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BUSINESS > Business Growth and Strategic Methods > Flashcards

Business Growth and Strategic Methods Flashcards

1
Q

what are economies of scale

A

as the scale of production increases, the cost of producing each item decreases

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2
Q

what are the four types of economies of scale

A

technical, managerial, purchasing and marketing

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3
Q

what are technical economies

A

technical economies of scale are related to production. Production methods for large volumes are often more efficient.

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4
Q

what are managerial economies

A

where large businesses can employ managers with specialist skills to manage specific departments. They oversee plans and strategies which can result in work being done more quickly and efficiently

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5
Q

what are purchasing economies

A

purchasing economies are to do with discounts. Big businesses can negotiate and bargain.

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6
Q

what are marketing economies

A

market costs are usually fixed, so a business with a large output can spread the cost over more units

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7
Q

what are external economies of scale

A

when industries are concentrated in small geographical areas. Either being located close to suppliers means the business can negotiate with a range of suppliers. Labour supply can also be better

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8
Q

what is the experience curve

A

whereas a business grows and increases its sales volume, it will be to produce more products

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9
Q

how does production follow the experience curve

A

as the total units produced increases, the cost per unit decreases at a constant rate

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10
Q

how does efficiency follow the experience curve

A

efficiency increases as total units produced increases

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11
Q

when doing economies of scope arise

A

when a business produces multiple products instead of specialising in one

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12
Q

what are economies of scope

A

when more variety is cheaper. It is cheaper for one business to produce many products than it is for many businesses to produce one product each

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13
Q

what do economies of scope allow

A

for businesses to charge lower prices due to lower unit costs, giving a competitive advantage

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14
Q

what are diseconomies of scale

A

where unit costs increase as the scale of production increases

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15
Q

what can cause diseconomies of scale with coordination

A

poor coordination leads to lower efficiency. In bigger firms, it’s hard to coordinate activities between different departments

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16
Q

how can motivation cause diseconomies of scale

A

it is harder to motivate people in a large firm. People may feel like they don’t belong and that there is no point in their work

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17
Q

how can management help avoid diseconomies of scale

A

strong leadership, delegation and decentralisation

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18
Q

what is retrenchment

A

when businesses become purposefully smaller

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19
Q

when may retrenchment be necessary

A

when businesses are experiencing diseconomies of scale, in declining markets, economic recession or there is improved competitor performance

20
Q

How can retrenchment be achieved

A

cutting jobs, reducing output, withdrawing from markets and splitting the business up (demerging).

21
Q

What is the issue with quickly retrenching

A

it may affect workers and lead to decreased productivity

22
Q

what is organic growth

A

when a business grow from within

23
Q

what is external growth

A

when a business grows through mergers or takeovers

24
Q

advantages of organic growth

A

they can maintain the current management style, culture and ethics. There is less risk as it is financed using profits. It’s easy for the business to manage internal growth. Less disruptive changes mean that workers’ efficiency, productivity and morale remain high

25
Q

disadvantages of organic growth

A

it can take a long time, it is dependent on whether the market grows and the business might miss out on opportunities for more ambitious growth

26
Q

what is the issue with business growth

A

potential for diseconomies of scale
it may be difficult to manage cash flow
risk of overtrading
the change from LTD to PLC can make running the company more complicated
businesses have to avoid becoming a monopoly

27
Q

why may businesses choose to restrict growth

A

to maintain culture
bigger businesses are more complicated to manage
growth require more finance
they may not want to put too much strain on cash flow

28
Q

which model is used to show growth

A

Greiner’s Model of Growth

29
Q

what is phase 1 of Greiner’s model of growth

A

CREATIVITY -> LEADERSHIP CRISIS

there is a need for strong leadership to give the company direction and structure

30
Q

what is phase 2 of Greiner’s model of growth

A

DIRECTION -> AUTONOMY CRISIS
Leaders set up a formal organisational structure with defined departments and roles. It is where the business is too big for senior managers to manage everything

31
Q

what is phase 3 of Greiner’s model of growth

A

DELEGATION -> CONTROL CRISIS
more power and responsibility is delegated down to middle-managers and organisational structure may become decentralised. Leaders may try to regain some control

32
Q

what is phase 4 of Greiner’s model of growth

A

COORDINATION -> RED TAPE CRISIS
Decisions become more centralised and new procedures to coordinate different areas of the business are implemented. However, there can be too many procedures, which will decrease efficiency

33
Q

what is phase 5 of Greiner’s model of growth

A

COLLABORATION -> GROWTH CRISIS
formal procedures are replaced by collaboration between departments and teams. At this point, the company might struggle to grow internally and may have to consider external growth

34
Q

what is a franchise

A

a franchise is an agreement that allows a new business to use the business idea, name and reputation of an established business

35
Q

what does franchising allow

A

it allows the franchisor to grow quickly as most of the costs and risks are taken on by the franchisee. For example, SUBWAY increased the number of its fast-food restaurants from 100 to 2000 between 2002 and 2015.

36
Q

what is the risk of franchising to the franchisor

A

if just one of their franchisees has poor standards and gets a bad reputation, then it will affect the reputation and profits of the franchisor

37
Q

what is synergy

A

where two businesses become more profitable after merging than before

38
Q

what is a joint venture

A

where businesses share their resources but there is no change of ownership for the businesses involved

39
Q

what three ways can external growth come

A

horizontal, vertical and conglomerate

40
Q

what is horizontal integration

A

when a firm combines with another firm in the same industry at the same stage of the production press e.g two suppliers. E.g Vodafone India and Idea Cellular merged in 2018

41
Q

what is vertical integration

A

when a firm combines with another firm in the same industry but at a different stage of the production process e.g a retailer taking over a manufacturer or distributor

42
Q

what is forward vertical integration

A

when a business combines with another business that is further on in the production process e.g a manufacturer merging with the outlets where its protect are sold gives the manufacturer direct access to the retail market

43
Q

what is backward vertical integration

A

when a business combines with another business at an earlier stage of the production process. For example, a retailer taking over its suppliers allows them to control the production of their suppliers so they can be sure that suppliers won’t be disrupted

44
Q

what are conglomerate mergers

A

mergers between unrelated firms.

45
Q

what are the reasons for external growth

A 
diversification
reduction in competition
geographical benefits
economies of scale and scope 
switching production to lower-cost countries 
to gain technology or expertise
46
Q

why is external growth risky?

A

there may be tensions between merged staff
some parts of the organisation may need to be closed
culture clash
businesses have to takeover liabilities of businesses they takeover
the competition and markets authority investigates whether a proposed merger will restrict competition
diversification would equal limited experience
moving overseas, businesses have to consider different laws, languages and cultures

BUSINESS (25 decks)

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