenchment.
Cutting back.
What are the types/steps of retrenchment?
Recruitment freeze/voluntary redundancy.
Delayering.
Close factories.
Redundancies.
Why do business retrench?
Financial issues.
Capacity reached.
Why may a business choose to do a recruitment freeze?
Non threatening - no affect on morale, motivation.
What are the downsides to a recruitment freeze?
Good people leave and need to be replaced - or work may become too much for employees remaining.
No opportunity to restructure.
What is delayering?
Removing a layer of management from the hierarchy.
What is delayering?
Removing a layer of management.
What are the drawbacks of delayering?
May intensify work for remaining employees.
Loss of promotional opportunities - demotivating.
Name 2 potential benefits of delayering.
Enrich remaining jobs.
Faster communication.
Why may a business chose to close a factory?
Reduces fixed costs.
Improve capacity utilisation elsewhere.
What are advantages of making redundancies?
Opportunity to reshape organisation - enrich some jobs, increase motivation.
Keep good staff - increase labour productivity.
Why are redundancies risky?
Creates job security issues - demotivating.
What are the issues with growth?
Economies of scale.
Economies of scope.
Diseconomies so scale.
Synergy.
Overtrading.
What are purchasing economies of scale?
Buying in bulk.
What are technical economies of scale?
Use of specialist equipment to boost productivity.
Explain managerial economies of scale.
Department specialists managers are used to boost efficiency and reduce unit labour costs.
Define diseconomies of scale.
A rise in unit costs due to expanding beyond efficiency.
Define synergy.
When the value of 2 businesses brought together is higher than the two individually.
2+2=5.
What is economies of scope?
When it is cheaper for a business to have a range of products rather than a limited number.
Define overtrading.
When a business expands too quickly for financial resources to keep up.
How could a business manage overtrading?
Limit customers paying on credit.
Negotiate longer payment terms or discounts with supplier.
Share capital.
Define a merger.
Two businesses join together to form a larger business.
Name one example of a merger.
Disney and Pixar.
Define a takeover.
When an existing business buys more than 50% of shares meaning they gain control over decision making.
Define franchising.
Franchisor grants a licence to another business to allow it to trade under the brand and follow brand formats.
