What are economies of scale?
As production increases, the cost of producing each item (unit cost) decreases
What are technical economies of scale?
Large businesses can afford to buy better, more advanced machinery meaning they need fewer staff and wage costs fall
What are managerial economies of scale?
Large businesses can employ managers with specialist skills to manage specific departments which means work is done more quickly and efficiently
What are purchasing economies of scale?
Large businesses can negotiate discounts when buying supplies in large quantities and borrow money at lower interest rates than smaller businesses
What are marketing economies of scale?
Businesses with large output spread marketing costs over more units of output and can afford more effective forms of advertising
What are external economies of scale occur?
Industries are concentrated in small geographical areas:
- Large number of suppliers to choose from means easy negotiation
- Skilled local labour means efficiency
What are economies of scope?
When a business produces multiple products instead of one as it is cheaper than multiple businesses producing one product each
How do economies of scope work?
Larger businesses already have people and infrastructure so they can expand the production department without expanding other departments which decreases unit costs and they have brand loyalty
What are diseconomies of scale?
Unit costs increase as the scale of production increases as larger businesses become harder to manage
What factors make diseconomies of scale occur?
Poor coordination between departments, slow and difficult communication in long chains of command, staff demotivation due to distance from managers
How can diseconomies of scale be prevented?
Strong leadership, delegation, decentralisation
What is retrenchment?
Businesses downsizing in some areas
How can retrenchment be achieved?
Cutting jobs, reducing output, withdrawing from markets, demerging (splitting up the business)
What are four disadvantages of retrenchment?
Job losses, trade union action, job insecurity, rise in labour turnover
What is organic growth?
Expansion from within a business
What three factors are needed for organic growth?
Profits to reinvest, being in a growing market, outperforming competitors
What are four advantages of organic growth?
Current management style is maintained, less risk, easier to control amount of growth, workers’ moral remains high
What are three disadvantages of organic growth?
Slow, restricted if the market is not growing, missing out on chances for ambitious growth
What are five disadvantages of growing a business?
Potential diseconomies of scale, difficult to manage cash flow, potential overtrading, may require becoming a PLC, potential penalisation from CMA
What are four reasons why some businesses limit growth?
Maintaining culture, stop complications, avoid securing additional financial resources, avoid straining cash flow
What are franchisors and franchisees?
Franchisors are established businesses who sell or license their idea, name and reputation to franchisees who pay ongoing fees
What are three advantages of franchising?
Economies of scale, ready-made, tried and tested
What are three disadvantages of franchising?
Restrictions for franchisees, potential diseconomies, giving up control over quality
What is a merger?
When two companies of roughly the same size join together to form a new company
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Mission, Objectives and Strategy20
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Operational Decision Examples3
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Example Businesses7
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Internal Analysis49
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What is Business?51
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Management and Decision Making42
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Marketing Decisions89
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Analysing the External Environment87
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Examples1
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Operational Decisions56
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Financial Decisions68
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Examples: Analysing the External Environment6
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Human Resource Decisions79
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Strategic Methods42
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Investment Appraisal15
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3.9 Definitions32
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3.763
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3.1019
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3.815
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Standard Chains of Analysis5
