1. Topic 1 Business organisation Growth & evolution

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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)