Ch 14: Strategies For Growth

And Managing Implications

Group 2
Growth Strategies: Where to
Look For Growth Opportunities
 Penetration Strategies
“A strategy to grow by encouraging existing customers to buy more of the
firm current products”.

 Marketing an effective tool

 Market Development Strategies

“ Strategy to grow by selling the firm firm’s existing products to new groups
of customers”.

 New Geographical Market

 New Demographic Market
 New product Use
Conti…..
 Product Development strategies

“strategy to grow by developing and selling new products to people who

are already purchasing the existing products of the firms”.
Conti…
 Diversification Strategies
“strategy to grow by selling new product to new market”.

 Related Diversification
Diversification related to current business.

 Types

 Backward integration
“a step back into value added chain toward the raw material”.
 Forward Integration
“a step forward in value added chain toward the customers”.
 Horizontal integration
“occurs at the same level of the value added chain but involves a different,
complementary, value added chain”.
Economic Implementation Of
Growth
 Pursuit and achievement of growth has an impact on:
 Economy

 Firm

 Entrepreneur

 Inc. magazine conducted survey on 500 fast growing

ventures in 1984

 Purpose of study= present condition of venture entering

into growth phase
Conti…..
 Survey findings:

 95 ventures closed down,135 ventures sold to new owners

 Out of rest 233=48% were privately held and 6% had gone

public

 Conventional thinking in entrepreneurship= becoming a

big requires you to go public & finance the growth
Conti…..
 Research finding showed the same pattern of conventional
thinking
 Company’s gone public achieved larger growth than those

that did not.

 Business that had failed learnt from their attempt and

ultimately succeed

 Benefits of entrepreneurial endeavours= increased tax

revenues, increased employment, reduction of trade deficit.
 Poor performing economies= where entrepreneurial
ventures do not fail.
Implications Of Growth For
the Firm

 Growing of business provides more power to

influence firm performance
Managerial Pressures
 Pressures on Existing Financial Resources
 Growth need cash

 Firm’s own resources become stretched thin

 More risks in company

 Pressures on human resources

 Growth is fueled by employees

 Employee turnover

 Negative impact on firm’s corporate cultures

Conti..
 Pressure on management of employees

 Change in management style

 Management decision making

 Pressures on the entrepreneur’s time

 Most precious but limited resources

 Growth needs time
 Cannot be created nor stored
 Perishable
 Overcoming Pressures on
Existing financial Resources
 Financial Control

 Managing Cash Flow

 Managing Inventory
 Managing Fixed Assets
 Managing Costs and Profits
 Taxes
 Record Keeping
Financial Control
 Entrepreneurs will need knowledge of how to provide
appropriate controls to ensures that goals are met in the
first three years

 Financial skills are required to manage the venture in these

three years.

 Cash flow, income statements and balance sheet are key

financial areas that will need careful management and
controls
Managing Cash Flow

 Cash out flow may exceed cash inflow so try to have

up to date assessment of cash positions

 Example:
 Preparing monthly cash flow statements and then
comparing planed/budgeted amount with actual
results
Conti…..

 Planned inflow of Cash to actual inflow

 Did we earn more or less from the plan

 Do we have enough funds to meet short term expense
 Do we have enough funds to reinvest
Conti….

 Liquidity surplus
 We earned more than expected

 Liquidity crunch
 We earned less than expected
Conti….

 Planned outflow of cash to actual outflow

 Are expenses more than our plan

 Where did we spend more
 Where did we save
 What amount of payments have been made
 What amounts are due
Conti……
 Cash flow statements can be prepared daily, monthly,
quarterly and yearly

 For new and small ventures daily cash flow sheet is

recommended

 Example:
 Restaurants, retail stores and service businesses
Benefits of daily cash flow
sheet

 Problems or errors can be caught on daily basis

 Inform us of immediate cash needs

 Efficiently manage assets and cost

Managing Inventory
 Too much inventory and too little inventory can be
disadvantage for sales

 Computerized inventory control system allow the firm to

maintain records of inventory on product by product basis

 The reports from inventory management system are

generated every two to four weeks in normal sales and
weekly in heavy sales periods.
Cont..
 The system improves the overall profitability of the firm.

 Certain software are also present

 LIFO, FIFO

 Entrepreneur: which accounting method to be used?

 Advantages of LIFO

 Important for the entrepreneur to keep careful records of

inventory
Cont..
 EDI: Producers, wholesales and retailers can easily
communicate with each other.

 Help track the shipments internationally

 ECR: Developed by grocery and pharmaceutical industries

 SCM: Manage demand, distribution and marketing the

inventory levels to meet consumer demands.
Managing Fixed Assets

 Involves long term commitment

 Large investment

 leasing as an alternative
 Advantages & disadvantages
Managing Costs and Profits

 Establish cost standards

 Comparing the actual cost with the budgeted amount.

 Three possibilities of managing costs and profits

 Before the time

 On the time
 After the time
Taxes
 Withholding tax

 Other kind of taxes

 State and federal, unemployment, medical tax and other

business taxes

 End of the year returns

Record Keeping
 Software package

 External services can be used to train employees

 Easy to access

 Entrepreneur is less dependent

 Customers information
Overcoming Pressures on
Existing Human Resource
 Human resource for new venture

 Professional employer organization

 Portion of permanent and part time employees

 Hiring the right person

 Feedback with proposed solutions

 How to maintain the cooperate culture

Overcoming Pressures on the
Management Of Employees
 Participative Style of management:
The managers involve others in decision making process.

 Steps
 complexity of growing businesses and managing change
increases the information-processing demand on entrepreneur.
 Highly qualified management and employees are an important
resource of coming up with new ways to tackle current
problems.
 Participative decision making motivate employees towards
implementation.
 Employees enjoy making decisions an taking initiatives
Conti….
 Establish Team Spirit
 We instead of Me

 Communicate with Employees

 Provide Feedback

 Delegate Responsibility to others

 Provide Continuous training for employees

Overcoming pressures on
Entrepreneur's Time
“Process of improving individual productivity through more
efficient use of time”.

 Increased Productivity
 Increased job satisfaction
 Improved interpersonal relation
 Reduced time anxiety and tension
 Better health
Basic Principles of Time
Management
 Process by which the entrepreneur can become a time
saver

1. Principle of Desire: Recognizing being a time waster,

time as an important resource and need to change
personal attitudes.
2. Principle of Effectiveness: Focusing on most important
issue, when under pressure.
3. Principle of Analysis: How time is currently being
allocated
Cont..
4. Principle of Teamwork: Recognizing small amount of
time is under entrepreneur's control – most of his time is
taken up by others.

5. Principle of Prioritized planning: Categorization of tasks

by their degree of importance.

6. Principle of Reanalysis: Periodic review of one’s time

management process.
Implications of Firm Growth to
Entrepreneur
 Growth introduces managerial challenges for
entrepreneurs.

 Example of Pearce Jones (Design Edge)

 Example of Herb Kelleher (Southwest Airlines)

 Entrepreneurs do not want to negotiate their control over

firm
 A Categorization of Entrepreneurs
and their Firms Growth
professional management practices
Entrepreneur's ability to institute

High

Unused Potential Actual Growth

Low

Little Potential Constrained

Yes No
Entrepreneur’s Growth Aspirations