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Hisrich Peters Shepherd Chapter 13 Strategies for Growth and Managing the Implications of Growth Copyright © 2010 by The McGraw-Hill Companies, Inc. All.

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Presentation on theme: "Hisrich Peters Shepherd Chapter 13 Strategies for Growth and Managing the Implications of Growth Copyright © 2010 by The McGraw-Hill Companies, Inc. All."— Presentation transcript:

1 Hisrich Peters Shepherd Chapter 13 Strategies for Growth and Managing the Implications of Growth Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2 13-2 Figure Growth Strategies Based upon Knowledge of Product and/or Market

3 13-3 Growth Strategies  Penetration Strategy  A strategy to grow by encouraging existing customers to buy more of the firm’s current products.  Marketing can be effective in encouraging frequent repeat purchases.  Does not involve anything new for the firm.  Relies on taking market share from competitors and/or expanding the size of the existing market.

4 13-4  Market Development Strategies  Strategy to grow by selling the firm’s existing products to new groups of customers.  New geographical market - Selling in new locations.  New demographic market - Selling to a different demographic group.  New product use - Selling an existing product, which may have a new use, to new groups of buyers. Growth Strategies (cont.)

5 13-5  Product Development Strategies  A strategy to grow by developing and selling new products to people who are already purchasing the firm’s existing products.  Provides opportunities to capitalize on existing distribution systems and on the corporate reputation the firm has with these customers. Growth Strategies (cont.)

6 13-6  Diversification Strategies  A strategy to grow by selling a new product to a new market.  Backward integration - A step back (up) in the value-added chain toward the raw materials.  Forward integration - A step forward (down) in the value-added chain toward the customers.  Horizontal integration - Occurs at the same level of the value-added chain but simply involves a different, but complementary, value-added chain. Growth Strategies (cont.)

7 13-7 Figure Example of a Value-Added Chain and Types of Related Diversification

8 13-8  Example of Growth Strategies  Case: Early days of the Head Ski Company; only produced and sold high-tech skis in the U.S. market.  Penetration strategy - Increase in marketing budget focused on encouraging existing customers to “upgrade” their skis more often.  Market development strategy - Selling skis in Europe, Argentina, and New Zealand. Growth Strategies (cont.)

9 13-9  Product development strategy - Develop and sell new products  Diversification strategies  Backward integration - Design and manufacture of equipment used to make skis.  Forward integration - Control of a chain of retail ski shops.  Horizontal integration - Ownership of ski mountains. Growth Strategies (cont.)

10 13-10 Figure A Follow-Up of Inc. Magazine’s 1984 Fastest-Growing Ventures

11 13-11 Implications of Growth for the Firm  Pressures on Existing Financial Resources  Firm’s resources can become stretched quite thin.  Pressures on Human Resources  Problems of employee morale, employee burn out, and an increase in employee turnover.

12 13-12  Pressures on the Management of Employees  May require change in management style and in dealing with employees.  Pressures on Entrepreneur’s Time  Diverting time to several activities can cause problems. Implications of Growth for the Firm

13 13-13 Overcoming Pressures on Existing Financial Resources  To overcome pressures, the entrepreneur could acquire new resources.  The acquisition of new resources is expensive, whether in terms of the equity sold or the interest payments from debt.  The need or the magnitude of the new resources required can be reduced through better management of existing resources.

14 13-14 Financial Control  Managing Cash Flow  The entrepreneur should have an up-to-date assessment of the cash position.  A daily cash sheet would provide an effective indication of any daily shortfall and of problems or errors that might have occurred.  Compare budgeted or expected cash flows with actual cash flows.

15 13-15  Managing Inventory  Perpetual inventory systems can be structured using computers or a manual system.  To check the inventory balance, it may be necessary to physically count inventory periodically.  Link the needs of a retailer with the wholesaler and producer allowing for a fast order entry and response.  Transport mode selection can also be important. Financial Control (cont.)

16 13-16  Managing Fixed Assets  Generally involve long-term commitments and large investments for the new venture.  Equipment will require servicing and insurance and affect utility costs; will also depreciate over time.  Leasing can be an alternative to buying depending on:  Terms of the lease.  Type of asset.  Usage demand.  Lease payments can be used as a tax deduction. Financial Control (cont.)

17 13-17  Managing Costs and Profits  Compute net income for interim periods during the year.  Assess each item to determine cost reduction.  Consider raising prices to ensure positive profits.  Compare current actual costs with prior incurred costs.  Allocate expenses as effectively as possible, by product.  Avoid arbitrary cost allocation. Financial Control (cont.)

18 13-18  Taxes  Withhold federal and state taxes for employees.  Pay a number of taxes (state and federal unemployment taxes and business taxes).  Allocate taxes as part of any budget.  File end-of-year returns of the business.  Consider use of a tax accountant. Financial Control (cont.)

19 13-19  Record Keeping  It is helpful to consider using a software package.  It may be necessary to enlist the support and services of an accountant/ consultant.  It is important to use a system for storing and using customer information.  Build organizational knowledge to reduce dependency on any one individual. Financial Control (cont.)

20 13-20 Overcoming Pressures on Existing Human Resource  Some entrepreneurs are using professional employer organizations (PEOs) for various HR activities.  Decisions regarding the proportion of permanent and part time employees should be made; involves several trade-offs.  Give employees regular feedback; identify problems along with a proposed solution.  Maintain the corporate culture despite the influx of new employees.

21 13-21  Activities to institute a more participative style of management:  Establish a team spirit.  Communicate with employees.  Provide feedback.  Delegate some responsibility to employees.  Provide continuous training for employees. Overcoming Pressures on Existing Human Resource (cont.)

22 13-22  Benefits of effectively managing time:  Increased productivity.  Increased job satisfaction.  Improved interpersonal relationships.  Reduced time anxiety and tension.  Better health. Overcoming Pressures on Existing Human Resource (cont.)

23 13-23  Basic Principles of Time Management  Principle of desire - A recognition of the need to change personal attitudes and habits regarding the allocation of time.  Principle of effectiveness - A focus on the most important issues.  Principle of analysis - Understanding how time is currently being allocated, and where it is being inefficiently invested. Overcoming Pressures on Existing Human Resource (cont.)

24 13-24  Principle of teamwork - Acknowledgment that only a small amount of time is actually under one’s control and that most of one’s time is taken up by others.  Principle of prioritized planning - Categorization of tasks by their degree of importance and then the allocation of time to tasks based on this categorization.  Principle of reanalysis - Periodic review of one’s time management process. Overcoming Pressures on Existing Human Resource (cont.)

25 13-25 Figure Four Types of Entrepreneurs and Firm Growth


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