business unit 9

• What are the two types of growth in businesses?

  Organic and external growth
• What does retrenchment mean in a business context?

  Reduction in costs or spending
• What causes retrenchment in businesses?

  Economic downturn and changing markets
• What is the definition of diseconomies of scale?

  Costs rise with increased output
• What are the three types of economies of scale?

  Purchasing, technical, and managerial
• How does purchasing economies of scale benefit a business?

  It allows for discounts on bulk orders
• What is the advantage of technical economies of scale?

  Use of advanced machinery efficiently
• How do managerial economies of scale improve efficiency?

  Attracting specialist managers for effective decisions
• What does economies of scope refer to?

  Cost savings from producing multiple products
• What happens when a business experiences diseconomies of scale?

  Average costs per unit start to rise
• What are some reasons for retrenchment in businesses?

  Failed mergers and being out of touch with customers
• What is one benefit of inorganic growth over organic growth?

  Faster expansion through mergers or takeovers
• Why do businesses seek to increase market share?

  To enhance brand recognition and profitability
• What is the impact of economic downturn on businesses?

  Decreased consumer spending affects sales
• How does retrenchment help a business during economic difficulty?

  It reduces costs to maintain profitability
• What is the role of economies of scale in business growth?

  They lower costs as production increases
• What are the advantages and disadvantages of organic growth?

  Advantages:

  • Cheaper than merging
  • Retains company culture
  • Higher market shares

  
  

  Disadvantages:

  • High risk and capital intensive
  • Long ROI period
  • Limited growth potential
• What issues can arise from business growth?

  1. Economies of scale
  2. Economies of scope
  3. Diseconomies of scale
  4. Synergy
  5. Overtrading
• What are the reasons businesses grow?

  1. Increase market share
  2. Enhance brand recognition
  3. Gain market power
  4. Boost profitability
• What are the causes of retrenchment?

  1. Economic downturn
  2. Out of touch with customers
  3. Failed merger or takeover
  4. Changing markets
  5. Global pandemic
• What is the difference between organic and external growth?

  • Organic growth: Internal expansion without mergers
  • External growth: Expansion through mergers or takeovers
• What are the types of economies of scale?

  1. Purchasing
  2. Technical
  3. Managerial
• What are the internal and external factors leading to diseconomies of scale?

  Internal:

  • Communication issues
  • Coordination problems
  • Motivation decline

  
  

  External:

  • Overcrowding
  • Traffic congestion
  • Rising land and labor costs
• What are some reasons for assessing a change in scale?

  Communication, coordination, motivation, overcrowding
• What is a potential issue with growth related to demotivation?

  Workers may feel powerless and alienated
• How does demotivation affect productivity in large companies?

  It leads to increased absenteeism and lower output
• What is a consequence of lack of coordination in a growing company?

  Increased costs due to monitoring needs
• What are some internal diseconomies of scale (DEOS)?

  Control problems, alienation, negative internal politics
• What does synergy refer to in business growth?

  Value greater than the sum of individual parts
• What are two sources of synergy in business growth?

  Cost savings and increased revenues
• What was the revenue synergy identified by Sainsbury’s in 2016?

  At least £30m of annual revenue synergies
• What happens during overtrading?

  Business expands too quickly without resources
• What can result from overtrading in a business?

  Cash flow problems due to excessive orders
• When is overtrading most likely to occur?

  When growth is achieved before revenues are generated
• What is one effective step to avoid overtrading?

  Reducing inventory levels
• How does growth impact functional departments in a company?

  • Marketing: More budget for R&D and activities
  • Finance: Manage shareholder expectations for profits
  • Operations: More funds for supplies and outsourcing
  • Human Resources: Decisions on organizational structure and roles
• How does retrenchment impact functional departments in a company?

  • Marketing: Budget cuts may impact sales
  • Finance: Focus on reducing business costs
  • Operations: Careful resource use to minimize costs
  • Human Resources: Decisions on pay and redundancies
• What are some methods of growth in business?

  • Mergers
  • Takeovers
  • Joint ventures
  • Franchising
  • Vertical integration
  • Horizontal integration
  • Conglomerate integration
• What is a merger?

  Two businesses join to create a third company
• What is a takeover?

  One business acquires control of another business