Techno 14-Strategies for Growth

8/9/2019 Techno 14-Strategies for Growth

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Strategies for Growth and

Managing theImplications of Growth

McGraw-Hill/IrwinEntrepreneurship, 7/e Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 14


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Growth Strategies

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Penetration Strategy

` A strategy to grow by encouraging existing customers to buy more ofthe firms current products.

` Marketing can be effective in encouraging frequent repeatpurchases.

` Does not involve anything new for the firm.` Relies on taking market share from competitors and/or expanding

the size of the existing market.


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Market Development Strategies

` Strategy to grow by selling the firms existing products to new groupsof customers.

` New geographical market: selling existing product in newlocations.

` New demographic market: selling to a different demographicgroup.

` New product use: selling an existing product, which may have anew use, to new groups of buyers.


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Product Development Strategies

` A strategy to grow by developing and selling new products to peoplewho are already purchasing the firms existing products.

` Advantages:

` Chance to capitalize on existing distribution systems.

` Capitalizing on the corporate reputation firm has with these

customers.


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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 chaintoward the raw materials.

` Forwards integration: a step forward (down) on 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.


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Example of a Value-Added Chain and Types

of Related Diversification

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Example of Growth Strategies (1 of 2)

` Case: Early days of the Head SkiCompany; onlyproduced and sold high-tech skis in the U.S. market.

` Penetrationstrategy` Increasein marketing budget focused on encouraging

existing customersto upgrade theirskis more often.

` Marketdevelopmentstrategy

` Sellingskisin Europe, Argentina, and New Zealand.` Productdevelopmentstrategy

` Develop and sellnew products (hats, gloves, boots, andotherskiaccessories).


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Example of Growth Strategies (2 of 2)

` Diversificationstrategies

` Backward integration: designand manufacture ofequipmentused to makeskis.

` Forward integration: control ofa chain ofretailskishops.

` Horizontalintegration: ownership ofski mountains.


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A Follow-Up of Inc. Magazines 1984

Fastest-Growing Ventures

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Pressures on Firm Growth

` Existing financialresources

` Firmsresources can becomestretched quitethin.

` Humanresources

` Problems of employee morale, employee burn out, andanincreasein employeeturnover.

` Managementof employees

` Mayrequire changein managementstyleand in dealing

with employees.` Entrepreneurstime

` Divertingtimeto severalactivities can cause problems.


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Overcoming Pressures on

Financial Resources` Managing cash flow.

` Manageinventory.

` Manage fixed assets.

` Manage costsand profits.` Taxes.

` Record keeping.


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Managing Cash Flow

` Entrepreneur should:

` Have an up-to-date assessment of the cash position.

` Prepare a daily cash sheet.

` Compare budgeted or expected cash flows with actual cash flows.


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Managing Inventory

` Entrepreneur needs to:

` Determine value of inventory.

` Determine how inventory affects the cost of goods sold (incomestatement).

` Decide on LIFO (First Items In Inventory) or FIFO (Last Items InInventory).

` Factors to consider for converting to LIFO:

` Anticipate increased labor, materials, production costs.

` Business/inventory growing.

` Computer-assisted inventory control.

` Business is profitable.


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Managing Fixed Assets

` Involve long-term commitments and large investments for the newventure.

` Equipment

` require servicing and insurance.

` affect utility costs.

` depreciate over time.

` Leasing can be an alternative to buying.


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Managing Costs and Profits

` Entrepreneur needs to:

` Assess each item to determine cost reduction

` Determine 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.


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Taxes

` Entrepreneur will berequired:

` Withhold federaland statetaxes for employees.

` Payanumber oftaxes (stateand federalunemploymenttaxesand businesstaxes).

`Allocatetaxesas partofany budget.

` File end-of-yearreturns ofthe business.

` Consideruse ofatax accountant.


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Record Keeping

` Helpfulto considerusingasoftware package.

` Maybenecessaryto enlistthesupportand services ofanaccountant/ consultant.

`Vitallyimportantto useasystem forstoringand usingcustomerinformation.


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Overcoming Human Resource Pressures

` Preparation of job descriptions.

` Itemizingspecifications.

` Outsourcing of HR responsibilities:` Recruiting.

` Hiring.

` Establish benefitprograms.

` Payroll.` Firing.

` Permanentvs. part-time.

` CorporateCulture.


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Overcoming Pressures on

Employee Management

` Activitiesto institutea more participativestyle ofmanagement:

`Establishingateam spirit.

` Communicating with employees.

` Providing feedback.

` Delegatingsomeresponsibilityto employees.

` Providing continuoustraining for employees.


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Overcoming Entrepreneurs

Time Management Pressure

` Benefits of effectively managingtime:

` Increased productivity.

`Increased job satisfaction.

` Improved interpersonalrelationships.

` Reduced timeanxietyand tension.

` Better health.


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Basic Principles of Time Management (1 of 2)

` Principle of desire: arecognition oftheneed to changepersonalattitudesand habitsregardingtheallocationoftime.

` Principle of effectiveness: a focus onthe mostimportantissues.

` Principle ofanalysis: understanding how timeiscurrently beingallocated, and whereitis beinginefficientlyinvested.


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Basic Principles of Time Management (2 of 2)

` Principle ofteamwork: acknowledgmentthatonlyasmallamountoftimeisactuallyunder ones controland thatmostof onestimeistakenup by others.

` Principle of prioritized planning: categorization oftasksbytheir degree ofimportanceand thentheallocationoftimeto tasks based onthis categorization.

` Principle ofreanalysis: periodic review of onestimemanagementprocess.


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Four Types of Entrepreneurs

and Firm Growth

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Techno 14-Strategies for Growth