Scale of Operations:

Scale of Operations:

• INTRO: There is a big difference between • When a business decides to increase the
the scale of operations of a sole trader and scale of operations they accept that there
that of a large multi-national will be cost involved.

• Scale of operation refers to the maximum
output that can be achieved using the
available inputs.
• What are the factors that would
impact the scale of operations ?
• Owner objectives
• Capital available
• Size of the market
• Number of competitors
• The costs can be quite high, for example:
• Purchase of land and buildings
• Purchase of equipment
• Employing more staff
Scale of Operations:
• A reason why businesses increase scale of
operation sis to not turn business away
• Also there are advantages called
‘economies of scale’ that come with
increasing your scale of operations
 Scale of Operations:

• TASK 15 MIN’S: RED/ORANGE • Financial Economies

Identify and fully explain what the different
economies of scale that a business could enjoy. • Larger businesses are deemed more reliable as they
have a proven track record of sales that would
• Purchasing Economies enable them to pay back large borrowings.

• Often known as bulk buying • They are deemed less risky so the cost of the
finance is much lower
• Suppliers offer discounts to business that are
able to buy in large quantities • Larger firms are able to fund the process of
‘going public’ giving them access to a much
• This is because it is cheaper to wider and cheaper source of finance –
process and deliver one big order thanScale
a lotof Operations: selling shares.
of smaller orders
• Marketing Economies
• It also benefits as it keeps the buyer happy that • Large businesses can afford to spend more on campaigns or
they are receiving discount marketing agencies that would reach a wider audience,
allowing the cost to be spread out over higher sales.
• Technical Economies
• Managerial Economies
• Big businesses can justify large expense on • Large businesses can afford specialist departmental
bigger, better, newer technology managers where small businesses have managers that
complete a range of duties that might not be done to the
• These create economies of scale as they can same standard.
significantly lower unit costs as they worker
smarter and faster than previous equipment
 Scale of Operations:

• TASK 15 MIN’S: GREEN • Poor co-ordination

Identify and fully explain what the
different diseconomies of scale that a • We have spoke about the importance
business could suffer. of all areas of business working
together to achieve the same goal
• Communication problems • This becomes much harder as the scale
• As the scale of operations gets bigger it
of operations increase
may become harder. to communicate
messages accurately across
the business Scale of Operations:
• You may find that in multi-site or
multinational businesses that each
• This is especially an issue in multi-site site feels like it sown business
and multinational businesses and does not adhere completely to
the business objective or message.
• Alienation of workforce
• As the scale of operations increases then
• This can be especially the case in
the owners/managers/leaders can become
more invisible to the workforce and can decentralized structures
prove to be demotivating as they don’t
feel as important any more
 Sc a leofo Operations:
Scale f O p e ra tio n s:

• TASK
TASK 15 15 MIN’S:
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c o -o rd ina tio n
Id e n tifyand
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the ssa g e s a c c u ra te ly Scale of Operations:
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d th a t in m thatu lti-
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• This is especially an issue in multi-site o r mlike
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• Alienation of workforce a n d d o e s n o t a d h e re
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then scale
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• This can
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