Assessing Change in Scale 3.9.1

Question 1

what is organic growth

Answer 1

Growth from within the business, this can be done through increasing capacity(production on a larger scale) or increasing sales through market penetrating market development or diversification.

Question 2

what is external growth

Answer 2

This is growth from outside the business, this can be done through takeovers and mergers. This is a lot faster growth than organic

Question 3

what are some reasons why businesses grow

Answer 3

To increase profitability (go global)

To become more efficient (lower unit costs, better capacity utilisation)

market dominance (reduce number of competitors)

Question 4

name some problems created by growth

Answer 4

Overtrading

problems created by companies integrating (clashes in culture)

dis-economies of scale

Question 5

name some problems created by retrenchment

Answer 5

Redundancies, these cause lower motivation in staff how haven’t been made redundant due o fear of it or because friends have been made redundant. This can lower product quality and production.

Question 6

what is economies of scale and name some things that cause it

Answer 6

It is when average unit cost falls when the scale of output increase due to different factors

some factors that cause this are:
bulk buying
being able to afford more high tech machinery
increased capacity utalisation

Question 7

what is economies of scope

Answer 7

Costs can be decreased by increasing your product portfolio. Your fixed costs from machinery and maybe rent will be spread out over more products, (utilising fixed costs better), or from bulk buying raw materials.

Question 8

what is diseconomies of scale and what are the causes

Answer 8

Factors causing average costs to rise as the scale of output increases

some of these factors include:
decrease in employee motivation due to poor communication in the business and through business becoming more capital intensive. this will cause production to decrease, increased absenteeism, higher recruitment costs.

in-effective co-ordination of the different branches of a business. keeping the business co-ordinated can be expensive (meetings), and money can be wasted if they are not all working together to the same objective

Control, monitoring the productivity and the quality of output from thousands of employees in big, complex corporations is imperfect and expensive

Question 9

what is synergy

Answer 9

Synergy is a key concept associated with external growth. Synergy happens when the value of two businesses brought together is higher than the sum of the value of the two individual businesses. in other words, when synergy happens, 1 + 1 = more than 2!

Question 10

what is overtrading

Answer 10

it is when a business expands too quickly without suitable finance or resources to support the expansion.

This causes stress on cash flow and on management

Question 11

how might business avoid the problems of diseconomies of scale

Answer 11

Out-sourcing is a tried and tested way of reducing costs whilst retaining control over production

Performance related pay schemes (PRP) can provide financial incentives for the workforce leading to an improvement in industrial relations and higher productivity.

Human resource management (HRM) focuses on improvements in recruitment, communication, training, promotion, retention and support of faculty and staff.

Question 12

how might a business avoid the problems of overtrading

Answer 12

The most effective steps to avoid overtrading are essentially those that would be taken as part of a sensible cash flow and working capital management

• Reducing inventory levels
• Leasing rather than buying capital equipment
• Obtaining better payment terms from suppliers
• Enforcing better payment terms with customers (e.g. less credit)

Question 13

what is the impact of growth on operations

Answer 13

Production methods may have to be adapted to ensure that the additional demand created by the marketing department can be supplied (become more capital intensive)

increased capacity utilisation

Question 14

what is the impact of growth on marketing

Answer 14

To expand, firms operation in the competitive markets might have to emphasise better value for money in the marketing mix

Question 15

what is the impact of growth on HR

Answer 15

Additional staff may be required to handle the additional work load

Question 16

what is the impact of growth on finance

Answer 16

price cuts used to increase market share will reduce profit margins, Over rapid expansion can also cause cash flow problems

gearing ratio will increase

Question 17

what is the impact of retrenchment on operations

Answer 17

Investment in new machinery and equipment is likely to be halted. Poor staff morale is likely to reduce productivity and therefore make the firm less efficient

Question 18

what is the impact of retrenchment on marketing

Answer 18

A firm retrenching might opt to scale down their operations by reducing their product range, or by exiting existing markets. Budgets for promotion and new product development might be reduced

Question 19

what is the impact of retrenchment on HR

Answer 19

Redundancy programmes can cause morale to decline amongst the workers who survive the job cuts. Some of the company’s more talented members of staff might decide to leave before the next round of redundancies

Question 20

what is the impact of retrenchment on finance

Answer 20

redundancy payments could cause additional cash outflows in the short run. however, in the long run a smaller workforce should reduce the break even output level by lowering fixed costs

Question 21

what are the different methods of growth

Answer 21

Takeovers and Mergers
increased market share (sales)
integration methods
franschising

Question 22

what are the advantages and disadvantages of merges and takeovers

Answer 22

advantages: 
Quick significant growth
cost synergies
diversification
market power

disadvantages:
Clashes in culture
demotivated staff caused by redundancies due to synergy

Question 23

what are ventures

Answer 23

it is a agreement to co-operate in a specific venture within a country for a limited period of time with another business. gives you the advantage of local experience plus clear financial incentives for the local partner, without the risk of losing control of this branch of its operation.

Question 24

what is franchising

Answer 24

Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and gains (1) immediate name recognition, (2) tried and tested products, (3) standard building design and décor, (4) detailed techniques in running and promoting the business, (5) training of employees, and (6) ongoing help in promoting and upgrading of the products.

Question 25

what are the different types of growth

Answer 25

organic growth

external growth

Question 26

why is co-ordination hard for a large business

Answer 26

because communications are weakened by the extended vertical distance between the bottom and the top

Question 27

why might a growing business choose not to buy in bulk

Answer 27

lean producers you JIT ordering and inventory systems, so bulk buying isn’t appropriate

Question 28

what are some reasons why businesses retrench

Answer 28

To survive recession (lower fixed costs, therefore lower breakeven point)

Delayering to improve competitiveness (greater delegation, more motivated workers)

A strategic change in direction (selling unprofitable parts in the business so you can invest in long term potential parts of the business)

Question 29

name some cost synergies through mergers and takeovers

Answer 29

Cost Synergies:
Eliminating duplicated functions & services

Getting better deals from suppliers-(greater bargaining power over suppliers)

Higher productivity & efficiency from shared assets

Question 30

name some renvenue synergies through mergers and takeovers

Answer 30

Marketing and selling complementary products

Sharing distribution channels

Access to new markets (e.g. through existing expertise of the takeover target)

Reduced competition

Question 31

what is Greiner’s growth model

Answer 31

To keep growing, businesses have to pass through the same 6 stages

Moving through each stage is usually triggered by a crisis which is resolved by a change in management leadership or organisational structure

businesses that cant over come the crisis’s get stuck in difficult places

Question 32

what are the 6 stages of Greiner’s growth model in order

Answer 32

growth though creativity
growth through direction
growth through delegation
growth through co-ordination and monitoring
growth through collaboration
growth trough extra organisational solutions

Question 33

what are the aspects of growth through creativity phase of Greiner’s growths model

Answer 33

This about growth at the beginning of a new business. The growth comes from long working hours of the founder. As it grows it encounters a leadership crisis to over come the crisis the fonder has formally manage the business or appoint someone to do it for them.

Question 34

what are the aspects of growth through direction phase of Greiner’s growths model

Answer 34

The business has specialists each functional area. All decisions are made by the fonder which creates a unmanageable work load that creates an autonomy crisis, to overcome this the fonder must delegate.

Question 35

what are the aspects of growth through delegation phase of Greiner’s growths model

Answer 35

Managers have been appointed and empowered. these managers make the business grow through spotting gaps in the market or by identifying new markets for products. This creates a control crisis, functional specialists make decisions that benefit their branch but damages the firm as a whole. the resolve this, someone must be appointed to oversee the co-ordination of the business.

Question 36

what are the aspects of growth through co-ordination and monitoring phase of Greiner’s growths model

Answer 36

The business can start expanding again after the control crisis as all functional areas work to a common goal. This phase of growth is ended by a red tape crisis, wasteful and inefficient bureaucracy causes a slow response to external change and growth opportunities are lost

Question 37

what are the aspects of growth through collaboration phase of Greiner’s growths model

Answer 37

the firm must ditch functional structure that encourages bureaucracy in favour of matrix management where functional areas work together on team projects

Question 38

what are the aspects of growth through extra organisational solutions phase of Greiner’s growths model

Answer 38

According to Greiner, most business stop growing because they run out of ideas. To grow again business must start making alliances through takeovers, mergers or joint ventures

Question 39

what is the experience curve

Answer 39

the experience curve shows the reduction in the average costs that occurs when increased total output allows producers to learn from experience how to produce more efficiently.

Question 40

what is vertical integration

Answer 40

vertical integration occurs when one firm takes over or merges with another at a different stage in the production process, but within the same industry

backwards vertical integration is when a firm buys a supplier

forward vertical integration is when buys a customer

Question 41

what are the advantages and disadvantages of backward vertical integration

Answer 41

advantages:
closer links with suppliers aid new product development and give more control over product quality and timings of supplies
increased job security for supplier firm

absorbing the suppliers profit margins

disadvantages:
supplier division may become complacent if there is no need to compete for customers

redundancies may be made due to synergy

costs might arise, delivery and quality become slack

Question 42

what are the advantages and disadvantages of forward vertical integration

Answer 42

advantages:
control over competition in own retail outlets; prominent displays of own brands

increased control over the market could mean greater job security

firm put into direct contact with consumers

disadvantages:
consumers may resent the dominance of one firms products in retail outlets, causing sales to decline

Question 43

what is horizontal integration

Answer 43

It is when one firm buys out another in the same industry in the same stage of the supply chain

Question 44

what are the advantages and disadvantages of horizontal integration

Answer 44

advantages:
huge scope for cost cutting by elimination duplication sales force, distribution and marketing overheads, and by improving capacity utilisation

economies of scale

reduction in competition enable prices to be pushed up (more power to the firm)

disadvantages:
clashes in culture
poor motivation of staff due to redundancies

Question 45

what is conglomerate integration

Answer 45

when a firm buys another that has no clear line of connection to its own (buying into a different market). It is usually prompted by the desire to diversify to achieve rapid growth.

Although the achievement of successful diversification helps to spread risk, conglomerate integration is usually un-successful. This is because managers know very little of the market they are going into.