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 up 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.
Originally sold soap and candles.
Now owns companies selling cleaning products, skincare and drinks.

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 do 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.

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 keys of management.

Question 18

What is delayering?

Answer 18

Removing a layer of management.

Question 19

What are the drawbacks of delayering?

Answer 19

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

Question 20

Name a potential benefit of delayering.

Answer 20

Enrich remaining jobs.

Question 21

Why may a business chose to close a factory?

Answer 21

Reduces fixed costs.
Improve capacity utilisation elsewhere.

Question 22

What are advantages of making redundancies?

Answer 22

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

Question 23

Why are redundancies risky?

Answer 23

Creates job security issues - demotivating.

Question 24

What are the issues with growth?

Answer 24

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

Question 25

What are purchasing economies of scale?

Answer 25

Buying in bulk.

Question 26

What are technical economies of scale?

Answer 26

Use of specialist equipment to boost productivity.

Question 27

Explain managerial economies of scale.

Answer 27

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

Question 28

Define diseconomies of scale.

Answer 28

A rise in unit costs due to expanding beyond efficiency.

Question 29

Define synergy.

Answer 29

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

Question 30

What is economies of scope?

Answer 30

When it is cheaper for a business to have a range of products rather than a limited number.

Question 31

Define overtrading.

Answer 31

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

Question 32

How could a business manage overtrading?

Answer 32

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

Question 33

Define a merger.

Answer 33

Two businesses join together to form a larger business.

Question 34

Name one example of a merger.

Answer 34

Disney and Pixar.

Question 35

Define a takeover.

Answer 35

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

Question 36

Define franchising.

Answer 36

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