Diseconomies of Scale First imagine a fat person and a normal person competing in a 100 metres sprint. Who would win? VS
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 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.
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
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 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 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. There are two types of business growth:
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
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. Ansoff’s matrix
TIME FOR SOME QUIZES!!!!!!! Identify and briefly explain all the “diseconomies of scale “main causes of the managerial problem. List at least four reasons why businesses want to grow Identify and explain all the Ansoff’s matrix strategies You failed!!! just like Liverpool failed to win Premier league!!!!!!!!!!!!