Strategic methods: How to pursue strategies
Chapter 11
Assessing a change in scale
Strategic methods
The different strategies pursued to achieve objectives. Having chosen
products + markets, it must consider:
– Growth - how
– International expansion - where
– Innovate
– Go digital
Changing scale
By growth. It shows more success in sales.
Growth is important because:
– Shows progress
– Financial benefits
– Creates momentum
Forms of growth
Organic
Through expanding its own operations
External
By joining with other businesses - immediate jump in scale
Forms of growth:
● Organic
– Increase sales of existing products
– Launch new products
● External (inorganic)
– Mergers
– Acquisitions/ takeovers
Internal growth External growth
Tends to be slower Sudden change in scale
May be easier to manage There may be clashes in the way
organisations operate
Some organic growth is quick e.g. in technology - Twitter. External growth
can bring problems of coping with a quick increase in scale + a culture
,clash.
Economies of scale
When unit costs fall as the size of operations increases.
Purchasing economies
Gets bigger - more supplies - more bargaining power. Suppliers become
dependent on them + reduce prices. Supermarkets - purchasing milk below
the cost of production.
Technological economies
Large scale operations - enables efficient technologies - spread costs -
unit cost falls. This is why car companies are eager for high demand. As
they have high fixed costs.
Financial economies
Gets bigger - more assets - banks willing to lend with lower interest - more
collateral.
Managerial economies
Expands - employee more specialists to focus on parts of the business -
expertise - better decision making - increase efficiency + reduce unit
costs.
Problems of growth
, Diseconomies of scale occur when the cost per unit increases as the
business increases its size.
Diseconomies of scale
– Communication
– Coordination
– Control
– Motivation
Communication
Grows - range of markets - several divisions - complex communication -
inefficiency - slower decision making.
Control
More employees, products, decisions + communication flows - controlling
quality becomes difficult.
Coordination
Informing people may become challenging - more mistakes + problems -
increasing unit costs.
Motivation
Grows - employees lose contact with senior managers + visions - feel
insignificant + not noticed - demotivates - reduce productivity - mistakes
+ higher costs.
Diseconomies of scale depends on:
The extent / speed of growth
How well managed the business is
Control + communication systems e.g. budgets + appraisals.
Another problem of growth is cash flow problems, causing overtrading.
Increasing spending creates a danger of a liquidity crisis. A business needs
to ensure expansion is not too rapid, using effective budgeting + cash flow
management
Managing growth
A growing business will bring management issues.
Greiner’s model of growth
Considers the likely challenges as it gets bigger and older.
Chapter 11
Assessing a change in scale
Strategic methods
The different strategies pursued to achieve objectives. Having chosen
products + markets, it must consider:
– Growth - how
– International expansion - where
– Innovate
– Go digital
Changing scale
By growth. It shows more success in sales.
Growth is important because:
– Shows progress
– Financial benefits
– Creates momentum
Forms of growth
Organic
Through expanding its own operations
External
By joining with other businesses - immediate jump in scale
Forms of growth:
● Organic
– Increase sales of existing products
– Launch new products
● External (inorganic)
– Mergers
– Acquisitions/ takeovers
Internal growth External growth
Tends to be slower Sudden change in scale
May be easier to manage There may be clashes in the way
organisations operate
Some organic growth is quick e.g. in technology - Twitter. External growth
can bring problems of coping with a quick increase in scale + a culture
,clash.
Economies of scale
When unit costs fall as the size of operations increases.
Purchasing economies
Gets bigger - more supplies - more bargaining power. Suppliers become
dependent on them + reduce prices. Supermarkets - purchasing milk below
the cost of production.
Technological economies
Large scale operations - enables efficient technologies - spread costs -
unit cost falls. This is why car companies are eager for high demand. As
they have high fixed costs.
Financial economies
Gets bigger - more assets - banks willing to lend with lower interest - more
collateral.
Managerial economies
Expands - employee more specialists to focus on parts of the business -
expertise - better decision making - increase efficiency + reduce unit
costs.
Problems of growth
, Diseconomies of scale occur when the cost per unit increases as the
business increases its size.
Diseconomies of scale
– Communication
– Coordination
– Control
– Motivation
Communication
Grows - range of markets - several divisions - complex communication -
inefficiency - slower decision making.
Control
More employees, products, decisions + communication flows - controlling
quality becomes difficult.
Coordination
Informing people may become challenging - more mistakes + problems -
increasing unit costs.
Motivation
Grows - employees lose contact with senior managers + visions - feel
insignificant + not noticed - demotivates - reduce productivity - mistakes
+ higher costs.
Diseconomies of scale depends on:
The extent / speed of growth
How well managed the business is
Control + communication systems e.g. budgets + appraisals.
Another problem of growth is cash flow problems, causing overtrading.
Increasing spending creates a danger of a liquidity crisis. A business needs
to ensure expansion is not too rapid, using effective budgeting + cash flow
management
Managing growth
A growing business will bring management issues.
Greiner’s model of growth
Considers the likely challenges as it gets bigger and older.
