1.5 Growth and Evolution

Market Capitalization

The total value of a company’s issued shares, calculated as Share Price × Number of Shares.

Internal (Organic) Growth

Expansion of a business using its own resources, such as increasing sales, developing new products, or opening new locations.

External (Inorganic) Growth

Expansion involving a third party, such as a merger, acquisition, or joint venture.

Economies of Scale

A reduction in the average unit cost of production as the total level of output increases.

Diseconomies of Scale

An increase in the average unit cost of production as a business becomes too large and inefficient.

Purchasing Economies

Also known as bulk buying

Technical Economies

Cost savings achieved by investing in large-scale, sophisticated machinery that smaller firms cannot afford.

Managerial Economies

Cost reductions achieved by hiring specialist managers who improve efficiency across business functions.

Internal Diseconomies of Scale

Rising unit costs caused by management problems, communication breakdowns, and employee alienation in large firms.

External Economies of Scale

Cost-saving benefits that arise for all firms in an industry due to regional growth, such as better infrastructure or specialized labor.

Merger

When two businesses agree to join together and form a brand-new legal entity.

Acquisition

When one company (the parent) buys a controlling interest in another company (the subsidiary) with the board's permission.

Takeover

A hostile form of acquisition where a company buys a majority of shares directly from shareholders without board approval.

Joint Venture

A growth strategy where two or more businesses create a new, separate legal entity for a specific project while keeping their original identities.

Strategic Alliance

A collaborative agreement between firms to share resources for a common goal without creating a new legal entity.

Franchising

A legal agreement where a franchisor allows a franchisee to trade under its brand name and business model in exchange for fees and royalties.

Franchisor

The original owner of a business concept who sells the rights to others to use the brand and model.

Franchisee

The individual or business that buys the right to operate a branch of a franchise.

Ansoff Matrix

A strategic tool used to plan growth based on four categories: Market Penetration, Product Development, Market Development, and Diversification.

Market Penetration

An Ansoff strategy focusing on selling existing products to existing customers

Product Development

An Ansoff strategy involving the creation of new products for an existing market/customer base.

Market Development

An Ansoff strategy involving selling existing products to new geographic areas or new demographic segments.

Diversification

The riskiest Ansoff strategy, involving the launch of new products in completely new markets.

Satisficing

A strategy often used by small businesses to aim for an "adequate" level of profit rather than maximizing it, allowing for better work-life balance or control.

Force Field Analysis (HL)

A framework by Kurt Lewin for weighing "Driving Forces" (pushing for change) against "Restraining Forces" (blocking change).

Driving Forces (HL)

Factors that support or promote a specific organizational change.

Restraining Forces (HL)

Factors that resist or hinder a specific organizational change, such as fear or high costs.

Biomimicry

A business approach that mimics natural systems to create mutual benefits and healthy "business ecosystems."

Generative (Regenerative) Business

A business model that goes beyond sustainability to actively restore, share know-how, and provide mutual benefits to all stakeholders.

Synergy

The concept that the value of two combined companies is greater than the sum of their individual parts ($1 + 1 = 3$).