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
- purchasing economies
- 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)
- internal growth
- 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
- co-ordination diseconomies
- Types of Economies of Scale
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