CHAPTER SIX

STRATEGIES FOR GROWTH

1. Introduction

2. New Products and Services

3. Planning for Growth

4. Growing the Business

5. Growth Strategies
 Introduction
• Growth means organization plans to achieve its

objective to grow and expand a business by its quality,

quantity, and turnover (revenue or income).

• Entrepreneurial growth can be in terms of innovators,

business developers, expansion, customers etc.

• An entrepreneur who undertakes the risks, and effort to

grow the business will certainly have entrepreneurial

growth whereas the person who is not willing fails to

achieve objectives
 Introduction

• Growth is a risky but necessary procedure for

startups to survive.

• Growth may be assessed in the context of

employees, customers, revenue, fluidity

(flexibility), profit, geographic locations and

a variety of other dimensions.

• This phase usually begins around the fifth

 New Products and Services

• One of the dilemmas faced by entrepreneurs is

defining a “new” product/service or identifying what

is actually new or unique in an idea.

• Entrepreneurs of successful firms know that it is not

enough to develop new products on random basis.

• Once idea emerges from idea sources or creative

problem solving, they need further development and

refinement in to final product or service to be offered

 What is Product and Service?

• A product is anything that can be offered to a market

for buying, use or consumption that might satisfy a

want or need, for example, eggs, coffee, and mangoes.

• A service is performed when one group offers

something to another. A service is not tangible and

does not result in ownership of any kind. Examples

include training services, and public transport services.

 What is Product Development ?

• Product development is the process of creating and

launching a new product, service or relaunching an

existing service or product.

• PD refers to all of the stages involved in bringing a

product from concept or idea through market release

and beyond. In other words, product development

incorporates a product’s entire journey.

 The Lifecycle of Products and
Services
There are five key stages in the lifecycle of any product or

service.

• Development - at this point your product or service is only

an idea. You're investing heavily in research and

development.

• Introduction - you launch your product or service. You're

spending heavily on marketing.

• Growth - your product or service is establishing itself. You

have few competitors, sales are growing and profit margins

are good.
 The Lifecycle of Products and
Services

• Maturity - sales growth is slowing or has even stopped.

You've been able to reduce production and marketing costs,

but increased competition has driven down prices. Now is

likely to be the best time to invest in a new product.

• Decline - new and improved products or services are on the

market and competition is high. Sales fall and profit margins

decline. Increased marketing will have little impact on sales

and won't be cost-effective unless new markets are identified.

The Product Lifecycle
 Product planning and
development process

The product planning and development process – is

divided in to six major stages. These are:

• Idea stage,

• Idea Screening

• Concept stage,

• Product development stage,

• Test marketing stage and

• Commercializing.
 Cont’d …
Idea Stage
• Ideas are the lifeblood of any business and you

should use a variety of techniques to generate lots of

ideas for your new product or service.

• Promising new product ideas should be identified and

impractical ones eliminated in the idea stage allowing

maximum use of company’s resources.

• Ideas can be captured from all sources but the first step is

to use tools such as SWOT and PESTLE to map out what’s

happening in your market and to identify opportunities.
 Cont’d …

Idea Screening Stage

• The primary function of the idea screening process is
twofold:
• First, to eliminate ideas for New products that could not be
profitably marketed by the firm, and

• Second, to expand Viable ideas into full product concepts.

• New product ideas may be eliminated either :

• Because they are outside the fields of the firm’s interest or

• Because the firm does not have the necessary resources or

technology to produce the product at a profit.
 Cont’d …

Concept Stage

• In the concept stage the refined idea is tested to

determine consumer acceptance without manufacturing
it.

Product Development Stage

• In this stage, consumer reaction is determined, often

through a consumer panel.

• The panel can be given samples of the product and

competitors’ products to determine consumer
preference.
 Cont’d …

Test Marketing Stage

• The market test can be done to increase the certainty
of successful commercialization.

• The last step in the evaluation process, the test

marketing stage, provides actual sales results which
indicate the acceptance level of consumers.

• Positive test results indicate the degree of probability

of a successful product launch and company formation.
 Cont’d …

Commercialization

• This is the launching step in which the firm commits to

introducing the product into the marketplace.

• During this stage, heavy emphasis is placed on the

organization structure and management talent

needed to implement the marketing strategy.

• In this stage emphasis is also given:

– Production costs,

– Quality control, and

– Inventory requirements.
 Establishing Evaluation Criteria
• At each stage of product planning and development process,

criteria for evaluation need to be established.

• These criteria should be broad, yet quantitative enough to

screen the product carefully in the particular stage of

development.

• Criteria should be developed to evaluate the new product in

terms of:

– Market opportunity,

– Competition in the marketing system,

– Financial factors and

– Production factors.
 Causes of New Product Failure

• Unexpected reactions from competitors;

• Poor positioning;

• Poor quality of product;

• Non-delivery of promised benefits of product;

• Too little marketing support;

• Poor perceived price/quality value;

• Improper channels of distribution and marketing costs;

• Rapid change in the market after the product was

introduced
 Overview of Growth
• The growth of a business firm is similar to that of

a human being who passes through the stages of

infancy, childhood, adulthood, and old age.

• An enterprise may be considered growing when

there is a permanent increase in its

– sales turnover,

– assets, and

– volume of output, etc.

 Factors included in Growth
Planning
• Definition of goals and strategies to manage growth

and remain focused.

• Focus on working capital needs to accommodate

and sustain growth.

• Anticipate and develop personnel and

organizational structure

• Refine and redesign the financial and management

reporting systems
 Factors included in Growth
Planning

• Implement employee retention programs and

employee benefit plans.

• Formalize the business’s marketing strategy.

• Enhance communication systems

• Move from a reactive to a proactive culture.

 Need for Growth

• Survival

• Economies of Scale

• Expansion of Market

• Technology

• Prestige and Power

• Self-Sufficiency
 Need for Growth…
Survival:
• Just to retain its present position.
• Growth provides protection or security against
periods of adversity such as recession.
• By diversifying the range of its products and
markets, a firm can meet competition in the
market and minimize its risks.
• Thus, growth is a means of survival in challenging
a turbulent environment.
 Need for Growth…

Economies of Scale:
 Large-scale operations provide economies
in
– production,
– Marketing
– finance, and
– management ( expertise).
 Need for Growth…

Expansion of Market:

 Increase in demand for goods and services

lead business firms to expand in size.

 Population explosion and transportation lead to

widening of markets, which in turn resulted in

mass production.
 Need for Growth…

Technology:
 Business firms also grow in order to reap
the benefits of modern technology.
 Many firms invest in research and
development to develop new products and
new techniques.
 Large firm can take full advantage of
sophisticated machinery and equipment.
 Need for Growth…
Prestige and Power (High standing):
• Some business persons have a lust(desire) for economic
and social power.

• Business persons satisfy their obsession for power by

building business empires.

• They take pride in the growth of firms established by

them.

• Other personal factors such as personal ambition,

exceptional organizing ability, strategic genius, etc also
lead to growth of firms.
 Need for Growth…

Self-Sufficiency:
 Some firms grow to become independent in

terms of marketing of raw materials or

marketing of products.
 They integrate the various stages of industry or

 Acquire other firms to gain control over the supply

of materials and marketing of finished products.

 Types of Growth Strategies

• Strategy means a deliberate and well-planned

course of action designed to achieve specific

objectives.

• The main strategies for growth are as follows:

1. Expansion

2. Diversification

3. Mergers

4. Sub-contracting
 Growth Strategies …

1) Expansion

 Expansion may take place in the following

forms

a) Market Penetration

b)Product Development

c)Market Development
 Growth Strategies …
Practical Problems in Expansion

(i) Shortage of funds:

• Many times a small firm has to borrow funds at high rates of

interest.
(ii) Technology:

• Modernization of technology is time consuming and

expensive process.
 It becomes essential to recruit new staff or retain the

existing staff in the use and operation of new

technology.
 Growth Strategies …

(iii) Marketing Problem:

• Expansion is possible and profitable only when

increased output can be sold at remunerative prices.

(iv) Risk:

• Expansion involves additional risk.

(v) Competition is acute and raw materials have to be

imported.

(vi) Better managerial skills are required to manage

growth successfully.
 Growth Strategies …

2) Diversification
• Entering new business in terms of either
the market or the technology or both.
• It is a strategy for growth by adding new
products or services to the existing ones.
• Requires a company to acquire new skills,
new techniques and new facilities
 Growth Strategies …

 Diversification can take place into related or

unrelated products.

 A firm in microcomputer production might move

into making personal telecommunications

equipment.

 The same firm diversifying into shoe manufacturing

would be moving into unrelated products.

 Growth Strategies …

• Related diversification provides the potential to

attain synergies by sharing assets or skills

across businesses.

• On the other hand, the objectives of unrelated

diversification are mainly financial, to generate

profit streams that are either larger, less

uncertain or more stable than they

 Growth Strategies …

Types of Diversification

a)Horizontal integration

b)Vertical integration

c)Concentric and

d)Conglomerate diversification
 Growth Strategies …

a) Horizontal Integration
• When a company expands its business into
different products that are similar to
current lines.

• E.g. macaroni and pasta

 Growth Strategies …

b) Vertical Integration
• New products or services are added which
are complementary to the existing
product or service line.
• New products serve the firm's own needs by
either

– supplying inputs, or

– serve as a customer for its output.

 Growth Strategies …
C. Concentric Diversification

• When a firm enters into some business, which is

related with its present business in terms of

technology, marketing or both

• It refers to the development of new products and

services that are similar to the ones you already sell.

• For example, an orange juice brand releases a new

“smooth” orange juice drink alongside it's hero

product
 Growth Strategies …
D. Conglomerate Diversification
• a firm enters into business, which is unrelated to its
existing business both in terms of technology and
marketing.
• involves adding new products or services that are
significantly unrelated and with no technological or
commercial similarities.
• For example, your t-shirt company has now
decided to start supplying or selling apple
products
 Growth Strategies …
• Reasons to adopt Conglomerate Diversification :

i) To achieve a growth rate higher than what can

be realized through expansion.

ii) To make better use of financial resources with

retained profits exceeding immediate investment

needs.

iii)To use potential opportunities for profitable

investment
 Growth Strategies …

iv) To achieve distinctive competitive

advantage and greater stability

v)To spread the risk, and

vi)To improve the price earnings ratio and

market price of the company's shares.

 Growth Strategies …

3. Merger
• A merger means a combination of two or more

firms into one.

• It may occur in two ways:

(a)takeover or acquisition (absorption) of one

company by another, and

(b)amalgamation - creation of new company by

complete consolidation of two or more units

 Growth Strategies …
Types of Mergers

1) Horizontal mergers

• These take place when there is a combination of two or more

firms engaged in the same production or marketing process.

2) Vertical Mergers:

• It takes place when the combining firms are

complementary to each other either in terms of supply of
inputs or marketing of output.
• For example, a footwear company may take over a leather tannery.
 Growth Strategies …

3) Concentric mergers: When the

combining firms are similar either in terms
of technology or marketing system
4) Conglomerate mergers: It occurs when
two unrelated firms combine together
• E.g. a footwear company combining with
a cement firm.
 Growth Strategies …

Why Mergers? From the buying firm’s view

point
• To gain quick entry into new markets and industries

• To achieve faster rate of growth

• To diversify quickly

• To reduce competition and avoid dependence

• To achieve synergistic advantages

 Growth Strategies …

Why Mergers? From the selling firm’s view point

1) To turn around a sick unit

2) To increase the value of the owner’s stock

3) To increase the growth rate

4) To acquire resources for stability of operations

5) To deal with problem of top management succession

6) To reduce tax burden

 Growth Strategies …

Sub – Contracting
• Subcontracting is a type of work contract that seeks to
outsource certain types of work to other companies.

• Subcontracting is done when the general contractor does

not have the time or skills to perform certain tasks.

• When a building is being constructed, subcontracting

becomes a major deal.
 Growth Strategies …

• Sub-contracting has several advantages

• First, it is the fastest method of increasing output.

– It enables the contractor to use technical and

managerial skills already existing with the sub-
contractor.

– It avoids the need of setting up new plants

and equipment, which involves time and
expense.
 Growth Strategies …

• Second, subcontracting saves the main

contractor from
– incurring investment in specialized machinery
and equipment, which may not be required for
regular production.
• Third, sub-contracting may enable the contractor
– to buy the components at a cost less than
that of manufacturing.
 Exit: Failure or Success
• Several factors, which change in importance as the

business grows and develops, are prominent in

determining ultimate success or failure.

The major factors that determine success or failure are:

• Financial resources, including cash and borrowing

power.

• Personnel resources, relating to numbers, depth, and

quality of people, particularly at the management and staff

levels.
 Cont’d ..
• Systems resources, in terms of the degree of
sophistication of both information and planning and
control systems.

• Business resources, including customer relations,

market share, supplier relations, manufacturing and
distribution processes, technology and reputation,
all of which give the company a position in its
industry and market.
 Cont’d …
• Owner’s goals for himself or herself and for the business.

• Owner’s operational abilities in doing important jobs such

as marketing, inventing, producing, and managing
distribution.

• Owner’s managerial ability and willingness to delegate

responsibility and to manage the activities of others.

• Owner’s strategic abilities for looking beyond the present

and matching the strengths and weaknesses of the company
with his or her goals.