30-09-2013, 04:22 PM
A PROJECT DONE AS THE PART OF STRATEGIC MANAGEMENT
DONE AS THE PART OF STRATEGIC .docx (Size: 58.7 KB / Downloads: 45)
INTRODUCTION
In any business the ultimate goal of management is to maintain profits. The company can get more profits in different ways, like reducing the cost of production, mass production etc. In minimising the cost, the most efficient tool is economies of scale, which means reducing the cost per unit of a product. In the same way some companies follow another technique called economies of scope. This is also one type of cost reduction technique.
DEFINITION OF ECONOMIES OF SCOPE
Economies of scope refer to the reduction of per unit costs through the production of wider verity of goods or services.
An economic theory stating that the average total cost of production decreases as a result of increasing the number of different goods produced.
MEANING OF ECONOMIES OF SCOPE
Cost analysis focuses on the amount and combination of products that should be offered. By virtue of their efficiency in the production of a given product, firms often enjoy cost advantages in the production of related products.
If a single firm can jointly produce goods X and Y more cheaply that any combination of firms could produce them separately, then the production of X and Y is characterized by economies of scope.
CONCEPT OF ECONOMIES OF SCOPE
Economies of scope exist when the cost of joint production is less than the cost of producing multiple outputs separately. A firm will produce products that are complementary when producing them together is more efficient than producing them individually. Suppose that a regional airline offers regularly scheduled passenger service between midsize city pairs, and that there is modest local demand for air parcel and small – package delivery service. Given current airplane sizes and configuration s, it is often less costly for a single carrier to provide both passenger and cargo services in small regional markets than to specialize in one or the other. Regional air carriers often provide both services.
Studying economies of scope forces management to consider both direct and indirect benefits associated with individual lines of business. For example, some financial service firms regard checking accounts and money market mutual funds as “loss leaders.” When one considers just the revenues and costs associated with marketing and offering checking services or running a money market mutual fund, they may just break even or yield only a marginal profit.
The concept offers a useful means for evaluating the potential of current and prospective line of business. It naturally leads to definition of those areas in which the firm has a comparative advantage and its greatest profit potential.
ANALYSIS AND DISCUSSION
Economies of scope are important because they permit a firm to translate superior skill in a given product line into unique advantages in the production of complementary products. Effective competitive strategy often emphasizes the development or extension of product lines related to a firm’s current stars, or areas of recognized strength.
This is most useful technique for the organizations because, nowadays no product is sustain for a longer time. So organizations can’t depend upon a single product, if they make the relevant product at the same time that will give benefit to the organization.
Today the scenario of business has been changed; people are always thinking to go for the same brand. This is also leads to economies of scope, for example HORLICS produces Horlics foodles, biscuits, energy drink. This will help to grasp the attention of the people towards brand.
Because of economies of scope the transportation cost will be reduced.
Through the economies of scope the market value will be increased, for example VIVEL has been producing bathing soaps and shampoos, they also giving ads like with the purchase of shops the shampoo are free. So people will attract and sales will be increased through this market value will increase.
CONCLUSION
The concept of Economies of scope is essential technique for any organization. As per the study I found that economies of scope of the ITC, HUL and GM are helped them a lot to sustain in the market and also to become as market leaders. Because of the economies of scope the cost of the product will reduce, the profits will be maximized. This is the extention concept of economies of scale for multiple products.