Managing Growth &

Transition

Managing Growth &

TransitionUnit-Eight

By:Manish ojhaFarwestern university

Kanchanpur,Nepal

New ventures pass through transitional stages that present new challenges to their founders. These transitional stages are represented by an organizational life cycle. When new ventures established it grow, mature, and, in many cases, decline. As we shall see, there are several important challenges facing entrepreneurs during different transition stages.

The Entrepreneur’s perspectiveThe life cycle is identified with five stages:Start-up stageExpansion stageConsolidation stageRevival stage &Decline stage

These are explained in terms of three variables: growth,

product/market definition, and organization. As the venture progresses from one stage to the next, condition change, requiring different decisions for managing growth, developing products and markets, and organizing the company.

Business Life Cycle

Start-up StageDuring the start-up stage, growth is unpredictable. Sales not often meet a founder’s expectations, and they can occur haphazardly. In extreme circumstances, markets will be disordered with exciting spurts and disappointing sputters. This disorder can absorb entrepreneurs in daily struggles to survive. In the worst-case scenario markets may be inactive, leaving the entrepreneur confused. Inconsistent growth does not provide a pattern of sales to help guide an entrepreneur’s decisions. Although products and services are usually targeted to narrow market niches, confusion persists. During this initial stage, entrepreneurs modify their products, change distribution systems, alter services and experiment with marketing tactics in an attempts to survive; they are “fighting fires” every day.

Expansion StageDuring the expansion stage, rapid growth results in a pattern of success that is useful for evaluating market position and new-product potential. The venture is transformed from a single-line enterprise operating in a limited market to a multiline company penetrating new markets. Product and service line are broadened through innovation and development, and the organization expands through functional authority. Decision making may be centralized during early growth, but departmentalization ensues, leading to a dispersion of authority. To meet these challenges, entrepreneurs must enlarge the enterprise and delegate authority for functional coordination.

Start-up Stage

Expansion Stage

Single product or restricted line of

merchandise and service

Single product or restricted line of

merchandise and service

Positioned in new markets and among a

wider group of customers or clients

Positioned in new markets and among a

wider group of customers or clients

Multiple products or expanded line of

merchandise and services

Multiple products or expanded line of

merchandise and services

Positioned to complete in one market or to serve

limited clients

Positioned to complete in one market or to serve

limited clients

Expansion of Products and Markets

Consolidation StageAs competition intensifies within a growing industry, businesses are faced with marginally smaller incremental shares of markets. The result is a competitive struggle at a slower rate of growth during what is often called an industry shakeout period. Weaker companies fail, some are sold or merged with others, and many consolidate to remain profitable.

Contd…..

Consolidation occurs differently for every organization. Manufactures may trim back operation, reduce product lines, or retreat from marginally profitable markets. Service companies reduce staff, simplify distribution systems, and withdrew from high risk markets. In all cases, organizations tend to shift authority downward as middle-and higher-level staff are reduced to improve efficiency. The result is a flatter organization that is indirectly described as “Leaner and meaner”.

Revival StageThe revival stage is one of “rekindling” organizational growth. Rapid growth can be achieved by clever repositioning of product lines and services through purposeful market segmentation. Repositioning sets the stage for a strategy of product or service diversification. In order to achieve rapid growth, innovation is essential, and because the company needs to incubate new ideas, greater responsibility is given to division managers for independent development. In effect, company executives attempt to receive a spirit of entrepreneurship in their operational managers by empowering them with authority for self-direction. As a result, organizations are restructured through product, geographic, or customer divisions, and the functional hierarchy is subordinated to divisional leadership.

Decline StageGrowth declines once again if revival strategies are short-lived or ineffective. Companies in decline often are those that have diversified too widely or created excessively bureaucratic organizations. Consequently, it is not unusual to find that a declining venture has lost sight of its distinct competency in products or services that initially proved successful. Founding entrepreneurs-if they are still with their ventures-will have failed to adapt to leadership challenges in previous stages and subsequently pushed their companies to the brink of disaster.

Conclusion Successful ventures will not complete the life cycle; by definition, they avoid decline. They will have enjoyed growth through product or market expansion, consolidated when necessary, and experienced a revival of growth consistent with their capabilities and the industry in which they compete. The last stage implies perpetuation of innovations through the intrapreneurial process can described. In each of these, successful entrepreneurs will have adapted to new roles in concert with organizational changes.

CHANGING ENTREPRENEURIAL CHANGING ENTREPRENEURIAL ROLESROLES

Between the initial start-up and revival stages, entrepreneurs experience a metamorphosis. They change from a persona of the founding entrepreneur to that of an organizational executive. At the venture’s inception, the entrepreneur and the new venture are bound as an equity , and as the business grows, if follows a biological pattern of evolution that reflects the founder’s skill and aspirations. As the company continues to expand, it requires business-related skills often beyond those of the founder; functional expertise is needed, marketing and operation skills are required, and decision-making tasks are beyond the scope of one person. Consequently, the biological growth cycle is superseded by an organizational life cycle.

Contd….

The entrepreneur who adapts to this environment, in effect, embraces the necessary metamorphosis; the entrepreneur who resist constraints the organizations to the narrow limitations of his her personal abilities. How adaption occurs is unclear, but research provides insights into the prevalent role characteristics of successful leaders at each stage in a venture’s life cycle.

Founding the ventureFounding the ventureA composite role has been emphasized for founding enterprise that encompasses all the functions of a start-up business. The founder must wear many hats. From a psychological viewpoint, the founder’s personal life is not distinguishable from the venture; entrepreneurs embody the inspiration, objectives, emotion, and creativity of their enterprises. They identify with every problems and decision. Unfortunately, this intense involvement does not mean entrepreneurs are effective leaders of managers, and if they are good in one role, there is no guarantee they are good in another.

There is a difference between leaders and managers. Leaders involved emotionally in a venture, think strategically to create opportunity and resolve conceptual, long-term problems, and provide the inspiration necessary for sustained momentum. Managers, in contrast, have a “transactional orientation” that permits them to maintain psychological distance between their personal lives and business decisions.

Consequently, they tend to focus on operational tasks and on solving organizational problems. This distinction does not mean that managers are not good leaders or vice versa, only that it is difficult to integrate these roles consistently. During the start-up stage, leadership probably outweighs are importance of management because the new venture is in a disordered state. Success depends on shaping expectations, developing creative ideas into marketable commodities, and adjusting to individual wonders.

Guiding The Venture Through Guiding The Venture Through ExpansionExpansion

Disorder may persist into the early stages of expansion, but if a company has progressed this far, then a great many problems have already been resolved. The primary focus of operations will have shifted away from survival in uncertain markets to managing growth in well-defined markets. As the rate of expansion increases, more emphasis is placed on planning and controlling activities. Therefore, an entrepreneur begins to experience the metamorphic effect of transforming behavior from intuitive leadership to clear management. As emphasized earlier, being oriented either to a leadership or a management role does not mean one can ignore the other; they are not mutually exclusive roles.

Management responsibilities surface rapidly as a venture expands. An entrepreneur is seldom capable of doing all that must be done with respect to functional management activities. These activities include marketing, cash-flow management, inventory control, purchasing, credit management, and human resource development. Depending on the type and complexity of the organization, many other functional activities are possible, such as research and development, production control, logistics and distribution, and management accounting.

Entrepreneurs find themselves adapting to many more management activities during expansion stage, but in general, entrepreneurs spend less time on operational activities and more time on strategic management of resources during expansion. In addition they spend more time on coordination and communication activities with their staff, delegating incrementally more authority consistent with the growth ventures.

Managing ConsolidationManaging ConsolidationRapid growth cannot continue indefinitely, and at some point industries go through “shakeout periods”. Managing an enterprise in this environment is substantially different from managing a growing venture. During rapid growth, management is concerned with gaining new resources, finding expansion capital, adding employees, and developing new products or services. When things slow down, these tasks are reversed. New resources may be needed but in lesser quantities; capital becomes scare; and the organization may have to be timed down in size. Leader and manager roles are no less important during consolidation than in other stages, but decisions are seldom pleasant.

Managing during consolidation is not a “gatekeeping” function to maintain the status quo. To the contrary, it is a fight for survival. Perception and inspiration play lesser roles, and rationalization becomes a well-known concern as managers understanding for marginal improvements.

Turning The Venture AroundTurning The Venture AroundReversing a company’s pattern of poor performance is called turning it around, and turnaround begins for those ventures suffering from reduced sales and profits, the turnaround begins during the consolidation stage. More to the point, decisions made to achieve to consolidation help reposition the company so that it can be “turn around.” it is during the revival stage, however, that turnaround efforts are realized. This is the time when market segmentation becomes more keenly focused through customer-oriented activities. It is also when research and development begin to pay off in high-yield products and services. And it is the time when a streamlined organization can recover the aggressive for competing effectively.

PERSPECTIVE ON STRATEGIC MANAGEMENT PERSPECTIVE ON STRATEGIC MANAGEMENT Making effective strategic decisions is a theme that occurs throughout the organizational life cycle, and as described earlier, the nature of these decisions change as a company evolves. Entrepreneurs are preoccupied with survival during the start-up period; consequently, their strategies are limited to making a single product or service successful. With rapid growth, their strategic emphasis shifts to intense market development. As growth slows and the industry begins to shake out, entrepreneurs must adopt competitive strategies that can require severe retrenchment decisions. As entrepreneurs struggle to revive their ventures, they must focus their companies on distinct competencies that, in the long run, will stimulate growth and profitability.

Most strategic alternatives available to small, nonpublic ventures are concerned with internal changes that can be made through reallocation of limited resources; few small ventures can consider acquisition, mergers, or complicated strategic alliances with other companies. These internal alternatives emerge from strategic planning to realign a venture’s markets, refocus its research and development on high-potential products, or redefine its image. In contrast, large diversified corporations are more concerned with leveraging their financial strength to after portfolios. Smaller firms seldom have financial strength or portfolios with which to be concerned. Consequently, there is a fundamental difference in the nature of strategic planning for small and large businesses; small-business planning is not large-company planning on a smaller scale.

Growth Growth Strategic

Objectives•Profitability •Significant market position•Income to founder or investors•Size for economies of scale•Product R & D•Image•founder’s personal aspirations

Strategic Objectives

•Profitability •Significant market position•Income to founder or investors•Size for economies of scale•Product R & D•Image•founder’s personal aspirations

Influence rate of growth and

duration of effort required

to expand

Influence rate of growth and

duration of effort required

to expand

When achieved, satisfy strategic

objectives or influence changes

When achieved, satisfy strategic

objectives or influence changes

Strategies for achieving growth•Market diversification• Product development and diversification•Expansion of services •Other alternatives

Strategies for achieving growth•Market diversification• Product development and diversification•Expansion of services •Other alternatives

Growth rate

Growth rate

Objectives and New Venture Growth

Diversification

Market diversification

Market diversification

• Expand into new customer niches with existing products

• Open new markets with similar products and customers in new geographic areas

• Expand overseas by exporting

• Expand into new customer niches with existing products

• Open new markets with similar products and customers in new geographic areas

• Expand overseas by exporting

Product diversification

Product diversification

• Develop new products through R&D for existing customers

• License or acquire products or expand merchandise line for specific market niches

• Expand services for clients• Import products for domestic markets

• Develop new products through R&D for existing customers

• License or acquire products or expand merchandise line for specific market niches

• Expand services for clients• Import products for domestic markets

Combined diversification

Combined diversification

New product developed or acquired for new market niches in local or new geographic areas

New product developed or acquired for new market niches in local or new geographic areas