13-3Growth Strategies Penetration Strategy A strategy to grow by encouraging existingcustomers to buy more of the firm’s currentproducts. Marketing can be effective in encouragingfrequent repeat purchases. Does not involve anything new for the firm. Relies on taking market share from competitorsand/or expanding the size of the existingmarket.
13-4 Market Development Strategies Strategy to grow by selling the firm’s existingproducts to new groups of customers. New geographical market - Selling in newlocations. New demographic market - Selling to a differentdemographic group. New product use - Selling an existing product,which may have a new use, to new groups ofbuyers.Growth Strategies (cont.)
13-5 Product Development Strategies A strategy to grow by developing and sellingnew products to people who are alreadypurchasing the firm’s existing products. Provides opportunities to capitalize on existingdistribution systems and on the corporatereputation the firm has with these customers.Growth Strategies (cont.)
13-6 Diversification Strategies A strategy to grow by selling a new product to anew market. Backward integration - A step back (up) in thevalue-added chain toward the raw materials. Forward integration - A step forward (down) inthe value-added chain toward the customers. Horizontal integration - Occurs at the same levelof the value-added chain but simply involves adifferent, but complementary, value-addedchain.Growth Strategies (cont.)
13-7Figure 13.2 - Example of a Value-AddedChain and Types of Related Diversification
13-8 Example of Growth Strategies Case: Early days of the Head Ski Company; onlyproduced and sold high-tech skis in the U.S.market. Penetration strategy - Increase in marketingbudget focused on encouraging existingcustomers to “upgrade” their skis more often. Market development strategy - Selling skis inEurope, Argentina, and New Zealand.Growth Strategies (cont.)
13-9 Product development strategy - Develop and sellnew products Diversification strategies Backward integration - Design and manufacture ofequipment used to make skis. Forward integration - Control of a chain of retail skishops. Horizontal integration - Ownership of ski mountains.Growth Strategies (cont.)
13-10Figure 13.3 - A Follow-Up of Inc. Magazine’s1984 Fastest-Growing Ventures
13-11Implications of Growth for the Firm Pressures on Existing Financial Resources Firm’s resources can become stretched quitethin. Pressures on Human Resources Problems of employee morale, employee burnout, and an increase in employee turnover.
13-12 Pressures on the Management of Employees May require change in management style and indealing with employees. Pressures on Entrepreneur’s Time Diverting time to several activities can causeproblems.Implications of Growth for the Firm
13-13Overcoming Pressures onExisting Financial Resources To overcome pressures, the entrepreneurcould acquire new resources. The acquisition of new resources isexpensive, whether in terms of the equitysold or the interest payments from debt. The need or the magnitude of the newresources required can be reduced throughbetter management of existing resources.
13-14Financial Control Managing Cash Flow The entrepreneur should have an up-to-dateassessment of the cash position. A daily cash sheet would provide an effectiveindication of any daily shortfall and of problemsor errors that might have occurred. Compare budgeted or expected cash flows withactual cash flows.
13-15 Managing Inventory Perpetual inventory systems can be structuredusing computers or a manual system. To check the inventory balance, it may benecessary to physically count inventoryperiodically. Link the needs of a retailer with the wholesalerand producer allowing for a fast order entry andresponse. Transport mode selection can also be important.Financial Control (cont.)
13-16 Managing Fixed Assets Generally involve long-term commitments andlarge investments for the new venture. Equipment will require servicing and insuranceand affect utility costs; will also depreciate overtime. Leasing can be an alternative to buyingdepending on: Terms of the lease. Type of asset. Usage demand. Lease payments can be used as a tax deduction.Financial Control (cont.)
13-17 Managing Costs and Profits Compute net income for interim periods duringthe year. Assess each item to determine cost reduction. Consider raising prices to ensure positive profits. Compare current actual costs with prior incurredcosts. Allocate expenses as effectively as possible, byproduct. Avoid arbitrary cost allocation.Financial Control (cont.)
13-18 Taxes Withhold federal and state taxes for employees. Pay a number of taxes (state and federalunemployment 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.)
13-19 Record Keeping It is helpful to consider using a softwarepackage. It may be necessary to enlist the support andservices of an accountant/ consultant. It is important to use a system for storing andusing customer information. Build organizational knowledge to reducedependency on any one individual.Financial Control (cont.)
13-20Overcoming Pressures onExisting Human Resource Some entrepreneurs are using professionalemployer organizations (PEOs) for variousHR activities. Decisions regarding the proportion ofpermanent and part time employees shouldbe made; involves several trade-offs. Give employees regular feedback; identifyproblems along with a proposed solution. Maintain the corporate culture despite theinflux of new employees.
13-21 Activities to institute a more participativestyle of management: Establish a team spirit. Communicate with employees. Provide feedback. Delegate some responsibility to employees. Provide continuous training for employees.Overcoming Pressures onExisting Human Resource (cont.)
13-22 Benefits of effectively managing time: Increased productivity. Increased job satisfaction. Improved interpersonal relationships. Reduced time anxiety and tension. Better health.Overcoming Pressures onExisting Human Resource (cont.)
13-23 Basic Principles of Time Management Principle of desire - A recognition of the need tochange personal attitudes and habits regardingthe allocation of time. Principle of effectiveness - A focus on the mostimportant issues. Principle of analysis - Understanding how time iscurrently being allocated, and where it is beinginefficiently invested.Overcoming Pressures onExisting Human Resource (cont.)
13-24 Principle of teamwork - Acknowledgment thatonly a small amount of time is actually underone’s control and that most of one’s time istaken up by others. Principle of prioritized planning - Categorizationof tasks by their degree of importance and thenthe allocation of time to tasks based on thiscategorization. Principle of reanalysis - Periodic review of one’stime management process.Overcoming Pressures onExisting Human Resource (cont.)
13-25Figure 13.4 - Four Types ofEntrepreneurs and Firm Growth