Unit 1 - Objectives And Methods Of Growth

Question 1

List 8 possible objectives.

Answer 1

Survival, increased profit, increased market share, growth, satisficing, managerial objectives, corporate social responsibility, provide a quality service.

Question 2

What are the main possible objectives of a private sector company?

Answer 2

Maximise profit, provide a quality service, survive, operate ethically, maximise sales, growth, corporate social responsibility.

Question 3

What are the main possible objectives of a public sector company?

Answer 3

Provide a service, work within a budget, operate ethically, serve the local community.

Question 4

What are the main possible objectives of a third sector company?

Answer 4

Support a cause, provide a service, raise awareness of a cause, maximise donations, operate ethically, survive, increase volunteers.

Question 5

What is corporate social responsibility?

Answer 5

Corporate social responsibility (CRS) is a management concept whereby companies integrate social and environmental concerns into business operations.

Question 6

What is sustainability?

Answer 6

Using resources respectfully without exploiting them.

Question 7

What is a managerial objective?

Answer 7

It is where ownership and control are separated and managers may choose to pursue their own aims.

Question 8

What is satisficing?

Answer 8

It is when you to make a sufficient profit, rather than a large profit, to pay shareholders less.

Question 9

What are the two main benefits of growing a business?

Answer 9

Larger organisations have more influence of market price and can sometimes be price settlers. They can also benefit from economies of scale.

Question 10

What is economies of scale?

What can an organisation do if they benefit from economies of scale?

Answer 10

Economies of scale means that a business has lower unit costs because of its large size. They can buy raw materials cheaply in bulk and also spread the high cost of marketing campaigns and overheads across larger sales.

Charge lower prices, higher profit.

Question 11

What is organic growth?

Give an example of how to organically grow?

Answer 11

Organic growth is when a business grows naturally.

Hire more staff and equipment and increase its output, opening new outlets, introducing new products.

Question 12

What are the advantages of organic growth?

What are the disadvantages of organic growth?

Answer 12

No loss of control as outsiders aren’t involved, hiring more staff brings more ideas, investing in new equipment will increase production capacity, less risky than a take over, opening new branches means the company can reach new markets.

Can be a slow method of growth, may be limited by the size of the market, restricted by the amount of finance available.

Question 13

What is horizontal growth?

Give an example of how to horizontally grow?

Answer 13

Horizontal growth is when two countries of the same stage of production join together or take over each other.

One airline - British Airways - and another airline - Emirates - join together and rebrand fully
OR
One airline - British Airways - and another airline - Emirates - join together and blend their operations including brand.
OR
One airline - British Airways - takes over another airline - Emirates - and adds their planes to their operations and branding.

Question 14

What are the advantages of horizontal growth?

What are the disadvantages of horizontal growth?

Answer 14

Removes a competitor from the market, opportunity for greater economies of scale, business gains a greater market.

Hostility and job losses may occur, changes within the business could impact negatively on customer loyalty, can be expensive to purchase another company.

Question 15

What is forward vertical growth?

Give an example of how to vertically grow forward?

Answer 15

When a business takes over a company at a later stage in the production process.

For example a jean manufacturer taking over a retail outlet.

Question 16

What is backward vertical growth?

Give an example of how to vertically grow backwards?

Answer 16

When the business takes over a company at an earlier stage in the production process.

For example a supplier/source of goods and materials taking over a farmer or factory.

Question 17

What are the advantages of forward vertical growth?

What are the disadvantages of forward vertical growth?

Answer 17

Guarantees an outlet to sell products, cut out the middle man leading to increased profits, more control over pricing and product display.

Entering into new markets may affect core activities as resources and expertise need to be shared.

Question 18

What are the advantages of backwards vertical growth?

What are the disadvantages of backwards vertical growth?

Answer 18

Guarantees the quality of inputs and the supply of stock, cuts out the middle man leading to increased profits, more limit supplies to competitors.

Entering into new markets may affect core activities as resources and expertise need to be shared.

Question 19

What is diversification?

Give an example of how to grow through diversification?

Answer 19

Also known as conglomerate, it is when firms move into new markets that are different from their core business.

When Virgin branches out from airlines to telecommunications.

Question 20

What is lateral growth?

Give an example of how to laterally grow?

Answer 20

When a business moves into a different market but within a related industry.

For example if a hairdresser merges with a beauty therapist or beautician.

Question 21

What are the advantages of lateral growth?

What are the disadvantages of lateral growth?

Answer 21

Spreads risk across different markets, targets new markets increasing customer base, gains customers and assets from the acquired business, experience/knowledge can be gained from the acquired business.

Entering into new markets may affect core activities as resources and expertise need to be shared, may
not have the knowledge required to successfully run the new business.

Question 22

List the 8 ways a business can achieve growth.

Answer 22

Marketing, increasing staff, merger, takeover, franchising, acquisition, becoming multinational, product development.

Question 23

What is a merger?

Give an example.

Answer 23

A merger is when two companies decide to join together.

For example, when Halifax and Bank of Scotland combined to form HBOS.

Question 24

What is a takeover?

Give an example.

Answer 24

A takeover is more hostile than a merger. This is when a company (usually a larger one) buys out a rival.

For example, Kraft Foods bought out Cadbury in early 2010 for £12 billion.

Question 25

What is a acquisition?

Answer 25

An acquisition is when one company buys the assets or operations of another company.

Question 26

What is a franchising?

Give an example.

Answer 26

Franchising is where a business leases its idea to franchisees. This allows new branches to open across the country and internationally.

For example, many well-known high street opticians and burger bars are franchises.

Question 27

What is production development?

Give an example.

Answer 27

Developing new products allows a company to target new markets and expand their product range.

For example, glossier expanded from their original ‘glossier.’ make up range to include the ‘glossier play’ range.

Question 28

What is advertising?

Answer 28

Advertising can be used to increase awareness of a company’s products allowing them to grow organically or can be used to inform customers of new products.

Question 29

What is increasing staff?

Answer 29

By increasing staff numbers, the productivity of a business will grow and there may be increased levels of customer satisfaction.

Question 30

List the 8 ways a business can finance growth.

Answer 30

Outsourcing, retaining profit, divestment, demerger, asset striping, Deintegration, buy-out, buy-in.

Question 31

What is retained profit?

Answer 31

A business can hold back profit each year from its shareholders to reinvest into the business. Retained profit does not need to be paid back and prevents any outside influences becoming involved in the business.

Question 32

What is divestment?

Answer 32

Divestment is when a company sells off an asset to raise finances. Divestment allows a company to focus on other more profitable aspects of the business and the capital generated from the divestment can be reinvested in the core areas of the business.

Question 33

What is deintegration?

Answer 33

Deintegration involves selling off a part of the company that had previously been integrated. For example, a company may decide to sell the delivery company they had previously bought to aid with product delivery. This will allow them to focus on the core activities of the business.

Question 34

What is asset stripping?

Answer 34

When a company is purchased for the value of its assets rather than for the value of its operations. Asset stripping will involve a business buying another company and then selling off its assets for profit.

Question 35

What is demerger?

Answer 35

A demerger occurs when a firm divides or breaks into more than one company. The divided companies were still owned by the organisation but managed as separate companies (although since then both companies have been bought over).

Question 36

What is buy-in?

Answer 36

This is when managers who are not employed by the company purchase the business as they believe they can run it more profitably.

Question 37

What is buy-out?

Answer 37

This is when managers or employees who are currently employed by the business purchase the business from the owners.

Question 38

What is outsourcing?

Answer 38

Outsourcing is when a company hires another business to do some work for them. Many firms outsource cleaning or IT operations to smaller, more specialist companies.