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 Principle of Desire: Recognizing being a time waster, time as an important resource and need to change personal attitudes. Principle of Effectiveness: Focusing on most important issue, when under pressure. Principle of Analysis: How time is currently being allocated

Cont.. Principle of Teamwork: Recognizing small amount of time is under entrepreneur's control – most of his time is taken up by others. Principle of Prioritized planning: Categorization of tasks by their degree of importance. 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 High Entrepreneur's ability to institute professional management practices Low Little Potential Constrained Yes No Entrepreneur’s Growth Aspirations