Growth in an organization

1. Strategies for Growth
and Managing the
Implications of
Growth
McGraw-Hill/Irwin
Entrepreneurship, 7/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter

2. Figure 13.1 - Growth Strategies Based upon
Knowledge of Product and/or Market

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. ► 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. ► 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. ► 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. Figure 13.2 - Example of a Value-Added Chain
and Types of Related Diversification

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. ► 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. Figure 13.3 - A Follow-Up of Inc. Magazine’s 1984
Fastest-Growing Ventures

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. ► 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. 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. ► 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.)

15. ► 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.)

16. Figure 13.4 - Four Types of
Entrepreneurs and Firm Growth