 Methods
 Benefits
 Limitations
Matt & HyunJung
• Organic growth:
• “Organic growth occurs when a business grows internally, using its own
resources to increase the scale of its operations and sales revenue.
Internal growth is typically financed through the profits of the business.”
(p.119)
• Economies of scale:
• “… lower average costs of production as a firm operates on a larger
scale due to an improvement in productive efficiency” (p.112)
• Diseconomies of scale:
• “… the result of higher unit costs as a firm continues to increase the size of
its operations, i.e. the organization becomes outsized and inefficient and
average costs therefore begin to rise.” (p.115)
• Changing price
• If there are only a few substitutes for a firm’s products, then the business will
earn more sales revenue by raising prices.
• Advertising and promoting
• If the customers are more informed, remained or persuaded about the
information and benefits of products, people will buy more.
• Producing improved or better products
• Such as innovation, new design of products, business can produce products
improved.
• Selling in different location(placement)
• If a product is widely available, customers are more likely to make a
purchase
• For example, Coca-Cola is widely available throughout the world in different
places, such as supermarkets, restaurants and cinemas.
• Offering credit payment terms to customer
• For the purchase of expensive products such as motor vehicles, allow
customer to ‘buy now but pay later’. However, the firms need to be
careful about offering too much credit as this will affect their cash flow
position.
• Increasing capital expenditure(investment)
• It can be formed in expanding of business in new location and
technologies to productivity
• Improving training and development(T&D)
• It can help to make staff more confident and competent in their jobs, but it
can also help to motivate the workforce as they feel more valued by the
employer.
• Better control & coordination
• Organic growth methods allows firms to keep control, external methods
may lead to loss of control or ownership
• Relatively inexpensive
• Main source of growth from retained profits
• May be a need to raise interest-bearing capital, but less risk with organic
growth as amount of capital involved lower than needed for external
• High cost of external growth makes organic only suitable method of
business expansion
• Maintains corporate culture
• Mergers & acquisitions face often face problem of two different cultures
join in a new company
• Internal growth cancels this problem out  no culture clash
• Diseconomies of scale
• Higher unit costs of production may be due to internal&external growth.
Internally, hierarchical structures may increase, cause communication
problems&slow decision-making with growth of firm
• Overtrading
• Describes business “growing beyond its means”
• E.g. firm may take on too many orders, unable to control costs/manage
HR as result
• A need to restructure
• Firm grows  necessity to change management+personnel sturcture
• E.g. sole trader may be able to control&coordinate business easily but if it
grows to multinational company, organizational structure must change
• Restructuring  time, effort, money
• Also entails training, retraining, updating of skills.
• Communication will require further care due to larger number of peopl in
organization
• Dilution of control & ownership
• If firm changes legal status to grow, original owners must share decisionmaking with new owners.
• Process lengthened with more owners, conflict more likely between
shareholders
• Specialist managers hired as firm&workforce expands  requires delegation
of decision-making powers to these managers  reduces original owners
control