Causes of Diseconomies of Scale: Factors leading to increased costs as a firm grows larger include communication challenges, coordination difficulties, and decreased efficiency in management.
TITLE
Briefly explain causes of diseconomies of scale.
ESSAY
Title: Causes of Diseconomies of Scale in Business Organizations
Introduction:
Diseconomies of scale refer to the situation where a business experiences increased costs per unit of output as it grows larger. This phenomenon is often associated with various management challenges that arise from directing a large organization with multiple divisions and widespread operations.
Communication Issues:
One of the primary causes of diseconomies of scale is poor communication within the organization. As companies expand, communication becomes more challenging, leading to issues such as excessive reliance on non💥personal communication methods, a flood of messages, long chains of command, distorted messages, delayed information flow, and poor decision💥making. These communication inefficiencies can reduce management efficiency and hinder feedback processes, ultimately resulting in higher operational costs.
Impersonal Organizations:
As businesses grow larger, they may become more impersonal, losing touch with employees and leading to demotivation and alienation among staff. This is particularly prevalent in flow line manufacturing companies, where employees may feel disconnected from the organization. To address this issue, companies can implement strategies such as teamwork and job enrichment to enhance employee engagement and motivation.
Poor Coordination:
Another common cause of diseconomies of scale is poor coordination within the organization. With growth, it becomes increasingly difficult to maintain control over different parts of the business, leading to a lack of clarity regarding the company's purpose and mission, duplication of efforts, and bureaucratic tendencies. This lack of coordination can result in higher production costs and inefficiencies across various departments.
Top💥Heavy Organizations:
Companies that become overly hierarchical and top💥heavy are susceptible to experiencing diseconomies of scale due to internal politics and power struggles. As power dynamics come into play, decision💥making processes may become convoluted, leading to delays and inefficiencies. To address this issue, businesses should strive to streamline their organizational structure and promote transparency and collaboration among different levels of management.
Conclusion:
In conclusion, diseconomies of scale in business organizations can arise from a variety of management challenges related to communication, organizational structure, coordination, and interpersonal dynamics. By addressing these underlying issues proactively, companies can mitigate the negative effects of diseconomies of scale and improve overall operational efficiency and effectiveness.
SUBJECT
BUSINESS STUDIES
LEVEL
A level and AS level
NOTES
Briefly explain causes of diseconomies of scale. Answers could include: • Diseconomies of scale are generally related to management challenges/ problems associated with directing a large organisation, often with many divisions and spread across different locations/ countries. • Communication is often a major problem leading to diseconomies 💥 excessive use of non💥personal communication – mass of messages – long chains of command – messages distorted – information is delayed – poor decision💥making – lack of feedback – management efficiency reduced. • Impersonal organisations – lose contact with employees – de💥motivation – danger of staff alienation, especially in flow line manufacturing companies (use team work and job enrichment to address these issues). • Poor co💥ordination – with growth – difficult often to maintain control over the disparate parts of the organisation – purpose and mission not understood – duplication of effort – bureaucracy – this poor co💥ordination can lead to higher production costs. • Top heavy companies – company politics.