I.
Preparing
for Growth
Sustained growth is growth in both revenues and profits over a sustained period.
1.
Appreciating the Nature of Business Growth
Growing a business
successfully requires preparation, good management, and an appreciation of the
issues involved.
2.
Staying Committed to a Core Strategy
If a business become
distracted or starts pursuing every opportunity for growth that presents
itself, the business can easily stray into competitive disadvantage areas.
3.
Planning for Growth
Involves a firm thinking
ahead and anticipating the type and amount of growth to achieve.
II.
Reasons
for Growth
Six primary reasons firms try to grow to increase profitability and
valuation:
1.
Capturing Economies of Scale
Generated when increasing
production lowers the average cost of each unit produced.
2.
Capturing Economies of Scope
The advantage a firm accrues
come through the scope (or range) of a firm’s operations rather than from its
scale of production.
3.
Market Leadership
When a firm holds the number
one or two in an industry or niche market in terms of sales volume.
4.
Influence, Power, and Survivability
Larger businesses can
typically make a mistake yet survive more easily.
5.
Need to Accommodate the Growth of Key Customers
The ability to serve an
important customer’s expanding demand.
6.
Ability to Attract and Retain Talented Employees
Desirable employees want to
work when learning and growth opportunities available.
III.
Managing
Growth
Many businesses are caught
off guard by the challenges involved with growing their companies. As a
business increase its sales, its pace of activity quickens, its resource needs
increase and the founders often find that they’re busier than ever.
1.
Knowing and Managing the Stages of Growth
Most of businesses go
through a discernable set of stages (organizational life cycle).
a.
Introduction Stage
Where a business determines
what its strengths and core capabilities are and starts selling its initial
products or service. The business is typically very nonbureaucratic with no (or
few) written rules or procedures. The main goal is to get off to a good start
and try to gain momentum in the marketplace.
b.
Early Growth Stage
Generally characterized by
increasing sales and heightened complexity. Two important things must take
place to be successful: (1) The founder or owner of the business must start
transitioning to a more managerial role, and (2) Increased formalization must
take place.
c.
Continuous Growth Stage
The toughest decisions are
typically made in this stage. One tough decision is whether the owner of the
business and the current management team have the experience and ability to
take the firm any further.
d.
Maturity Stage
When a business growth
slows. Focuses on efficiently managing the products and services it has rather
than expanding in new areas. Innovation slows.
e.
Decline Stage
Eventually all businesses’
products or services will be threatened by more relevant and innovative
products. To avoid, it depends on the strength of its leadership and its
ability to appropriately respond.
IV.
Challenges
of Growth
1.
Managerial Capacity
The introduction of new
product and service ideas requires substantial managerial services or capacity
to be properly implemented and supervised.
2.
Day-to-Day Challenges of Growing a Firm
a.
Cash Flow Management
A firm must carefully manage
its cash on hand to make sure it maintains sufficient liquidity.
b.
Price Stability
If firm growth comes at the
expense of a competitor’s market share, price competition can set in.
c.
Quality Control
Maintaining high levels of
quality and customer service.
d.
Capital Constraints
The need for capital is typically the
most prevalent in the early and continuous growth stage.
Comments
Post a Comment