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Problems with growth - Coggle Diagram
Problems with growth
Risks involved with quick inorganic growth
Culture clashes
Different leadership styles may have different ethics/style of managment
This leads to conflict, inneficiency, and dis economies of scale
Training time
Staff will need time to learn new technology/procedures
May neglect customer service and loss of sales
Redundancy
Inorganic growth can duplicate roles
This means that the business may have to make some staff redundant, increasing redundancy payments and reducing profitability
Taking on liability
The business will have to take on any liability the other business has
This means the business will have to pay the liabilities reducing their working capital
Risks with diversification
The business will have limited time in the new market
They will have to learn how it works which could cause mistakes
Problems that growing in size can cause
Dis economies of scale: unit costs increasing as scale of production increases.
For example, staff motivation: easier to motivate staff in a smaller firm than a larger firm as they can be consulted with managment more regularly
Internal communication
It can be harder to spread messages in a larger business, especially if they have longer chains of command
e.g. a shop floor worker might communicate a new trend they have identified with customers
This might lead to the business becoming more inefficient or adapting to trends slower
Overtrading
Increased demand : more working capital spent on buying raw materials or hiring staff.
Decreases the amount of working capital they have to spend on paying bills
Could go bust before they are paid by customers
Restricting growth
Why some businesses de merge and stay small
Maintain the culture which would be diluted in a merger
Keep managment simple as it will be harder to manage as it gets larger
Growth may require the business to secure additional finance which could affect cash flow
Why businesses choose to stay small
For product differentiation
Some products aren't suited to mass production: e.g. handmade products
This can maintain Kay's distinctive capability of innovation, as they can carry on providing a USP
Flexibility in responding to customer needs
Communication between staff and customers is easy and the business can respond to customer needs easily
This would help the business create good relationships with people and strengthen kay's distinctive capability of architecture.
Customer service
If a business is small they are likely to keep the same owner.