Unit 9

• Organic growth


  Occurs when a business grows through expanding its operations, for example by selling more products through opening new stores
• External growth


  When a firm grows by integrating with another firm due to a merger or takeover
• Growth


  Relates to business expansion
• Retrenchment


  The process whereby a business cuts back on its operations
• Economies of scale


  Occur when the units costs fall as the scale of operation increases
• Diseconomies of scale


  Occur when the unit costs rise as the size of the business increases
• Economies of scale


  • Technical
  • Managerial
  • Purchasing
• Diseconomies of scale


  • Control/co-ordination
  • Communication
  • Motivation
• Economies of scope


  Occur where it is cheaper for a business to produce a range of products rather than specialise in just a few products
• Experience curve


  The more experienced a firm is at producing a product, the lower its costs
• Synergy


  Happens when the value of two businesses brought together is higher than the sum of the value of the two individual businesses i.e. when synergy happens 1 + 1 = more than 2
• Overtrading


  Happens when a business expands too quickly without having the financial resources to support such a quick expansion
• Greiner's model of growth

  1. Leadership crisis

  2. Autonomy crisis

  3. Control crisis

  4. Red tape crisis

  5. Growth crisis
• Increased marketing activities


  May be required to generate higher demand
• Sufficient resources


  Required to meet marketing objectives
• Ensure sufficient market research


  Undertaken if entering new markets/developing new products
• Decisions regarding the marketing mix


  To ensure growth; exact decisions taken depend on many factors, such as the nature of the market
• Existing staff


  Have the opportunity to take on new responsibilities/promotions; this may be seen as positive and developmental by the staff; alternatively, some staff may experience motivation issues and be reluctant to take on extra work
• Additional recruitment


  May need to be undertaken
• Training of new/existing staff


  May be required
• Increase in output


  Will impact on capacity utilisation; this may be viewed positively by the business, as its fixed costs will be spread across more units; alternatively, staff and resources may be stretched to satisfy any increases in demand
• In the long term, increase in capacity


  May be required or decisions made relating to outsourcing
• Impact on working capital


  To ensure it is sufficient as the business grows
• Ensuring there is suitable long-term funding


  To finance the growth
• Careful budgeting


  Is required to ensure expenditure is controlled and revenue is monitored
• Promotional budgets


  May be reduced
• Product ranges


  May be cut back/business may choose to exit from certain markets
• Business


  Likely to focus on a smaller core business
• Redundancies


  May be required
• Businesses


  May redeploy staff to other areas
• Motivation issues


  Leading to lower labour productivity
• Uncertainty about job security


  May result in skilled employees leaving the firm to find more stable posts in rival businesses
• Scale of operation


  Will be reduced
• Investment in technology/equipment


  Will be reduced/stopped
• May reduce unit costs


  If diseconomies of scale can be overcome
• Increase in expenditure


  On redundancy payments
• Smaller workforce


  Will reduce wage costs
• Business


  May be able to raise funds through the sale of unwanted assets
• Takeovers and mergers


  • Lower unit costs through the benefit of economies of scale
  • Creation of synergies
  • Increase in market share
• Drawbacks of takeovers and mergers


  • Many businesses overestimate the benefits of joining with another firm
  • The two businesses often fail to take account of the different cultures between them; this is often due to too little time spent before the acquisition to determine whether the two businesses will be compatible
  • 65% of mergers/takeovers fail to benefit shareholders