This chapter discusses strategies for growth and managing the implications of growth. It identifies four main growth strategies: penetration strategy, market development strategy, product development strategy, and diversification strategy. It also discusses some of the pressures firm face during periods of growth, such as pressures on financial resources, human resources, and the entrepreneur's time. It provides recommendations for overcoming these pressures, including improving financial control, adopting participative management styles, and practicing effective time management.

1. Hisrich
Peters
Shepherd
Chapter 13
Strategies for Growth and
Managing the
Implications of Growth
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2. 13-2
Figure 13.1 - Growth Strategies Based
upon Knowledge of Product and/or Market

3. 13-3
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. 13-4
 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. 13-5
 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. 13-6
 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. 13-7
Figure 13.2 - Example of a Value-Added
Chain and Types of Related Diversification

8. 13-8
 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. 13-9
 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. 13-10
Figure 13.3 - A Follow-Up of Inc. Magazine’s
1984 Fastest-Growing Ventures

11. 13-11
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. 13-12
 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. 13-13
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. 13-14
Financial Control
 Managing Cash Flow
 The entrepreneur should have an up-to-date
assessment of the cash position.
 A daily cash sheet would provide an effective
indication of any daily shortfall and of problems
or errors that might have occurred.
 Compare budgeted or expected cash flows with
actual cash flows.

15. 13-15
 Managing Inventory
 Perpetual inventory systems can be structured
using computers or a manual system.
 To check the inventory balance, it may be
necessary to physically count inventory
periodically.
 Link the needs of a retailer with the wholesaler
and producer allowing for a fast order entry and
response.
 Transport mode selection can also be important.
Financial Control (cont.)

16. 13-16
 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.)

17. 13-17
 Managing Costs and Profits
 Compute net income for interim periods during
the year.
 Assess each item to determine cost reduction.
 Consider 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.
Financial Control (cont.)

18. 13-18
 Taxes
 Withhold federal and state taxes for employees.
 Pay a number of taxes (state and federal
unemployment 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. 13-19
 Record Keeping
 It is helpful to consider using a software
package.
 It may be necessary to enlist the support and
services of an accountant/ consultant.
 It is important to use a system for storing and
using customer information.
 Build organizational knowledge to reduce
dependency on any one individual.
Financial Control (cont.)

20. 13-20
Overcoming Pressures on
Existing Human Resource
 Some entrepreneurs are using professional
employer organizations (PEOs) for various
HR activities.
 Decisions regarding the proportion of
permanent and part time employees should
be made; involves several trade-offs.
 Give employees regular feedback; identify
problems along with a proposed solution.
 Maintain the corporate culture despite the
influx of new employees.

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 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.)

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 on
Existing Human Resource (cont.)

23. 13-23
 Basic Principles of Time Management
 Principle of desire - A recognition of the need to
change personal attitudes and habits regarding
the allocation of time.
 Principle of effectiveness - A focus on the most
important issues.
 Principle of analysis - Understanding how time is
currently being allocated, and where it is being
inefficiently invested.
Overcoming Pressures on
Existing Human Resource (cont.)

24. 13-24
 Principle of teamwork - Acknowledgment that
only a small amount of time is actually under
one’s control and that most of one’s time is
taken up by others.
 Principle of prioritized planning - Categorization
of tasks by their degree of importance and then
the allocation of time to tasks based on this
categorization.
 Principle of reanalysis - Periodic review of one’s
time management process.
Overcoming Pressures on
Existing Human Resource (cont.)

25. 13-25
Figure 13.4 - Four Types of
Entrepreneurs and Firm Growth