Following this presentation you will: - Understand the merits between small and large organisations. - Identify the appropriate scale of operation. - Realise the differences between internal and external growth. - Understand the concept of economy of scale.

1. BUSINES
S&MANA
GEMENTby: Shadi A. Razak 1
Business Growth

2. Objectives
• Apply the concept of economies & diseconomies
of scale to business decisions.
• Evaluate the merits between small and large
organisations
• Identify the appropriate scale of operation
• Explain the differences between internal and
external growth options
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3. Structure
• Scale of Operation
• Economies of Scale
• Small vs. Large
• Business Growth
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4. Scale of operation
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SCALE OF OPERATION

5. Scale of operation
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SCALE OF OPERATION
• The maximum output that can be achieved
through the use of available resources (inputs).
• It increases by employing more of all inputs on
the long term.

6. Scale of operation
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SCALE OF OPERATION
• Think of SCOPE:
– Size of the market
– Capital available
– Ownership Objectives
– ComPetitors market share
– Economy scale

7. Economies of scale
• When business grow in size they benefits from:
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SCALE OF OPERATION
– Decrease in average cost
– Cost spread over more units/customers
– Develop more specialised work force
– Low interest rate loans
– Decrease in Agency cost
– Decrease in Transaction cost
ECONOMIES OF SCALE

8. Diseconomies of scale
• When business grow in size its average cost
might rise and inefficiency begins to appear :
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– Communication breaks down
– Decision making slows down
– Motivation Falls
– Productivity drops
SCALE OF OPERATION ECONOMIES OF SCALE

9. by: Shadi A. Razak 9
SCALE OF OPERATION ECONOMIES OF SCALE

10. Small organisations
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• According to the European Union the size of an
organisation is determined by either:
–Number of employees
–Turnover or Balance Sheet Total
SCALE OF OPERATION SMALL vs. LARGEECONOMIES OF SCALE

11. Small vs. Large
• Managed & controlled
by owner
• Adapt quickly to market
changes
• Personal service
• Human business
• No diseconomies of
scale
• Easy communication
• Specialist experienced
managers
• Economies of scale
• Set market benchmark
• Access to several source
of finance
• Spread risk by
diversification
• Utilise and deploy R&D
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SCALE OF OPERATION SMALL vs. LARGEECONOMIES OF SCALE

12. Small vs. Large
• Limited access to source
of finance
• Employees bottle
necked with workload
• High risk of negative
impact of external
changes
• Unlikely to benefit from
economies of scale
• Can be difficult to
manage - globalised
• Can suffer from
diseconomies of scale
• High risk of conflicts
arise between
stakeholders
• Slow decision making
• Break down in
communications
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SCALE OF OPERATION SMALL vs. LARGEECONOMIES OF SCALE

13. Business growth
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• Examples of drivers to grow the business
include:
– Increased profit
– Increased market share
– Increased economies of scale
– Increased power & status of owners
– Reduce risk of takeover
SCALE OF OPERATION BUSINESS GROWTHSMALL vs. LARGEECONOMIES OF SCALE

14. Business growth
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SCALE OF OPERATION
Business Grow
Internally
(Organic)
Externally
Mergers & Acquisitions
Joint Ventures
Strategic Alliances
Franchising
Increase Market Share
Improve & Increase Production
Increase agency size
BUSINESS GROWTHSMALL vs. LARGEECONOMIES OF SCALE

15. Internal growth
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SCALE OF OPERATION
• The expansion of a business by means of
opening new branch, shops or factories
• It is also known as ‘Organic Growth’
BUSINESS GROWTHSMALL vs. LARGEECONOMIES OF SCALE

16. Internal growth
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SCALE OF OPERATION BUSINESS GROWTHSMALL vs. LARGEECONOMIES OF SCALE
• Business internal growth can be achieved in
number of ways:
– Increase sales
– Develop better production techniques
– Increase the organisation size:
o Hiring more employees
o Opening more shops, offices or factories

17. External growth
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SCALE OF OPERATION BUSINESS GROWTHSMALL vs. LARGEECONOMIES OF SCALE
• The expansion of a business by means of
merging with or taking over another business
from either the same or different industry
• The different forms of external growth:
–Horizontal growth
–Vertical growth
–Conglomerate growth

18. External growth
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SCALE OF OPERATION
Vertical Growth
(Forward integration: towards customer)
Conglomerate Growth
( getting in different industry)
BUSINESS GROWTHSMALL vs. LARGEECONOMIES OF SCALE
Vertical Growth
(Backward integration: towards supplier)
(the same industry, offering a different product)
Horizontal Growth
• Forms of external growth

19. External growth
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SCALE OF OPERATION BUSINESS GROWTHSMALL vs. LARGEECONOMIES OF SCALE
• Business external growth can be achieved in
number of ways :
–Merges and acquisitions
–Joint ventures
–Strategic alliances
–Franchising

20. Summary
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BUSINESS GROWTHSMALL vs. LARGEECONOMIES OF SCALESCALE OF OPERATION
• Explained what is meant by ‘Scale of
Operation’
• Differentiated between economics and
diseconomies of Scale
• Discussed business growth and its various
forms and options
• Discussed the merits between small and large
businesses