Unit 9-Business growth Flashcards
Greiners Growth Model
Shows each phase of growth is followed by a crisis
5 phases of GGM and the crisis’ that follow
Creativity>Leadership Direction>Autonomy Delegation>Control Coordination>Red tape (bureaucracy) Collab>Growth
Creativity>Leadership crisis
Creative but lack leadership to give direction and structure. Outside managers employed
Direction>Autonomy crisis
More delegation, but employees want more say and senior managers want to retain control.
Delegation>Control crisis
More delegation, decentralised. Leaders try regain control to coordinate business to use resources effectively
Coordination>Red tape
Control is regained. Centralised more, too many procedures, decrease efficiency as longer chain of command
Collaboration>Growth crisis
Procedures are replaced by collaboration of departments. Focus on communication. May struggle to grow internally and may have to consider external growth e.g mergers
External economies of scale +example
When industries are concentrated in small geographical areas. e.g more local suppliers/labour to chose from i.e silicon valley
Experience curve
Advantages enjoyed by a business by having employees familiar with business. CPU falls, less waste, more practice etc
Economies of Scope
Producing multiple products. Expand production, brand loyalty too
Retrenchment
Downsizing scale of business.
Why retrench
Stay profitable Reduce DISE.OS Declining market Focus on core business Easier to control
Retrenchment on workers
If too fast, workers productivity falls as job security worsens
Organic growth pros (3)
+maintain culture/management
+less risk as expanding what it’s good at, and using retained profit mostly
+less disruptive change, maintain productivity and morale
Organic growth cons (3)
Longer, takes time adapt to changes
Miss out opportunities for more ambitious growth
Can still lose control by selling too many shares/over franchising
Problems of fast growth (3)
- DIS.ECOS
- risk of overtrading (cash flow)
- CMA
Franchising
allows a business to use the idea, name and reputation of an established business
how does franchising work
they pay initial fee and ongoing payments usually a % of rev/profit
Pros cons of franchising (2,1)
+fast expansion, using brand that works.
+costs and risks on franchisee
-loss of control, harm rep
Synergy
2 businesses join together can generate more revenue or cost save (e.o.s) than operating separately
Takeovers/Acquisitions and 2 types
Owning over 50%. Can be hostile/agreed
Overtrading
Business expands too fast putting pressure on working capital/CF. Demand can be too high, or supply too high
Joint ventures pros cons 4,2
Set up new business, share resources and profit but no change of ownership. \+good if lack capital \+combined expertise \+shared risk \+access to international market -shared rev -conflict
Reasons to grow externally (5)
Quicker growth, diversify Shared experience/expertise Increase MS-reduce comp. EOS Cost savings e.g merging with firms that already have resources (synergy)
Cons of external growth
Risk, limited experience Time Costs (DISE.O.S)-selling off parts Conflict CMA
Criticisms of experience curve (2)
Can become complacent due to experience
Can cause resistance causing lack of innovation
2 Criticisms of GGM
Some dont experience crisis
No consideration of pace of growth
2 types of synergy
Cost saving
Higher sales/rev
How to achieve cost saving through synergy (3)
E.o.S (purchasing etc)
Rationalising (reduce dupe costs)
Shared assets improve efficiency
How to achieve higher sales through synergy (2)
Increased brand awareness
Increased distribution channels
Impact of growth on finance
Ensure good cashflow to prevent overtrading, can be done also by sources of finance
Impact of growth on operations
E.O.S however Dise.o.s and potential quality issues
Impact of growth on marketing
Adapt marketing mix e.g more distribution channels, pricing strategies etc
Problems with retrenching
Loss of E.O.S
Workers security-motivation
Loss of experience curve from workers-higher CPU
How to prevent overtrading (2) and evaluate
Produce cashflow forecast to identify shortages and then take action (sources of finance/improve CF)
eval:of course there’s cons of SoF
Reduce receivables delay payables
Can deteriorate supplier relationship, loss of discount etc. Or for customers, loss of sales.
