Organisational growth Business objectives Businesses have many and

Organisational growth

Business objectives Businesses have many and varied objectives, however, they are often related to the following: Survival Profit Growth Providing a service

Reasons for growth Benefits associated with growth include: Economies of scale (lower average unit costs) Increased sales and profits Greater power through increased market share Security from spreading financial risk

Measuring growth The size of an organisation can be measured in many ways. For example, through: Market share Volume of sales Profits made Company value Number of employees

Methods of growth Organic (internal growth) Increased sales from. . . New customers in existing markets New product lines Inorganic (external growth) Acquisitions Mergers

Organic growth Organic (internal) growth is when a firm grows from within Profits may have been re-invested to increase capacity e. g. the building of new stores Sales increase through: Selling to more customers in existing markets Finding new markets Launching new products

Organic growth Advantages of organic growth Disadvantages of organic growth • Less expensive than inorganic growth • Can be very slow • Less risky than inorganic growth • Growth may be limited • Can be better planned for • Easier to control • Maintains existing culture and management styles

Inorganic growth occurs when firms join together, either through: Merger – businesses agree to join together Takeover/acquisition – one firm takes control of another by buying at least 51% of shares

Integration Inorganic growth occurs through integration: Horizontal integration Firms are in the same industry and the same stage of production e. g. two car manufacturers join together Backwards vertical integration A firm takes over a supplier e. g. car manufacturer takes over a windscreen supplier Forwards vertical integration A firm takes over a customer e. g. car manufacturer merges with a sales dealership Conglomerate integration (diversification) Integration occurs between firms in unrelated industries e. g. car manufacturer joins with a bakery

Inorganic growth Advantages of inorganic growth Disadvantages of inorganic growth • Can occur more quickly than organic growth • More expensive than organic growth • Firms can benefit from a greater pool of skills and experience • Customers, sales, assets and market position are acquired immediately • Difficult to combine different organisational cultures and management styles • Possibility of diseconomies of scale • Greater risk • Reduces competition • Difficult to control

Problems associated with growth As firms grow they may experience diseconomies of scale (increased average costs). The reasons for this include: Lack of co-ordination Diminished motivation Ineffective communication Slow decision making

Scale of production Firms cannot always produce at the most efficient level of output. The scale of production will depend on: Level of demand for products/services offered The number of competitors in the market The aims and objectives of the organisation