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 DiversificationDiversification 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

Unused Potential Actual Growth

Little Potential Constrained

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Entrepreneur’s Growth Aspirations