Chapter 12: Operational Strategies: Scale and Resources Mix

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  • Operational Strategies: Scale and Resources Mix
    • Types of Economies of Scale
      • purchasing economies
        • allow a business to buy in large purchases so that they can get bulk purchases at a low price
      • technical economies
        • equipment can be bought as it is used frequently, can help to cut production costs and reduce waste
      • marketing economies
        • cost of promotion is low because of large quantities being sold
      • specialisation economies
        • business can take advantage of being able to afford specialist workers
      • financial economies
        • large business can take advantage of financial discounts, such as easier credit
    • Economies of Scale
      • the advantages that an organisation gains due to an increase in size, these cause an increase in production efficiency (a decrease on the average cost per unit of production)
    • Growth
      • internal growth
        • growth that occurs naturally over time
        • business grows to meet demand
      • external growth
        • growth that may take place quickly
        • may involve businesses joining together (merger / takeover)
    • Diseconomies of Scale
      • the advantages that an organisation experiences due to an increase in size, these cause a decrease in productive efficiency (an increase in average cost per unit of production)
    • Types of Diseconomies of Scale
      • co-ordination diseconomies
        • if leader refuses to delegate they may be unable to cope with their increasing workload
        • as a firm grows it becomes harder for the people at the top to control and co-ordinate effectively
      • communication diseconomies
        • effective communication is dependant on high levels of motivation
        • it is only effective if people are willing to listen
        • poor motivation may mean communication deteriorates
        • methods of communication may not be effective
        • increasing use of email/text makes communication less personal and can lead to misunderstanding
      • motivation diseconomies
        • when a business gorws, staff may have less personal contact with management, which may lead to alienation
        • staff may feel undervalued, which leads to a decrease in work/output which will increase the business costs
        • absenteeism may also occur

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