Growth & Retrenchment

Business Management: IB Diploma, topic 1.6.1

Business Growth

Growth can occur organically or externally.

Organic growth occurs when a business expands its own product portfolio or its number of retail stores.
For example, Tesco introducing Tesco Mobile is organic growth.

External growth occurs when a business expands by purchasing or taking over other businesses.
For example, Morrisons purchased Safeway which is external growth.

Increased demand for goods and services which affects the decisions made within each business function.
Increased motivation for the management through a sense of achievement which improves employee retention.
Increased market share, sales revenue, and profit.
Investment (for growth) increases the need to secure capital. -The business’ need for labour may increase, which affects workforce planning.
There can be an increased focus on marketing and promotion to ensure the generation of increased demand.

Retrenchment occurs when a business reduces the scale of a specific business area or element within the business operation.

Retrenchment can allow a business to re-focus on growing a core activity within its operation.
- For example, Morrisons removed a layer of supervisors from its hierarchy to reduce cost so that it could focus on growing its core business offer.

Retrenchment affects human resources as workforce planning, redundancy and redeployment will need to be considered.

Retrenchment affects operations as it can offer economies of scale through addressing diseconomies of scale which may have arisen, and this reduced unit cost.

Retrenchment affects marketing as promotional campaigns are likely to be refocused on the refined business offer which may include selling from a smaller product portfolio.

Retrenchment affects finance as the business will need to ensure it is able to fund the short-term increase in the cost of redundancy payments.

Coca Cola took over Innocent Drinks. What type of growth is this?
Which department is most affected by workforce planning, redundancy, and redeployment?
How will retrenchment impact a business' product portfolio?