Topic 1 Business organisation Growth & evolution

Learning Objectives Analyse the main types of economies and diseconomies of scale and apply these concepts to business decisions Evaluate the relative merits of small Vs. large organisations Recommend an appropriate scale of operation Explain the difference between internal and external growth Evaluate joint ventures, strategic alliances, mergers and takeovers Analyse the advantages and disadvantages of franchising and evaluate it as a growth strategy Explain and apply Ansoff’s matrix as a decision-making tool HL – Evaluate internal and external growth strategies as methods of expansion HL – Examine how Porter’s generic strategies provide a framework for building competitive advantage

Evaluation of growth strategies Internal growth can be quite slow but it can avoid a lot of problems that appear with external growth External growth can lead to rapid expansion but takeovers can be expensive or hostile

Porter’s Generic Strategies Framework for building competitive advantage Argues that a firms strengths will fall under 2 headings Cost advantage OR Differentiation States that by applying these strengths in either a broad way (industry wide) or a narrow way (market segment) three generic strategies result Cost leadership strategy Differentiation strategy Focus strategy

Cost leadership strategy Being the lowest cost producer for a certain level of quality – allows firm to make higher profits Or it can then lower prices below average of competitors and gain more market share Usually targets a broad rather than niche market Often stems from the following internal strengths High levels of investment in advanced production methods Efficient production methods Efficient distribution channels

Differentiation strategy Involves developing a product or service that offers unique features valued by customers Value added allows the firm to charge a premium price for it Often results from the following internal strengths Excellent R&D Corporate reputation for innovation and quality Strong sales team

Focus Strategy Concentrates on a narrow market segment aiming to achieve either a cost advantage or differentiation High degree of customer loyalty within market segment Discount retailers will focus on low income market segments through a strategy of low costs leading to low prices

Target Scope Advantage Low Cost Product Uniqueness Broad (Industry wide) Cost leadership strategy Differentiation strategy Narrow (market segment) Focus strategy (low cost) Focus strategy (differentiation)