3.2.1 Growth

• Objectives of growth:

  • to achieve economies of scale (internal & external)
  • increased market power over customers & suppliers
  • increased market share & brand recognition
  • increased profitability
• Business size measured by:

  • revenue
  • profit
  • market share
  • number of employees
  • assets
• Benefit of increased profitability:

  1. increased profits
  2. able to reinvest more profits
  3. stimulates more growth within the business
• Benefit of increased market share:

  1. bigger market value
  2. more influence/power over the market
  3. can control prices
  4. buyer & supplier can help lower unit costs
• Benefit of increased market share:

  1. stronger brand image
  2. more recognisable
  3. more competitive
  4. can increase sales
• Benefit of economies of scale:

  1. can lower unit costs
  2. increased profit margins
  3. can lower prices of products
  4. be more competitive
• Profitability : how efficiently a business converts revenue to profit / what portion of overall revenue is profit
• Problems with Growth:

  • diseconomies of growth
  • difficult to manage cashflow
  • issues with communication
  • overtrading risk
  • change in ownership issues
  • Being penalised by the CMA
• Overcoming growth problems:

  • adjustments to organisational structure
  • careful financial planning
  • effective communication & leadership
  • sensible job design & payment methods
  • taking a proactive rather than reactive approach
• diseconomies of scale:

  • control - problems managing/monitoring productivity & work quality, increasing wastage of resources
  • motivation - employees may start to feel less valued as the company gets larger
  • communication - as the company gets larger there may be more layers in the hierarchical structure and more separate departments making it harder to communicate
• economies of scale:

  internal:

  • technical - able to buy large, more efficient machinery
  • marketing - bulk-buying
  • financial - less risky for banks/investor to put money into business
  • managerial - attract more specialist staff
  • risk-bearing - wider range of product and/or markets allows risk to be spread

  external:

  • better transport networks
  • cheaper raw materials
  • skilled labour
  • financial help & support