EEE 2023 Chapter 13

A business can literally have​ $1 million in accounts receivable but not be able to meet a​ $25,000 payroll. This is called the​ ____ problem.

cash flow management

A​ firm's administrative framework consists of two kinds of services that are important to a​ firm's growth,​ ________ and managerial services.

entrepreneurial

​Angie's Bakery pays a rent of​ $2,000 per month whether it sells something or not. For​ Angie's Bakery, rental costs are​ ________.

fixed

sustained growth

growth in both revenues and profits over a sustained period of time

The​ __________ stage of the organizational life cycle is a very​ "hands-on" phase for the​ founder(s), who are normally involved in every aspect of the​ day-to-day life of the business.

introduction

stages in the organization life cycle

introduction, early growth, continuous growth, maturity, and decline

​____ means that as a firm grows and adds​ personnel, the new hires typically do not have the same ownership incentives as the original​ founders, so the new hires may not be as motivated as the founders to put in long hours or may even try to avoid hard work.

moral hazard

the introduction stage of the organization life cycle

occurs when a business determines what its strengths and core capabilities are and starts selling its initial product or service

Market leadership occurs when a firm holds the number one or two position in an industry or niche market in terms of​ ____.

sales volume

Acme​ Corp., a producer of safety​ blades, produces the highest volume of products annually in the industry that results in it having the lowest average cost. Acme Corp benefits from economies of​ ___________.

scale

When Starbucks uses the same feature to advertise Starbucks coffee along with Starbucks music and Starbucks​ apparel, it is benefitting from economies of​ ________.

scope

the managerial capacity problem

suggests that firm growth is limited by the managerial capacity (i.e., personnel, expertise, and intellectual resources) that firms have available to implement new business ideas

the maturity stage of the organization life cycle

the firm's growth slows and eventually comes to a halt, as does its ability to generate product or service innovations

the decline stage of the organization life cycle

the firm's sales begin falling rather dramatically and the quality of the firm's relationships with stakeholders such as customers, suppliers, employees, and financial institutions begin to suffer

The faster a firm​ grows, the less time managers have to evaluate the suitability of job candidates and the higher the chances are that unsuitable candidates will be chosen. This problem is called​ ____.

adverse selection

3 things a business can do to prepare for growth

appreciating the nature of business growth, staying committed to a core strategy, and planning for growth

The six most common reasons that firms grow in an effort to increase their profitability and valuation

(1) capture economies of scale (which are generated when increasing production lowers the average cost of each unit produced); (2) capture economies of scope (similar to economies of scale, scope economies are advantages a firm generates through the range of its operations); (3) achieve market leadership (which happens when a firm holds the top or second position in its industry or the segment of an industry in which it competes); (4) maintain influence, power, and survivability (conditions through which a firm is able to affect the setting of an industry's standards as well as having the scale and scope that will allow it to make a mistake and continue operating); (5) accommodate the growth of key customers (which is the ability to serve an important customer's expanding demand for the firm's product or service); and (6) maintain an ability to attract and retain talented employees (the most desirable employees want to work for a firm in which learning and growth opportunities will be readily available to them).

to succeed in the early growth stage of the organization life cycle

(1) the founder or owner of the business must start transforming from his or her role as the hands-on supervisor of every aspect of the business to a more managerial role, and (2) increased formalization must take place

the day-to-day growth-related challenges that firms encounter

cash flow management (the challenge of continuously verifying that the firm has sufficient cash on hand to meet its needs), price stability (this challenge surfaces when a firm competes successfully against larger competitors who respond by making the new venture compete on the basis of price, a competitive dimension on which it is at a disadvantage compared to large, established competitors), quality control (with growth, the entrepreneurial venture may find it increasingly difficult to maintain the quality of its product or service as demanded by customers), and capital constraints (here the challenge is to find the financial capital needed to support early and hopefully continuous firm growth).

the early growth stage of the organization life cycle

characterized by increasing sales and heightened complexity

A​ firm's core strategy is largely determined by its​ _______.

core competencies