What type of costs may rise if a business grows too large without careful management?

As a business experiences growth, one significant challenge that can arise is the increase in coordination costs. When a company expands, particularly in terms of operations, locations, or the number of employees, the complexity of managing that organization increases. This complexity can lead to inefficiencies as more effort is needed to ensure that departments communicate effectively, resources are deployed appropriately, and processes are aligned.

Coordination costs encompass various expenses associated with ensuring that different parts of the business work together smoothly. For example, larger businesses may face difficulties in decision-making processes, which can result in delays and miscommunication. This can lead to higher costs due to the time and resources spent on meetings, administration, and oversight required to maintain coordination across different units.

In contrast, while raw material costs, variable costs, and marketing costs can also fluctuate with the scale of operations, they do not inherently rise due to lack of management in the same way that coordination costs might. Raw material costs are typically influenced by market prices and purchasing strategies; variable costs relate directly to production levels; and marketing costs are more closely associated with promotional strategies and market demands rather than internal organizational structure. Therefore, the emphasis on coordination costs highlights a specific issue related to management inefficiencies that can develop as businesses grow.