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3.2.1 Growth - Coggle Diagram
3.2.1 Growth
Reasons why/Objectives of growth
increased profitability
more customers = more revenue = customers spend more than costs of servicing - more profit = rise is profit margins (only if revenues grow faster than the rise of fixed costs)
achieve economies of scale
Managerial
hire specialist HR, training and recruitment managers - brings greater expertise to their role = reduces unit costs
Technical
growth allows firm to buy specialised machinery/equipment = reduces unit costs
increased market power over customers and suppliers
reference of two of porter's five forces - ability to influence factors in your favour = boost in company's overall long term profitability
the bigger the firm is, the more significant the firm is as a customer to a supplier as it increased the quantity of supplies purchased
increase in growth could mean customers have less to choose from
increased market share and brand recognition
customers more likely to buy from brands they recognise = further boost in sales
possible to cut down in marketing budgets = reduces overall expenses
Problems from arising growth
Diseconomies of scale
the inefficiencies related to growing as a business that can lead to upward pressure on unit costs
poor internal communication
larger organisations rely on written forms of communication - can be harmful
larger organisations need to add more layers of organisational structure so the span of control doesn't become too wide = more layers messages needed to be passed through
motivation can suffer in larger organisations = could effect quality of communication
Overtrading
occurs when a business experiences cash flow problems as a result of expanding too quickly without sufficient cash in the bank
firms tend to wait until their goods/services have made a return to spend - this could create a situation where a business is trying to fund a large-scale operation with this cash flow (which isn't significant due to the smaller scale it was operating before it started suffering from overtrading) = cash crisis
to avoid this, firm could conduct cash flow forecasting (Theme 2.1)
Business growth
Increasing the overall size of a business