Operational strategies

Operational strategies 

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Chapter 12: Operational strategies: scale and
resource mix 2/2/12 8:54 AM
> understand the concepts of economies of scale and
diseconomies of scale
Choosing the right scale of production
As a business expands, it will experience economies of scale and
diseconomies of scale
Key terms:
Economies scale ­ The advantages than an organisation gains due
to an increase in size. These cause an increase in productive
efficiency
Diseconomies scale- the disadvantages that an organisations
experiences die to an increase in size. Theses cause a decrease in
productive efficiency
Economies of scale
Fixed costs, such as the depreciation of machinery and administrative
expenses, must be paid, regardless of the number of units that an
organisation produces and sells. This enables large firms that utilizes
their equipment effectively to produce at much lower costs per unit.
Internal economies of scale ­ can be classified under a number of
headings
Technical economies
Modern equipment that will improve efficiency can be installed. This
should lower unit costs and improve the quality and improve the
quality and reliability of the product of service
Mass production techniques can be employed to improve the
reliability of the production process.
Large scale transportation can reduce distribution costs per unit.
The purchase of computer systems can improve efficiency in both
production and administration
Improvements in communication systems using new technology can
enhance customers service and the working environment, improving
the company's operations and its reputation
Specialist economies
Large firms can afford to employ specialists with particular skills, in
smaller organisations, staff tend to take on a wider variety of tasks,
and specialist skills, when needed, are bought from outside at a
relatively high price
Production techniques can be adapted to encourage division of labour
in large firms.

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Chapter 12: Operational strategies: scale and
resource mix 2/2/12 8:54 AM
A small firm is unlikely to be able to pay a high enough salary to
attract the best staff, so larger firms should be more efficient.
Training to improve specialist skills is also easier in large firms
If staff are able to specialize they are likely to become even more
skilled in their role again increasing the efficiency of the firm
Purchasing economies
Large firms can buy in bulk.…read more

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Chapter 12: Operational strategies: scale and
resource mix 2/2/12 8:54 AM
It is more difficult to assess the needs of many individuals. Even if
motivational methods are used, it is less likely that the managers
will know the best approach for each subordinate.
In large firms there may be less time for recognition and reward.…read more

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Chapter 12: Operational strategies: scale and
resource mix 2/2/12 8:54 AM
In contrast, if products are specifically designed for the consumer, then
labour-intensive methods are more likely. The success of the business
will depend more on the workers than on machinery
The skills and efficiency of the factors of production
A business that depends on the skills of its workers is more likely to
use labour intensive methods.…read more

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