Growth Details Flashcards
Reasons why most businesses want to grow
-Sales revenue
-Profit
-Market share
-Impact(environmental or social)
-Resiliency of business ecosystem(i.e. generating opportunities for other businesses to grow and distributing more value to a wide range of stakeholders)
Advantages of growth for a business
-Can achieve economies of scale
-Potential increase in market share, sales revenue and profit
-Greater influence on prices of products and services
-Greater resiliency and stability
-More attractive to talented employees(due to better salaries, benefits, etc.)
Disadvantages of growth for a business
-Potential problems with cashflow
-Potential problems with quality(due to higher output)
-Loss of control of the business
-Potentially higher labour turnover(if human resources is not managed well)
Advantages of growth nationally and globally
-More tax revenue(due to higher levels of output)
-Reduced rate of unemployment
-Increased incomes
-Increased consumption/Improved living standards
Disadvantages of growth nationally and globally
-Increased pollution
-Increased use of natural resources
-Potential exploitation of human labour(due to less control)
-Less growth in employment(due to increased automation)
Types of economies of scale
-Internal economies of scale
-External economies of scale
Types of internal economies of scale
-Purchasing economies of scale
-Marketing economies of scale
-Managerial economies of scale
-Technical economies of scale
-Financial economies of scale
Causes of external economies of scale
-Innovation(i.e. when an industry becomes significant for society)
-Improved infrastructure(e.g. better transport networks for employees)
-Specialisation(i.e. when companies, suppliers and workers focus on a particular industry due to its size)
Types of diseconomies of scale
-Internal diseconomies of scale
-External diseconomies of scale
Causes of internal diseconomies of scale
-Managerial issues
-Increased size of workers
-Difficulties with communication
Causes of external diseconomies of scale
-Limited natural resources
-Limited infrastructure
-Increased regulation
-Pollution
Types of growth
-Internal growth(or organic growth)
-External growth
Benefits of internal growth
-Less expensive than external growth
-Less risky than external growth(since there’s no third party)
-Maintains more control of the business
-Allows for more respect for the company’s values
Limitations of internal growth
-Slower than external growth
-Potential problems with cashflow
-Growth can be limited
Strategies for internal growth
-Increasing production and gaining market share
-Developing new products
-Finding new markets
Forms of external growth
-Mergers
-Acquisitions
-Takeovers
-Joint ventures
-Strategic alliances
-Franchising
Features of mergers
-Businesses involved may not be equal in power
-One business may domminate and force the other one to change more substantially
Features of acquisitions
-Happen with permission from the target company’s board of directors
-Both companies continue to exist as separate entities, but company A controls company B due to its ownership interest
Features of takeovers
-Happen without permission from the target company’s board of directors
-More difficult and risky than acquisitions
Features of joint ventures
-Businesses hold onto separate identities
-More flexible and less risky than mergers, acquisitions and takeovers
-Separate business can be dissolved after a project without compromising the businesses of the parent company
-Companies involved split costs, risks, control and profit
Features of strategic alliances
-Loosest and least risky form of external growth
-Costs of products/services are split
-Can be the beginnning of cooperation between two companies, which could develop into something more(e.g. joint venture, merger, etc.)
Advantages of external growth
-Generally faster than internal growth
-Greater potential for economies of scale
-Competitors may be eliminated(in the case of mergers, acquisitions or takeovers)
-Can create synergies, increase employee talent pool, widen range of expertise, etc.
Disadvantages of external growth
-Generally riskier than internal growth
-Risk of culture clash between organisations
-Difficult to realise cost reductions(if firms are too different)
-Proprietary information and technology could be last(in the case of joint ventures and strategic alliances)
Characteristics of franchising
-Franchisors give franchises the right to open, own and run outlets of the franchisor’s brand
-Franchisees pay fees and royalties to the franchisor
Benefits of franchising(for franchisees)
-Receive support(e.g. legal advice, access to managerial software, expertise, etc.)
-Receive training and access to a proven business model and recognized brand
-May benefit to economies of scale(compared to individuals running smaller businesses)
Benefits of franchising(for franchisors)
-Need for financing is reduced(since franchisees usually finance the new outlets themselves)
-Franchisees may be better/more motivated managers than regular employees(since they keep the profits from their outlets)
-Franchisees provide local knowledge in operating their business(particularly helpful for international expansion)
Drawbacks of the franchise model
-Franchisor loses direct control over individual outlets
-A single mistake at a single outlet can damage the entire company’s reputation
Advantages of smaller businesses
-Avoiding risk/maintaining control
-Small market size(owners may not want to expand)
-Greater sustainability
-Stronger social networks
Disadvantages of smaller businesses
-Higher costs of production(due to less economies of scale)
-Generally lower profits
-DIfficulty getting sources of finance
-Difficulty recruiting and retaining skilled workers(due to generally low salaries)
Characteristics of generative(regenerative) businesses
-Share their expertise with other businesses(to allow them to learn from their experience)
-Nurture a network of relationships between stakeholders(to support widespread thriving)
-Deliver value in many forms to their stakeholders
-Actively seek to restore the health of individuals, communities and the planet(not simply doing less harm)
Potential revenue growth strategies(in the Ansoff matrix)
-Market penetration
-Market development
-Product development
-Diversification
Features of market penetration
-Least risky growth strategy
-Usually results in slower growth
Features of product development
-Riskier than market penetration
-Efforts put into new products may distract the owner from the core business
Types of market development strategies
-Conducting business in a new geographic market
-Selling the product to a new target market
-Moving from selling to businesses to selling directly to individual customers
The riskiest growth strategy is…
diversification
Types of diversification
-Related diversification
-Unrelated diversification
