Entrepreneurship Chap 13


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Entrepreneurship Chap 13

  1. 1. HisrichPetersShepherdChapter 13Strategies for Growth andManaging theImplications of GrowthCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
  2. 2. 13-2Figure 13.1 - Growth Strategies Basedupon Knowledge of Product and/or Market
  3. 3. 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.
  4. 4. 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.)
  5. 5. 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.)
  6. 6. 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.)
  7. 7. 13-7Figure 13.2 - Example of a Value-AddedChain and Types of Related Diversification
  8. 8. 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.)
  9. 9. 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.)
  10. 10. 13-10Figure 13.3 - A Follow-Up of Inc. Magazine’s1984 Fastest-Growing Ventures
  11. 11. 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.
  12. 12. 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. 13. 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.
  14. 14. 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.
  15. 15. 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.)
  16. 16. 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.)
  17. 17. 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.)
  18. 18. 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.)
  19. 19. 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.)
  20. 20. 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.
  21. 21. 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.)
  22. 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 onExisting Human Resource (cont.)
  23. 23. 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.)
  24. 24. 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.)
  25. 25. 13-25Figure 13.4 - Four Types ofEntrepreneurs and Firm Growth