Post on 20-Nov-2015
Dr Noor Muhammad noormuhammad@giki.edu.pk
1. To understand growth and development in a small business context.
Is it an increase in:
1. Turnover/sales?
2. Profits?
3. Numbers employed?
4. Return to investors?
5. Global expansion?
Small firms represent 99% of all businesses in developed
Western economies and provide around half of employment
and turnover (Bennett, 2008). The situation in developing
countries is similar.
Main reason for start-up:
1. Pull factors (Opportunity driven)
2. Push factors (Necessity driven)
So we argue that the original motivation may influence whether or not they grow.
Type
1. Lifestyle
2. Small Profitable
3. High Growth
Drivers
1. Independence, autonomy
2. Comfortable living
3. Cash flow and profits
4. Autonomy and control
5. Sales and profit growth
6. Attract venture capital
1. Managerial objective
2. Product/service development
3. Expanding market
4. Economies of scale
5. Diversification
6. Type of industry
7. Strategic objective
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Existence Survival Growth Consolidation Resource Maturity
Large
Small
Age of organisation Young Mature
Siz
e, dis
pers
ion,
com
ple
xity
A Composite Model of the Growth or Decline of a Small Business
terminate
Decline
Slow decline
Decline
Measure of growth (e.g. sales)
12 24 36 48 60
Phase 1 Concept/test
Phase 2 Develop-
ment
Phase 3 Growth
Phase 4 Maturity
Time (e.g. months)
Criticisms of Stage Models
1. No backward movement or skipping
2. Improbability of non-random defined crises
3. Exclusive internal focus/neglect of external environment Mostly by theory rather than evidence!
Researcher Phases/Stages Empirical Testing Mechanics
Steinmetz (1969)
4 Stages (and 3 phases)
(1) Direct supervision
(2) Supervised supervision
(3) Indirect control
(4) Divisional organisation
No empirical evidence
A successful small firm survives four
stages of growth and three critical
phases of growth, occurring at the end of
stages 1, 2 and 3.
Churchill and
Lewis (1983)
5 growth stages
(1) Existence
(2) Survival
(3) Success-disengagement;
success-growth
(4) Take-off
(5) Resource maturity
No empirical evidence
Managers of successful small firms were
consulted for the revision of the
perceived small firm growth model
(Greiner 1972). The proposed business
development framework delineates five
evolutionary stages of growth
characterised by an index of size and
diversity-complexity in terms of
managerial challenge.
Researcher Phases/Stages Empirical Testing Mechanics
Vozikis (1984)
3 stages of growth
(1) Start-up
(2) Early growth
(3) Later growth
Empirically tested (sample 117)
This investigation confirmed the existence of a diverse small
firm situation at the beginning /end of the organisational life
cycle. There was a statistically significant difference in the
small firm problem among the stages of development.
Scott and Bruce (1987)
Synthetic 5 stages of
Growth
(1) Inception
(2) Survival
(3) Growth
(4) Expansion
(5) Maturity
No empirical test
Their proposed synthetic model draws on previous researchers
(extensively on the work of Churchill and Lewis, 1983) of small
business development, and is a diagnostic tool of a firms
position and growth strategies, to achieve the development of
small firms along their life cycle.
1. Phase 1 - Creativity
Emphasis on creating a product and market Founders are in charge Technically oriented Focus on making and selling the products
Communication is frequent and informal
Crisis of Leadership Increasing complexity, founders struggle to both run and manage
the business, conflicts emerge on new products/markets
Phase 2 - Direction Capable business manager installed
Functional organisation structure
Accounting and capital management
Crisis of Autonomy direct energy into growth, increasing complexity, top management
unable to manage all operation, lower level managers feel tied down despite their grater knowledge of markets and products
Solution - Delegation
Phase 3 Delegation Operational and market level responsibility
Profit centres and financial incentives
Decision - making based on periodic reviews
Crisis of Control Management attempts to regain control and fail due to scope of
operations and markets
Solution - co-ordinate rather than control
Phase 4 Co-ordination Thorough review of formal planning
Centralisation of support functions
Motivation through lower-level profit sharing
Crisis of Red Tape Resource use become more efficient, local management look
beyond local needs, growth recommences.
Solution increase market alertness and people need flexibility
Phase 5 Collaboration Team action for problem solving
Cross functional task teams
Team incentives
Crisis of Internal Growth Only way to grow is through collaboration with other organisations
Solution - alliances
Phase 6 - Alliances Extra organisational solutions
Creating holdings
Managing a networks of companies
Crisis of Identity
Berger and Udell (1998) use a categorisation of small firms and suggest that firms from 0-2 years are infants, 3-4 are adolescents, 5-24 are middle-aged and 25+ are old firms.
This categorisation is consistent with the seed, start-up, market research and expansion, stages of business development noted in the literature.
The differences in the administrative structures of the very small and the very large firms are so great that in many ways it is hard to see that the two
are of the same genuswe cannot define a caterpillar and use the same definition for a butterfly (Penrose, 1959, p.19)
1. Management practices and style
2. Organisation structure
3. Strategic orientation
4. Entrepreneurial role
The Entrepreneur Motivation Education Managerial experience Teams Age
The Firm Legal status Age and size Location Size Market/industry sector Ownership
The Strategy External equity
Market positioning New product introduction Management recruitment
Internal and External Growth Strategies
Internal Growth Strategies
New Product Development
Other product-related
strategies
International expansion
External Growth Strategies
mergers and acquisitions
Licensing
Strategic alliances and joint ventures
Franchising
Firm Growth
Mission
Goals
Objectives
A shared mental image of a desired future state:
Provides a sense of meaning and purpose
Inspirational
Motivating
But must be realistic, credible and attractive
Often includes core values
The (company) aims to use its (competitive advantage) to achieve/maintain (aspirations) in providing (product scope) which offers (benefits) to satisfy the (needs) of (customer scope). In doing this the company will at all times strive to uphold (values).
Wickham
1. Having vision and ideas
2. Long-term, strategic planning
3. Communication (internal and external)
4. Creating the culture by example
5. Monitoring and controlling performance
Clarity of goals, tasks, procedures etc.
Expectation of high standards
Commitment to organizational goals
Feeling of personal responsibility towards these goals
Feeling of recognition & reward for high performance
Sense of unity & team working
Timmons
1. Availability and cost of finance
2. Overall growth of market
3. Increasing competition
4. Government controls, legal and regulatory environment
5. Skills shortage
Labour
Owner/manager
1. Management capability
2. Attitude to risk
3. Lack of enthusiasm
1. Bennett, R. (2008). SME policy in Britain since the 1990s: what have we learnt? Environment and Planning C: Government and Policy, 26, 375-397.
2. Berger, A. N. and Udell, G. F. (1998) The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle, Journal of Banking and Finance, Vol. 22, pp. 613-673.
3. Butchart, R. L. (1987) A new United Kingdom definition of the high technology industries, Economic Trends, No. 400, pp. 82-94.
4. Curran, J. and Blackburn, R. A. (2001) Researching the Small Enterprise. Sage, London.
5. Deakins, D., and Freel, M. (2009) Entrepreneurship and Small Firms, 5th edition. McGraw-Hill.
6. OECD SMEs Outlook, (2000)
Explain how your new venture can apply the marketing mix to gain
competitive advantage and strategic positioning.
Time: 15 Minutes
Total Marks: 10