Growth & Retrenchment
Organic growth - business expands its own products portfolio / numbers of retail stores
External growth - business expands by purchasing / taking over another business
Impact of growth -
- Increased demand = affects decision making within each business function
- Increased motivation for management = employee retention
- Increased market share, sales revenue and profit
- Investment = increases the need to secure capital = labour increases = affects planning
- Increased focus on marketing and promotion = increases demand
Retrenchment
- allows a business to re-focus on growing a core activity within its operations
- affects human resources → planning / redundancy / redeployment considerations
- affects operations - can offer economies of scale - addressing diseconomies of scales
- marketing - promotional campaigns can be refocused
- finance - able to fund the short term increase in cost of redundancy payments
Challenges Of Growth
Technical economies of scale occur when a business is able to adopt advance
technological approaches to production as a result of their scale and size
Purchasing economies of scale occurs when a business is able to take advantage of bulk
ordering discounts
Managerial economies of scale occurs when a business is able to introduce specialist
staff for each of its functions
Economies of scope occurs when a business is able to spread its costs over several
markets / products
Diseconomies of scale -
1. Businesses growth → communication becomes more difficult → decision making
will become slower → increases overall costs
2. Business growth → harder to motivate staff → relationships are harder to
manage → demotivation affects productivity → increases unit costs
3. Business growth → harder to control / co-ordinate → cause mistakes →
increases unit costs
Hayes & Abernathy's 1980 paper supports the idea that diseconomies of scale happen
because decision making becomes slower and less effective. They say that US businesses
got worse relative to international businesses between 1960 and 1980 because
, American managers were ineffective. He says they failed because they were people
trained in Law or Finance, instead of the industry where they worked.
The experience curve suggests that
businesses with better knowledge,
resulting from experience, can inform
better decisions which offer a cost
advantage
Synergy - two or more businesses combine and are worth greater than the individual
sum of each
E.g. Disney acquired Pixar in 2006
Overtrading - occurs when a business experiences liquidity problems associated with
the cost of growth
Growth Models
Offers solutions to overcome the challenges of growth experience by businesses
Organic growth - business expands its own products portfolio / numbers of retail stores
External growth - business expands by purchasing / taking over another business
Impact of growth -
- Increased demand = affects decision making within each business function
- Increased motivation for management = employee retention
- Increased market share, sales revenue and profit
- Investment = increases the need to secure capital = labour increases = affects planning
- Increased focus on marketing and promotion = increases demand
Retrenchment
- allows a business to re-focus on growing a core activity within its operations
- affects human resources → planning / redundancy / redeployment considerations
- affects operations - can offer economies of scale - addressing diseconomies of scales
- marketing - promotional campaigns can be refocused
- finance - able to fund the short term increase in cost of redundancy payments
Challenges Of Growth
Technical economies of scale occur when a business is able to adopt advance
technological approaches to production as a result of their scale and size
Purchasing economies of scale occurs when a business is able to take advantage of bulk
ordering discounts
Managerial economies of scale occurs when a business is able to introduce specialist
staff for each of its functions
Economies of scope occurs when a business is able to spread its costs over several
markets / products
Diseconomies of scale -
1. Businesses growth → communication becomes more difficult → decision making
will become slower → increases overall costs
2. Business growth → harder to motivate staff → relationships are harder to
manage → demotivation affects productivity → increases unit costs
3. Business growth → harder to control / co-ordinate → cause mistakes →
increases unit costs
Hayes & Abernathy's 1980 paper supports the idea that diseconomies of scale happen
because decision making becomes slower and less effective. They say that US businesses
got worse relative to international businesses between 1960 and 1980 because
, American managers were ineffective. He says they failed because they were people
trained in Law or Finance, instead of the industry where they worked.
The experience curve suggests that
businesses with better knowledge,
resulting from experience, can inform
better decisions which offer a cost
advantage
Synergy - two or more businesses combine and are worth greater than the individual
sum of each
E.g. Disney acquired Pixar in 2006
Overtrading - occurs when a business experiences liquidity problems associated with
the cost of growth
Growth Models
Offers solutions to overcome the challenges of growth experience by businesses
