Overcoming Business Growth Issues (Cambridge (CIE) O Level Business Studies): Revision Note

Problems caused by business growth

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

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

2. 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

3. 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

4. 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'