Chapter 7: Internal Causes Of Change Flashcards
When does external growth occur?
External growth comes about when two or more firms integrate via a merger or takeover
What is a merger.
A merger is where two or more firms agree to come together under one board of director.
What is a takeover?
A takeover is where one firm buys a majority shareholding in another firm and therefore assumes full management control
What is vertical intergration?
Vertical intergration is the coming togetner of firms in the same industry but at different stages of the production process. It includes backwards and forward intergration.
What does vertical intergration offer?q
It removes the uncertainty of dealing with external suppliers and retaliers
facilitates cost savings in both technical and marketing areas
Builds barriers to entry for new competitors
Enables the profit margins of suppliers and/or retailers to be absorbed
What is horizontal intergration?
Horizontal intergration is the coming together of firms operating at the same stage of production and in the same market. Firms involved in horizontal intergration are usually potential competitors.
What does horizontal intergration offer?
Economies of scale
Lower unit costs
Reduced competition
Increased market share
What is a conglomerate intergration?
Conglomerate intergration is the coming together of firms operating in unrelated markets. It results in the spreading of risks through diversification.
What does conglomerate intergration offer?
It may lead to the sharing of good practice between different areas of the business, although in some cases, management has little or no expertise in the newly acquired business area.
What is retrenchment?
Retrenchment is the meams of cutting back on an organisations scale of operations.
How can retrenchment occur?
Halting recruitment or offering early retirement
Delayering
Closing a factory
Making targeted cutbacks and redundancies throughout the business
How to manage growth?
The growth of a business often means that the owner, who once had full control needs to plan and adjust functions to give responsibility to others.
Why does an owner need to plan and adjust the handing over responsibility to others?
Owners must plan and adjust control because in a large organisation:
- Leadership requires a much less hands on approach
- There is a need to delegate much more
- The task of controlling and coordinating activities is much more complex
- Managing and motivating a large team requires very different skills from those needed in a medium sized business.
What are the effects and result of Poor Business Performance?
Internal change can also come about as a result of poor business performance. Poor business performance may lead to a reduction in the size of the business and a change in ownership or in leaders and senior management.
When does internal/organic growth occur?
Organic growth occurs when a firm a firm expands its existing capacity or range of activities by extending its premises or building new factories from its own resources, rather than by integration with another firm.
