Unit 9

• Business change


  Changing size and scale throughout their lives
• Business objective


  Grow and become more competitive
• Growth


  Common business objective
• Retrenchment


  Scaling down growth, only occurs if there have been problems (internal or external)
• Businesses would like to announce 'rapid growth' or '20% rise in market share'. This is good news for the business.
• Big steps forwards and backward can cause problems for the business. (growth could be too rapid/ market conditions may change)
• How a business can grow

  • Increasing employment
  • Increasing promotion - increasing sales - more profit
  • Opening new sites
  • Developing in new technology
  • Diversifying products - USP - more sales - more growth - spread risk
  • Decreasing costs - increasing profit margins
  • Market development - new customers/ target market - more sales - more growth
  • Product development - increase product life cycle - more sales
  • Merger/ takeover
  • Maximise shareholder wealth
  • Focus on core capabilities
  • Increase market share
• Business objectives linked to growth


  • Increase market share by 10%
  • Increase capacity utilisation
  • Buy new machinery and train staff on them
• Organic growth


  Internal growth
• Inorganic growth


  External growth, most common, grows from its own core business, slower but less risky
• Risks associated with heavy investment in organic growth
• A USP needs to be developed for organic growth
• Organic growth is normally achieved alongside internal growth
• Once large enough, businesses can merge/ takeover for quicker but less risky growth
• Retrenchment


  Cutting back, reduction in staff, closing divisions or factories, targeted cutback
• Growth concepts


  • Economies/ diseconomies of scale
  • Economies of scope
  • Synergy
  • Overtrading
• Economies of scope


  Why businesses have more than one product? Principle of product range and spreading risk
• Synergy


  Two businesses combined as partnerships, 1+1=3
• Overtrading


  Not enough capacity to get the unit sold
• Experience curve


  As a business produces more products, the direct cost per unit reduces. Labour productivity increases, experience and technology increases. So, the growth decreases the unit cost from production, making them more efficient. Prices can also be reduced to create a competitive advantage.
• Greiner's growth model


  Explains the problems associated in the stages of growth and how they can survive. The longer each growth phase lasts, the harder it is to make the transition to the next stage. The workforce may also struggle to adapt, decreasing motivation and satisfaction, so productivity decreases.
• Methods of growth


  • Mergers
  • Acquisitions
  • Ventures
  • Franchising
  • Vertical Integration
  • Horizontal Integration
  • Conglomerate integration
• Mergers


  Two or more businesses come together under one board of directors and must be agreed between the two boards.
• Mergers


  • Increase market share
  • Increase talent
  • Enter new markets
  • Diversification
  • Monopoly power may become inefficient
  • Less consumer choice
  • Diseconomies of scale
  • Very different firms may struggle to merge
  • Job losses and resistance
• Acquisitions (takeovers)


  A firm buys the majority shares of another company, allowing them to gain control. This has the potential to be hostile.
• Acquisitions


  • Economies of scale
  • Diversification
  • Market expansion
  • New skills
  • Decreased competition
  • Decrease tax payment
  • Increase market share
  • High cost involved
  • Valuation issues
  • Difficulties in employees and suppliers changing methods
  • Integration issues
• Ventures


  A range of different arrangements between two firms. Usually in start ups or high growth potential.
• Ventures


  • Involves investment of venture capitalists
  • Investment of large companies
  • No security needed
  • Funds for opportunity of expansion
  • Venture capitalists help build networks
  • Businesses can receive a lot of capital
  • No obligation to repay ventures
  • Loss of control
  • Dilution of ownership
  • High expectations
  • Limited exit options
• Franchising


  When a business gives another the rights to sell their product and use their name/ reputation.
• Franchising


  • Reduced risk of failure
  • Ongoing business support
  • Market expertise
  • Brand Recognition and loyalty
  • Increased buying power
  • High profits
  • Be your own boss
  • Limited creative opportunities
  • Shared financial information
  • Varied support
  • Expensive start up costs
  • Contracts aren't permanent
  • Less individual control
• Horizontal Integration


  When two businesses come together at the same stage of production in the same market.
• Horizontal Integration


  • Reduced competition
  • Increased market share
  • Expanded customer base
  • Revenue growth
  • Efficiency is improved
  • Greater diversity in product range
  • Access new markets
  • Increased market power
• Vertical Integration


  When two businesses come together in the same industry but at different levels of production. Forwards - acquiring businesses above them in the production process. Backwards - acquiring businesses backwards in the production process.
• Conglomerate Integration


  When two firms come together but come from unrelated markets, this is done in order to diversify products and spread risk.
• Impacts of growth/retrenchment


  • Human Resources
  • Finance
  • Operations
  • Marketing
• Human Resources impacts


  • Retrenchment- redundancies, decrease employee satisfaction and job security (maslow hierarchy of needs) so productivity is reduced so less output is generated, retention rate/ labour turnover
  • Growth - training costs to train new staff
• Operations impacts


  • Retrenchment - selling assets of machinery ensures finance which reduces efficiency.
  • Growth - Changes in production process, vertical/ horizontal integration hard to manage both employees.
• Finance impacts


  • Retrenchment -profit warning to dividends
  • Growth - gearing decreases as they get more profit
• Marketing impacts


  • Retrenchment - decrease in promotion, change in location to reduce fixed costs
  • Growth - increase in promotion, merger/takeover, diversification increases product range
• Innovation affects every functional area: it can be used to motivate, market, reduce waste and costs as well as needing to protect them from competitors.