ORGANISATIONAL

GROWTH
Bba
Advantages of Small Companies

  More control by owners

  Flexible to changing conditions
  Closer relationship with customers – a more personal relationship is possible
and perceived quality of service is higher
  Lower overhead costs – potential to avoid diseconomies of scale
experienced by larger companies
  Lower financial risk
  Innovation and entrepreneurship are very strong – many operate in niche
markets making substitutes less of a threat
  Less bureaucracy.
Disadvantages of Small Companies

  Limited scope for making profit

  Lack of expertise in some areas such as management and Research and Development
  Competition may be too strong– for example, production costs are likely to be higher
than in a larger business where economies of scale can result is offering similar lower
priced goods
  Statistically small businesses have a substantially higher failure rate – a significant
proportion of companies are in business for less than three years and many fail before
this point owing to cash flow problems (cash runs out or clients do not pay promptly)
  Customers may have less trust in a small business especially if it is selling goods or
services overseas
  The ability to attract finance to improve areas of the business such as product
development is often limited.
Advantages of large companies

  Exploit more opportunities for trade and new customers

  Lower risk, as not all business is concentrated in one location and subject
to market conditions in that location; reduces reliance on home market
  Potential economies of scale which reduces overall cost
  Access to less expensive resources which impacts on prices and profit levels
  Higher levels of expertise, as there are more employees with different
skills/knowledge
  Potential for new ideas
  Easier to gain financial support.
Disadvantages of large companies

  Innovation and entrepreneurship are difficult to maintain

  Loss of control by the owners
  Risk can be high, particularly in emerging economies where there can be
political, cultural and financial risk
  Environmental and ethical issues increase such as pollution, use of country’s
resources in production processes, corruption
  Tendency to bureaucracy, meaning that decision making and change can be
slow
Growing the Business

 Businesses growth occurs in two ways

 (a) Internal or Organic Growth-The company expands using its own resources
by increasing its manufacturing or office space, taking on new staff etc.
 Internal growth can take place in three ways:
  Horizontal expansion -The company continues to make the same product or
provide the same service, but increases sales (market share).
  Vertical integration -This is when the company extends its part in the whole
production process
  Diversification -This is the third method of external expansion. A firm
decides to offer a product or service that is different from its core business.
(b) External Growth

 the company accomplishes growth either by joining with another company

(strategic alliance) or acquires a company (merger or acquisition).
  Joint venture -This usually occurs when organisations work together on a
specific project, the original organisations remain independent
  Merger or acquisition -A merger takes place when two companies of
approximately equal size form a new company by joint agreement.
  Franchising -Franchising occurs when the company (the franchiser) permits
the franchisee to carry out specific activities such as manufacturing, sales or
distributions.
  Licensing -In this situation another organisation pays a fee to use the
intellectual property rights, such a trademarks, patents, or technology, under
defined conditions
(a) Overdrafts
(b) Long term loans
(c) Leasing