Overcoming Business Growth Issues (Cambridge International IGCSE Business)

Problems Caused by Business Growth

Spec point — • Problems linked to business growth and how these might be overcome

• In some cases, growing the size of a business can fail to improve its profitability and can lead to cash flow and coordination problems

Businesses are often faced with a range of challenges when they grow

Problems and solutions of business growth

1. Poor communication

• Longer chains of command and wider spans of control for managers may lead to slower decision-making times and inefficiency

• Solution:

  • Use the latest communication technologies, such as instant video calls, to improve communication between managers and workers
  • Decentralisation may help to delegate decision-making

1. Larger firms are often harder to control

• As a business grows in size, it can experience diseconomies of scale such as poor co-ordination of resources

• Solution:

  • Operate as a series of smaller units which allows local or functional area managers to have more control
  • Increase delegation in order to empower workers and get jobs done more quickly

1. High costs and cashflow problems

• Expansion can be very expensive as it may involve developing a new product range or buying a new factory

  • High costs in the short/medium term means the business may need additional finance to avoid cashflow problems

• Solution:

  • Grow slowly using profits rather than loans to fund gradual and less risky expansion
  • Manage cash flow carefully, making use of retained profits and short-term borrowing to counter cash flow shortfalls

1. Difficulties of mergers and acquisitions

• A culture clash may occur if a merger or acquisition takes place between two different firms due to different management styles

• Solution:

  • Ensure good communication so employees are less likely to be resistant to change
  • Take time to carefully negotiate and plan mergers/acquisitions to reduce 'teething problems'