9.1 Assessing a change in scale

Question 1

What is organic growth

Answer 1

Expansion of product portfolio of its number of retail stores
- Internally

Question 2

What is External growth

Answer 2

Expansions by purchasing or taking over other businesses (acquisition)

Question 3

Impact of growth on a business

Answer 3

• Increased demand for goods and services which affects the decisions made within each business function
• Increase motivation for the management through a sense of achievement which improves employee retention
• Increased market share, sales revenue, profit
• Investment increase the need to secure capital : need more labour, affects workforce planning
• Increased focus on marketing and promotion to ensure the generation of increased demand

Question 4

When does retrenchment occur

Answer 4

When a business reduces the scale of a specific business area or element within the business operation
- allows to re-focus on growing a core activity within its operation

Question 5

Why does retrenchment impact HR

Answer 5

Affects workforce planning, redundancy and redeployment

Question 6

Why does retrenchment impact operations

Answer 6

Offer economies of scale through addressing diseconomies of scale which may have risen and reduced unit cost

Question 7

Why does retrenchment impact marketing

Answer 7

Affects promotional campaigns as likely to be focused on refined businesses which may include selling from a smaller product portfolio

Question 8

Why does retrenchment impact finance

Answer 8

Need to ensure able to fund the short-term increase in cost of redundancy payments

Question 9

What areas does growth bring challenges to

Answer 9

• Technical economies of scale
• Purchasing economies of scale
• Managerial economies of scale
• Economies of scope
• Diseconomies of scale

Question 10

Diseconomies of scale of growth

Answer 10

• As businesses grow, communication becomes more difficult; decision making becomes slower which can increase overall costs
• Becomes harder to motivate staff as relationships are harder to manager; demotivation can affect productivity and therefore increase unit cost
• Harder to control and co-ordinate and this can cause mistakes and errors and increase unit costs

Question 11

Economies of scope of growth

Answer 11

• When a business is able to spread its costs over several markets or products
  e.g the cost of McDonald’s advertisements can be spread across its portfolio which reduces the cost attributed to each product

Question 12

Managerial economies of scale of growth

Answer 12

• When a business is large enough and able enough to introduce specialist staff for each of its functions

Question 13

Purchasing economies of scale of growth

Answer 13

When a business is able to take advantage of bulk ordering discounts
e.g Amazon may buy 30,000 units and will pay less per unit than an independent retailer purchasing 100

Question 14

The experience curve

Answer 14

Businesses with better knowledge, resulting from experience, can inform a better decision which offers a cost advantage

Question 15

Synergies

Answer 15

When two or more businesses combine and are worth greater than the individual sum of each

Question 16

Overtrading

Answer 16

When a business experiences liquidity problems associated with the cost of growth

Question 17

What is Greiner’s Model of Growth

Answer 17

Offers solutions to overcoming the challenges of growth experienced by businesses

Question 18

Stage 1 of growth on Greiner’s model

Answer 18

Growth through CREATIVITY occurs as businesses begin to establish themselves but have few employees and an informal structure throughout the business. As growth occurs, roles may overlap and there is a LEADERSHIP CRISIS which requires structure and direction

Question 19

Stage 2 of growth on Greiner’s model

Answer 19

Growth through DIRECTION occurs, and as departments become established, managers request autonomy, and there is an AUTONOMY CRISIS

Question 20

Stage 3 of growth on Greiner’s model

Answer 20

Growth through DELEGATION occurs, until senior managers may feel there is too much control delegated throughout the business. Senior managers may regain control if they are worried about vision about a CONTROL CRISIS occurs

Question 21

Stage 4 of growth on Greiner’s model

Answer 21

Growth through CO-ORDINATION occurs as managers begin to introduce centralised systems for budgeting and staff performance management. A lack of autonomy or a RED TAPE CRISIS can then happen

Question 22

Stage 5 of growth on Greiner’s model

Answer 22

Growth through COLLABORATION then occurs as departments and functions begin to work together, centrally, however further internal growth becomes difficult and a GROWTH CRISIS occurs

Question 23

Stage 6 of growth on Greiner’s model

Answer 23

Growth through ALLIANCES can only occur through external growth: takeover and mergers, however, present their own challenges to a business pursuing growth