When the firm is growing, it is perhaps happening in one of two ways of business growth.
Business growth can occur when a business grows organically using its own capabilities and resources to increase the scale of its operations and sales revenue. Business’s own resources include retained profits bank, loans and mortgages and share capital. On another hand, business growth can also occur through dealings with outside organizations as a result of mergers and takeovers, Joint Ventures (JV), Strategic Alliances (SA) or franchising.
Reasons for business growth mainly include exploiting new market-niche, taking advantage on the technological possibilities, becoming first movers so consumers become captive, benefiting from economy of scale, experiencing favorable regulatory environment, building on past experiences, having sales and marketing functions closer to the market, taking advantage of opportunities for acquisitions, etc.
When the firm is growing, different business functions including the Finance department, the Marketing department, the Production Department and the Human Resources (HR) department will face new tasks and challenges.
1. New tasks for Finance
Keeping financial records:
- Becomes larger and more complicated as the business grows.
- The business may need to make advancements in the record keeping system.
Keeping final accounts:
- Accounts of a small business will most likely be clear-cut.
- Sole traders would be able to keep their accounts and give info to Internal Revenue Service (IRS) on self-assessment forms.
- As the business expands, it may want to hire an accounting firm to make sure the accounts are in compliance with legal requirements.
- Most very large companies use their own accountants to produce accounts as well as help to make financial decisions.
Payments:
- When the customer number increases, the problems in getting payments from them increase.
- When a business grows, working capital control becomes more complicated.
- Most companies use computer programs to keep track of the payments.
Changing legal status:
- Sometimes when businesses grow, they change their legal organizations. For example, if a sole trader wants to expand the business by bringing in others to invest and help run the business, they may have to form a partnership or a private limited company.
Planning and forecasting:
- Vital to all businesses.
- Without planning, departments in a business might make conflicting decisions (diseconomies of scale – rising long run average cost as firm expands beyond its minimum efficient scale) and most efficient method may not be used.
- If forecasts are wrong, greater problems will occur in larger businesses, increasing costs.
2. New tasks for Marketing
Market research:
- Small businesses probably know their markets very well.
- It is more difficult for larger companies to know the market because of the increase in the number of consumers. It causes larger companies to spend a lot of money on researching the market.
Distribution:
- When a business and its market grows, it is harder to get the product fast to the consumers.
- The cost of distribution increases.
Marketing methods:
- Small businesses might be able to advertise their products in smaller places, such as a local newspaper which is cheaper.
- Larger companies can use other methods of promotion, such as TV or movie ads which is very expensive.
- Sometimes, if the company name is popular enough, the name may be an advertising method in itself, e.g. branding.
Target markets:
- Businesses that start up might sell into local or niche markets.
- When businesses expand, they may sell into wider markets or produce other products to sell enlarging their product portfolio.
3. New tasks for Production
Changing production methods:
- When a company grows, the production methods have to change.
- Small companies might have a small number of workers to do everything.
- When the company grows, there are more workers hired and more machinery is used.
- Most large companies use assembly lines to produce goods.
Relocation and land:
- When a company grows, there may not be enough room for it on its original plot of land.
- The company must decide whether to expand within the space available or relocate.
Reorganization:
- When output produced increases and production methods changes, production might have to be reorganized.
Purchasing:
- Larger companies tend to order more supplies than smaller businesses, which increases the number of supplies needed.
4. New tasks for Human Resources (HR)
Major tasks include:
- Reorganization.
- Recruitment.
- Industrial relations:
- Larger companies tend to have more conflicts between stakeholders.
- Smaller companies normally have the same interests among shareholders.
- Motivation – less in larger companies.
Growth and Costs:
- Growth in business can cut the Average Cost (AC) of production.
- Other benefits for being a large company:
- More likely to have large finance than small companies.
- Stronger corporate image.
- If business keeps growing, it might have increased average costs due to diseconomies of scale, e.g. environmental controls, compliance with local regulations, dealing with pressure groups, etc.
There are many sources of competitive advantage when the firm is growing including market size creating opportunities for high growth rate, gaining supply chain advantages over competitors or spreading labor costs over many products.
Potential threats for a growing business include competition in new markets, different regulatory environment, long and costly adaptation to different markets, unpredictable purchasing power of new customers, etc.
