Unit 9 Chapter 11 - Assessing a change in scale

Assessing a change in scale

Growth

Importance of growth =

- Shows progress; benefit managers career prospects, valuable for shareholders and shows achievement.                                                                                                                                      - Creates momentum; new opportunities and employees feel cohesive - employee engagement                                              - Financial benefits; higher revenues and lower unit costs 

Forms of growth =  

• Organic = Occurs when a busienss grows through expanding its own operations - e.g. selling more of its exisiting products or launches new products for customers - tends to be slower as a business gradually increased the scale of its operations, but easier to manage 
• External = Involves growth by joining with other businesses - e.g. one business may gain a controlling share of another organisation ('takover') - leads to an immediate jump in the scale of a business, but there may be clashed in the way organisations operate 

Potential benefits of growth = 

- Economies of scale - occurs when unit cots fall as a business expands, these economies relate to the volume of output 

• Purchasing - As a business gets bigger it will purchase more supplies, at a lower price - increases bargaining power over supplies
• Technological - As a business expands, it enables a business to use technology more effectively and price can be spread over operations
• Managerial - As a business expands it may bring in specialists to focus on specif parts or functions of the business 
• Financial - As a business gets bigger it has more assets and this may mean a bank is more willing to lend it at lower rates as the risk has decreased 

- Economies of scope - Cost savings from operating in serveral markets or providing several products (e.g. when the brand Cadbury is promoted the cost of advertising can be spread over several different products) - increasing the scope of its activies rather than just the scale 

- The experience curve - The costs advantages that occur having been in an industry for some time and, therefore, being able to make better decisions - employees gain experiance and managers become more familiar with what needs doing when, who to ask to do what and what to get from suppliers - however, for smaller businesses this can be a 'barrier to entry' as intial unit costs are more expensive and, therefore, more difficult to compete in the market

- Synergy - Occurs when you put two businsesses together as a combined unit and, thus, perform better than they did as indivudal parts 

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