Diseconomies of scale
Diseconomies of Scale
First imagine a fat person and a normal
person competing in a 100 metres sprint.
Who would win?
VS
Diseconomies of Scale
The normal guy would win right? That is
because he is smaller and quicker therefore he
got less weight to carry unlike the fat guy just
like Diseconomies of scale.
Diseconomies of scale are factors that increase the unit costs as
a firm’s scale of operation increases beyond a certain size. These
diseconomies are related to the management problems of trying
to control and direct an organization with many thousand
workers, in many separation divisions, often operating in several
different countries. Basically the business is too big(too
handsome). There are three main causes of management
problems.
Diseconomies of Scale
1) Communication problems
Large scale operations will often lead to:
• Poor feedback to workers
• Excessive use of non-personal communication media
which could be difficult for some people
• Communication overload with the volume of message
being sent
• Long chain of command
Diseconomies of Scale
2) Alienation of the work force
The bigger the organization, the more difficult it is to
directly involve every worker and to give them a sense of
purpose and achievement. They may feel insignificant in
the overall business plan and become demotivated, failing
to do their best. Larger manufacturing firms are the one
that most likely to adopt flow-line production and
workforce alienation is a real problem due to repetitive and
boring tasks.
Diseconomies of Scale
3) Poor-coordination and slow decision-making
The problems for senior management are co-ordinate these
operations and take rapid decisions in such a complex
organization. Smaller business with much tighter control
over operations and much quicker and more flexible
decision-making may benefit from lower average
production costs as a result.
Business growth
Business growth
Why do businesses grow?
• Increased profits
• Increase market share
• Increased economies of scale
• Increased power and status of the owners and
directors
• Reduced risk of being a takeover target
Business growth
There are two types of business growth:
• Internal growth
Expansion of a business by means of opening new branches,
shops or factories. Also known as organic growth
• External growth
Business expansion Achieved by means of merging or taking
over another business, from either the same of different
industry. This included: horizontal integration, forward vertical
integration, backward vertical integration and conglomerate
integration.
Ansoff’s matrix
SEE WHAT I
DID????
Ansoff’s matrix
Ansoff’s matrix is a model used to analyse growth
strategies. It suggests four alternative marketing
strategies which hinge on whether products are new
or existing. They also focus on whether a market is
new or existing. Within each strategy there is a
differing level of risk. The four strategies are:
•
•
•
•
Market penetration
Market development
Product development
Diversification.
Ansoff’s matrix
Ansoff considered that the two main variables in a strategic
marketing decisions were:
• The market in which the firm was going to operate
• The product(s) intended for sale
In terms of the market, managers have two options:
• To remain in the existing market
• To enter new ones
In terms of the product, the two options are:
• Selling existing products
• Developing new ones
Ansoff’s matrix
This is how Ansoff’s matrix look like
Increasing
risk
Increasing risk
Ansoff’s matrix
• Market penetration : the objective of achieving
higher market shares in existing markets with
existing products
• Product development: the development and
sale of new products or development of existing
product in existing markets.
• Market development: the strategy of selling
existing products in new markets
• Diversification: the process of selling different,
unrelated goods or services in new markets.
TIME FOR SOME QUIZES!!!!!!!
You failed!!! just like
Liverpool failedofto win
Identify and briefly explain all the “diseconomies
Premier
scale “main causes of the managerial
problem.
league!!!!!!!!!!!!
List at least four reasons why businesses want to grow
Identify and explain all the Ansoff’s matrix strategies