3.2 Business growth Flashcards
(6 cards)
Objectives of Growth
>A business size is usually measured in revenue, profit, market share, employees and assets. When a business grows it means these are increasing.
>Increase profitability could increase profits then able to be re invested for more growth.
>Increase market share this means a business will have greater market influence which it can use to control prices. Greater market power can be used to negotiate supplier prices also increase brand recognisability and in turn increase sales
> A business may choose to take advantage of economies of scale, this can increase profit margins and occasionally reduce prices for customers.
Internal E.O.S increase efficiency within a business. Large business can negotiate cheaper prices or hire specialist managers to do work efficiently. Large businesses can afford better or new machinery decreasing unit costs.
External E.O.S happen with agglomeration where suppliers can be negotiated.
Inorganic Growth can help a business grow quickly:
>Takes form in mergers or takeovers.
>Mergers are when two businesses join together, they may keep the name or create a new one.
>Takeovers are when one business buys out another through taking over 50% of shares.
>Could be strategic or tactical decision
>The main motive is financial reward.
Is Either Horizontal or Vertical
>A supply chain involves all firms from production to sale of a product.
>Horizontal integration happens when a businesses combined with another business in the same industry at the same production stage. Can reduce competition.
>Vertical integration occurs when a business combines with a business in the same industry however at a different production stage.
Organic Growth is from within
>A business can come up with strategies to sell or make new products, new markets or stores to grow.
>Businesses are often able to finance their growth by reinvesting profits.
>Find it easier to grow organically when their market is growing and or outperforming their competitors.
>Organic growth is slower and more gradual than inorganic growth, meaning its easier to adapt to the growth.
+Can maintain management style culture and ethics.
+Less risk financed using profits
+No disruption workers morale, productivity and efficiency stays high.
- Can take a long time and hard to adapt to quick changes in the market
- Might miss our on ambitious growth opportunities if restricted to organic
- Market size isn’t affected therefore the business must increase market share
Growing in size can cause problems:
>Large businesses can suffer from diseconomies of scale when unit cost increases happens as big firms are harder to manage.
>Internal communication and co ordination is slower and more difficult reducing efficiency.
>Growth also comes with the risk of overtrading - businesses take on to much work they can actually handle. Often many start ups have high costs and low revenue at first.
Quick inorganic growth is risky:
>Businesses may have different objectives and cultures potentially leading to clashes and D.E.O.S
>Staff need time to learn new procedures resulting in bad customer service.
>May result in duplicate roles and staff can be sacked adding redundancy costs.
>The buyer takes on any owed liabilities
>If part of a diversification strategy the new business will have limited experience mistakes would reduce profitability.
Not all businesses want to grow:
>Businesses may choose to restrict growth or demerge for the following reasons:
>They want to maintain the business culture.
>The business may become too complicated to manage if growth occurs.
>Growth may require additional financial resources and they may not want to put strain on their cash flow position.
Surviving staying small through:
Product Differentiation:
>Highly differentiated products or somewhere that offers a bespoke service may be unable to grow. The production process may not be suited to mass production and may result in losing its USP. For example hand made products.
>By staying small a business can invest more in creating innovative products.
Flexibility in responding to customer needs:
>A small business is able to respond to customer needs more easily. Because of size there can be greater communication between staff and customers.
>This would help the business create good relationships with external people which could strengthen kay’s distinctive capability of architecture.
Customer Service:
>Small businesses are more likely to be run by the owner therefore a more personal and high quality customer experience. Growth may lose this personal touch. This also helps build brand loyalty kay’s capability of reputation.
>Remaining small can also mean close contact with staff and can ensure the business is working towards its corporate aims.
>The growth of e commerce and online retailing makes survival easier.
