2. Business objectives
Businesses have many and varied objectives, however,
they are often related to the following:
Survival
Profit
Growth
Providing a service
3. 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
4. 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
5. Methods of growth
Organic (internal growth)
Increased sales from...
New customers in existing markets
New markets
New product lines
Inorganic (external growth)
Acquisitions
Mergers
6. 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
7. 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
8. Inorganic growth
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
9. 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
10. 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
11. 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
12. 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
