problems arising from growth

Question 1

internal communication

Answer 1

• as the size of the business grows there will be less face to face communication = more written = less personal = less motivating = easy to ignore
• takes a long time for messages to get through so many layers
• less effective communication = more mistakes = more wastage = higher average unit costs

Question 2

poor managerial coordinantion

Answer 2

• person at top finds it hard to control
• need to delegate
• regular meeting = expensive = poorly attended may lead to arguments

Question 3

overtrading

Answer 3

• overtrading is where a business accepts more orders than it can cope with
• result in cash flow problems

how to prevent overtrading:
- forecast cash flow implications
- raise working capital before expansion begins

Question 4

define diseconomies of scale

Answer 4

• as the business grows it may expand the scale of production beyond the minimum efficient scale
• average costs per unit starts to rise as production rises

Question 5

what is internal diseconomies of scale?

Answer 5

• co ordination = departments, strategy, process
• motivation of workers = low productivity/output

Question 6

what are internal diseconomies of scale?

Answer 6

• co ordination = departments, strategy, process
• motivation of workers = low productivity/output

Question 7

what are external diseconomies of scale?

Answer 7

• overcrowding in industrial areas
• the price of land
• labour rises

Question 8

problems a business might face from diseconomies of scale:

Answer 8

• poor communication
• lack of motivation
• lack of coordination/control