Business size can be measured in a number of ways. Each measure is useful in different contexts and has its own limitations.
| Measure | What it Shows | When it is Most Appropriate | Key Limitations |
|---|---|---|---|
| Turnover (sales revenue) | Total value of goods or services sold in a period. | Comparing market activity of firms in the same sector; assessing growth trends. | Ignores profit margins; can be inflated by one‑off sales. |
| Assets (total value of owned resources) | Scale of physical, financial and intangible resources. | Evaluating capital intensity, borrowing capacity, or asset‑heavy industries. | Valuation may be outdated; does not reflect utilisation efficiency. |
| Number of Employees | Workforce size. | Indicates operational scale and labour‑intensity; useful for service‑based firms. | Doesn’t show productivity; part‑time vs. full‑time differences are hidden. |
| Market Share | Proportion of total market sales captured. | Assessing competitive position and dominance within a defined market. | Can be misleading in highly fragmented markets; depends on accurate market definition. |
| Profitability Ratios (e.g., profit margin) | Efficiency of turning sales into profit. | Judging financial health relative to size; comparing firms with different cost structures. | Sensitive to accounting policies; short‑term focus may mask long‑term viability. |
Example: A local coffee shop may have a turnover of £250 000, 8 employees and a 0.3 % market share, whereas a national chain records £1.2 bn turnover, 12 000 staff and 12 % market share.
Organic growth occurs without buying other firms. It is driven by the four quadrants of the Ansoff Matrix, each linking directly to a business’s overall strategic objectives.
When to choose: Market share is low but the brand is strong and the market is not saturated.
Key risk: Over‑reliance on price cuts can erode profit margins and trigger price wars.
When to choose: The product has proven appeal and the firm has capacity to reach new customers.
Key risk: Mis‑reading cultural or regulatory differences can lead to costly market‑entry failures.
When to choose: Existing market is attractive but growth is limited by the current product range.
Key risk: R&D failure or new product not meeting customer expectations can waste resources.
When to choose: The firm has strong core competencies that can be transferred to a related market.
Key risk: Over‑stretching resources or diluting the brand if the new market is not truly related.
External growth involves acquiring or partnering with other organisations. The table below adds stakeholder impact and a concise pros/cons column, as required by the syllabus.
| Type | Definition & Typical Example | Impact on Stakeholders | Pros / Cons (Key points) |
|---|---|---|---|
| Horizontal merger / acquisition | Purchase of a rival operating at the same stage of the supply chain. Example: Supermarket A buys Supermarket B to increase market share. |
Shareholders – potential premium returns; Employees – risk of redundancies; Customers – possible price changes. | Pros: rapid market‑share gain, economies of scale. Cons: integration difficulty, cultural clash. |
| Vertical integration – backward | Acquiring a supplier to secure inputs. Example: Chocolate manufacturer purchases a cocoa farm. |
Suppliers – loss of business; Employees – new job security; Shareholders – improved control of costs. | Pros: secure supply, lower input costs. Cons: capital‑intensive, reduced flexibility. |
| Vertical integration – forward | Acquiring a distributor or retailer. Example: Car maker opens its own dealership network. |
Customers – potentially better service; Employees – new roles in distribution; Shareholders – higher margins. | Pros: greater market access, higher margins. Cons: managerial complexity, possible channel conflict. |
| Conglomerate diversification | Acquisition of a firm in an unrelated industry. Example: Technology firm buys a food‑processing company. |
Shareholders – diversification of risk; Employees – cultural mismatch; Customers – no direct impact. | Pros: risk spreading, new revenue streams. Cons: limited synergies, management distraction. |
| Friendly takeover | Acquisition agreed by the target’s board. Example: Large retailer negotiates purchase of a regional chain with board approval. |
Employees – smoother transition; Shareholders – clear valuation; Customers – continuity of service. | Pros: cooperative integration, lower resistance. Cons: may involve a premium price. |
| Hostile takeover | Acquisition attempted against the wishes of the target’s management. Example: Bidder launches a tender offer directly to shareholders. |
Employees – high uncertainty; Shareholders – potential for immediate gain; Customers – possible service disruption. | Pros: rapid entry into market. Cons: high cost, cultural conflict, possible legal battles. |
| Joint venture (JV) | Two (or more) firms create a separate legal entity for a specific project. Example: Automaker and battery specialist form a JV to produce EV batteries. |
Both partners – shared risk/reward; Employees – new collaborative culture; Customers – innovative products. | Pros: shared resources, shared risk. Cons: shared control, possible strategic drift. |
| Strategic alliance | Co‑operation agreement without creating a new legal entity. Example: Airline alliance sharing routes and frequent‑flyer benefits. |
Partners – access to new markets; Employees – learning opportunities; Customers – broader service offering. | Pros: flexibility, low investment. Cons: limited control, dependence on partner performance. |
| Aspect | Internal (Organic) Growth | External Growth | Link to Business Objectives |
|---|---|---|---|
| Control | Full control over strategy, culture and operations. | Shared control; integration and cultural alignment required. | Easier alignment with long‑term goals such as CSR or brand positioning. |
| Speed | Generally slower – built over time. | Potentially rapid if acquisition/partnership is completed quickly. | External growth favours objectives that need immediate market entry. |
| Cost | Lower upfront cost; relies on internal cash flow. | High acquisition premiums, advisory fees and integration expenses. | Organic growth suits cost‑conscious objectives; external growth suits “quick‑win” profit targets. |
| Risk | Lower financial risk; spread over a longer period. | Higher financial, operational and cultural risk. | Organic growth aligns with risk‑averse strategies; external growth with high‑growth ambitions. |
| Resource utilisation | Leverages existing resources and capabilities. | May require new resources to manage acquired entities. | Organic growth maximises current asset efficiency; external growth can provide new capabilities. |
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