Project on growth of business organizations

8/14/2019 Project on growth of business organizations

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Growth strategies

Growth is something for which most companies strive, regardless of

their size. Small firms want to get big, big firms want to get bigger. Indeed,

companies have to grow at least a bit every year in order to accommodate the

increased expenses that develop over time. With the passage of time, salaries

increase and the costs of employment benefits rise as well. Even if no other

company expenses rise, these two cost areas almost

always increase over time. It is not always possible

to pass along these increased costs to customers and

clients in the form of higher prices. Consequently,

growth must occur if the business wishes to keep

up.

Growth of an enterprise should always be

multidimensional. For example, growth on the

production sideshould be supplemented by growth

on technological and marketing sides.Organizational growth, however, means

different things to different organizations. There are

many parameters a company may use to measure its

growth. Since the ultimate goal of most companies

is profitability, most companies will measure their

growth in terms of net profit, revenue, and other

financial data. Other business owners may use one

of the following criteria for assessing their growth:sales, number of employees, physical expansion,

success of a product line, or increased market share.

Ultimately, success and growth will be gauged by

how well a firm does relative to the goals it has set for itself.

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Business life cycle

A business goes through stages of development similar to the cycle of

life for the human race. Each stage of the business life cycle may not occur in

chronological order. Some businesses will be "built to flip"; quickly going

from start-up to exit. Others will choose to avoid expansion and stay in the

established stage.

The Seven Stages of Business Life cycle are:

1. Seed Stage: The seed stage of the business life cycle is when the business isjust a thought or an idea. This is the very conception or birth of a newbusiness. At this stage of the business the focus is on matching the businessopportunity with the skills, experience and passions. Other focal pointsinclude: deciding on a business ownership structure, finding professionaladvisors, and business planning.

2. Start-Up Stage: The business is born and now exists legally. Products orservices are in production and you have your first customers. Start-upsrequires establishing a customer base and market presence along with trackingand conserving cash flow.

3. Growth Stage: The business has made it through the toddler years and isnow a child. Revenues and customers are increasing with many newopportunities and issues. Profits are strong, but competition is surfacing.

Growth life cycle businesses are focused on running the business in a moreformal fashion to deal with the increased sales and customers. Betteraccounting and management systems will have to be set-up. New employeeswill have to be hired to deal with the influx of business.

4. Established Stage: The business has now matured into a thriving companywith a place in the market and loyal customers. Sales growth is not explosive

but manageable. Business life has become more routine. An established lifecycle company will be focused on improvement and productivity. To compete

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in an established market, you will require better business practices along withautomation and outsourcing to improve productivity.

5. Expansion Stage: This life cycle is characterized by a new period ofgrowth into new markets and distribution channels. This stage is often thechoice of the small business owner to gain a larger market share and find newrevenue and profit channels. Add new products or services to existing marketsor expand existing business into new markets and customer types.

6. Decline Stage: Changes in the economy, society, or market conditions candecrease sales and profits. This may quickly end many small companies.Search for new opportunities and business ventures. Cutting costs and findingways to sustain cash flow are vital for the declining stage.

7. Exit Stage:This is the big opportunity for your business to cash out on allthe effort and years of hard work. Or it can mean shutting down the business.

Get a proper valuation on the company. Look at business operations,

management and competitive barriers to make the company worth more to thebuyer. Set-up legal buy-sell agreements along with a business transition plan.

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Need for growth strategies ina business organization

1) Survival: A firm has to grow in order to survive in the competitivebusiness world. A growing firm has a capacity to accept business risks

and uncertainties. It can also face any adverse situation effectively. A

firm has to reach to the optimum size and growth. So growth is neededfor survival.

2) Secured position in the market: To establish securedposition is one reason for the growth of an enterprise. A firm having a

large market share enjoys better security in marketing its products, the

product range can also be expanded. Thus, growth strategies are needed

as a protection against period of adversity.

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3) Benefits of Government policies: Government offers

various facilities and concessions to business enterprises. Businessmen

can take the benefit of such policies by expanding their activities. For

example, Government may offer tax concessions or finance at lower

rates of interest.

4) Financial benefits: The owners of an enterprise may take interest

in growth because growth offers financial benefits. For example,

increase in production ultimately results in increase in profits. The

managers and other employees may get higher wages and other

monetary benefits from such growth.

5) Goodwill amd Market Reputation: A business enterprisealways wants that there in goodwill and market reputatipn of the

enterprise. For this, the enterprise must grow and reach the masses.

Thus,growth is needed for goodwill and market reputation.

6) Make organization self sufficient:To make the enterprise

self sufficient and ensure its regular working over a long period. The

programs like backward integration , forward integration, expansion,

take over of other organization,etc have to be undertaken by the

company.

Factors affecting growth

1) Availability of resources: One of the preconditions for the

growth of business is the availability of resources both physical and

natural. If the resources fall short, the growth process of the business

will be adversely affected. Availability of adequate funds, tax incentives,

etc facilitate growth. The enterprise may come in difficulty when such

factors are not favourable.

2) Ability to face competition: Competition is a factor, which

limits the growth of business. A business that has the ability to face

competition can achieve smooth growth. Quality products, lower cost of

production, consumer loyalty, etc are useful for facing market

competitioneffectively.

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3) Progressive management: Management of a company should

always be flexible. Progressive management always plans to expand the

size of the business and growth plans. Such managements are always

prepared to finance the business growth.

4) Attitude of management: The management should have

genuine desire to face th challenges of growth. The attitude of

management needs to be positive and favourable for the growth and

expansion.

5) Product/Service: Product plays an important role in the growth

process. Quality of product, regular and continous supply of product,

reasonable price, satisfactory after sales service brand image, consunerloyalty, effective marketing are the favourable points relating to the

product. These help to create market demand and facilitate large scale

production.

6) Flexibility: The company should be flexible enough to adopt

changes immediately. For example, technological application, use of

good raw materials, modern methods of production etc. The company

should implement these changes in the organization.

Reasons for no growth in

business

1) Lack of time: Due to lack of time the companys management is notable to handle the business properly and because of this the company maysuffer losses. It means the company is thinking for expansion withoutgiving any attention to the current business activities.

2) Lack of focus:The lack of focus in business can sink the organization.If the organization is thinking in too many directions instead of focusing on

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the current business the company may suffer losses due to this.

3) Lack of support:If the companys directors are carrying out all theactivities on their own without the help of experts then the company maynot grow properly. There should be specialization in business.

4) Lack of creative "space":If the management is not able to bringcreativity in business then the company will not be able to face thecompetition.The company should plan, strategize and think creatively.

5) Wasting resources on time and energy-busters: Thecompany may show stagnant or no growth if it has entered into the businesswhich is not of its interest. There will also be waste of time and otherresources.

6) Focusing on "cheap" instead of cost-effective:If thecompany is giving more importance to cost rather than quality then it maysuffer losses because customers want good quality at reasonable price.Thecompany should put value, quality and ROI above cost.

7) Frittering away billable hours: The company should not wastetime in looking only after the management but it should also invest time inoverall business activities. By doing this the company is wasting time--thusmoney.

8) Inefficient administrative foundations: If the company fails

to systemize, automate and streamline the business processes then it maygo into losses. It should be able to implement latest changes in the business.

9) Squandering core strengths: The company should first find outits strengths and weakness then try to overcome the problems and focus on

business growth, and revenue generation.

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10) Not investing in the right support: The company shouldplace the right people at the right job. They should be skilled, committed,

thinking, creative professionals who value in the business and help it grow.

Indicators of growingorganization

1) Net worth: The net worth refers to the total of the paid-up capitaland reserves and surpluses available with an enterprise. It is often usedas an indicator of growth. Increase in net worth indicates growth.

However, net worth is not a satisfactory measure of comparison betweendifferent firms. For example, firms having identical net worth may havedifferent growth rates.

2) Total assets: Total assets can be used for measuring the growth of afirm. This indicator is extensively used for inter firm comparisons asregards size. However, it is difficult to conclude that an enterprise isgrowing only because its total asseta are increasing.

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3) Volume of output: The volume of output produced within aspecific period can be used in order to find out the growing tendency of

an enterprise. An increase in the volume of production indicates thegrowth of an enterprise. This test will prove to be unsuitable when theoutput of an enterprise is of heterogenous nature. It is much better ascompared to others.

4) Volume of sales: Increase in the volume and value of sales over aspecific period can be used for measuring the growth of an enterprise.Increase in volume of sales is a better indicator of growth as comparedto increase in the volume of output as increase in output has no

significance if there is no corresponding increase in sales.

5) Porfit earned: Increase in porfit earning capacity is normally dueto more production and turnover. A company earning more profit can besaid to be growing. However it is not a good indicator of growth asincrease in profit may be due to various reasons such as increase inefficiency, productivity or price rise of the products of the company.

Ways of Growing the Business

1) Penetrate your existing market.The first thing that comesto mind when thinking of growing the business is getting newcustomers. But the customers that are already there are the best bet forincreasing the sales; its easier and more cost-effective to get peoplewho are already buying from the company to buy more than to find newcustomers and persuade them to buy from the company.

2) Ask for referrals.Getting new customers is another approach togrowing the business. One of the easiest way to do this is to ask thecurrent customers for referrals. Doing a great job and just assuming thatthe customers are passing the word about the business isnt going to do

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much to increase the customer base; the company has to actively seekreferrals.

3) Innovate your product or service. Discovering andpromoting new uses for the products or services is a great way to bothget existing customers to buy more and attract new customers.

4) Extend your market reach. There are several ways of growingthe business by making product or service available to a new pool ofcustomers. The most obvious is to open stores in new locations, such asopening a store or kiosk in a new town. New locations can also be

virtual, such as a website with an online store. Another approach is toextend the reach through advertising. Once a new market is identified, itmight advertise in select media that targets that market.

5) Participate in trade shows.Trade shows can be a great way ofgrowing the business. Because trade shows draw people who are alreadyinterested in the type of product or service offer, they can powerfullyimprove bottom line. The trick is to select the trade shows participate incarefully, seeking the right match for the product or service.

6) Conquer a niche market.Remember the analogy of the big fishin the small pond? Thats essentially how this strategy for growing

business works. The niche market is the pond; a narrowly defined groupof customers. Think of them as a subset whose needs are not being metand concentrate on meeting those unmet needs.

7) Contain your costs. Surprised? Bear in mind that when weretalking about growing the business, were actually talking aboutgrowing the businesss bottom line. And the difference between pre-taxand post-tax money can make this a very effective growth strategy.There are two main approaches to cutting costs; liquidating your loser

products and improving your inventory turnover.

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agreements to continue working together. Subcontracting, which allows firms

to concentrate on those aspects of their business that they do best, is

sometimes defined as a type of alliance arrangement. Joint ventures and otherbusiness alliances can inject partners with new ideas, access to new

technologies, new approaches, and new markets, all of which can help the

involved businesses to grow. Indeed, establishing joint ventures with overseas

firms has been hailed as one of the most potentially rewarding ways for

companies to expand their operations. Finally, some firms realize growth by

acquiring other companies.

Diversification (New Products/New Market)

Diversification is a high-risk growth strategy, largely because both theproducts and the market are unproven territory for the entrepreneur. Thoughtrailblazing emerging products and markets can be exhilarating, it can also beterrifying given the fact that neither you nor anyone else can rely on priorexperience for reassurance. But if innovation is one of the company's definingcharacteristics, a diversification strategy will eventually become secondnature. To achieve growth, the company will have to be realistic about therisks it face and crystal clear about what has to be achieved.

Market Development (Existing Products/New Market)

A more common scenario is one in which a small business owner attempts todevelop a new market for their existing products and services. The new marketcan be geographical (e.g. foreign export) or an untapped segment of adomestic market. It's even possible to develop a new market for existing

products by adjusting the product's packaging or expanding the product'sdistribution channels. In any event, a market development growth strategyrequires a working knowledge of existing markets and the ability to gaps in themarketplace that can be exploited to your advantage.

Product Development (New Products/Existing Market)A growth strategy based on product development is the mirror image of amarket development strategy. Instead of pioneering a new market with existing

products, you attempt to roll out a new product(s) in a market with which youare already familiar. Many small business owners are more comfortableworking in this kind of scenario because they already possess an awareness of

prevailing market conditions. However, a product development strategy can bejust as challenging as a market development strategy because it often requires

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the business to develop new abilities and continuously adapt the products untilthey achieve marketplace success.

Market Penetration (Existing Products/ExistingMarkets)

Businesses that find themselves in a situation that involves neither newmarkets nor new products are forced to grow through a market penetrationstrategy, a strategy that is designed to give the business a greater percentage ofmarket share. This type of strategy usually seeks to gain a competitive edgethrough pricing, marketing, or other initiatives. Additionally, market

penetration can be achieved by increasing customer usage through loyaltyprograms and incentives targeting your existing customer base.

Mergers and Acquisitions

A merger is a combination of two or more businesses into one business. Lawsin India use the term 'amalgamation' for merger. The Income Tax Act,1961[Section 2(1A)]defines amalgamation as the merger of one or more companieswith another or the merger of two or more companies to form a new company,in such a way that all assets and liabilities of the amalgamating companies

become assets and liabilities of the amalgamated company and shareholdersnot less than nine-tenths in value of the shares in the amalgamating companyor companies become shareholders of the amalgamated company. An

acquisition may be defined as an act of acquiring effective control by onecompany over assets or management of another company without anycombination of companies. Thus, in an acquisition two or more companiesmay remain independent, separate legal entities, but there may be a change incontrol of the companies.

Horizontal and vertical Integration

Horizontal integration occurs when two firms in the same industry jointogether who produce the same product and are at the same stage of the

production process (e.g. the Nestle takeover of Rowntree). The new, largerbusiness is likely to be more powerful, have a larger market share, and achievehigher sales revenue and profits. However, the new business may becomecomplacent and inefficient and find that it suffers from diseconomies of scaleand / or falling profits.Vertical integration occurs when two firms combinewho are in the same industry, but at a different stage of the production process.

Forward vertical integration.

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Occurs where a company merges with, or takes-over, another company whichis closer to the retail stage (i.e. nearer to the consumer). An example of this

would be a car manufacturer taking-over a range of car showrooms. ForwardVertical integration is often the result of a desire to secure an adequate numberof market outlets and to raise their standard.

Backward vertical integration.

Occurs where a company merges with, or takes-over, another company whichis closer to the source of the raw material (e.g. a car manufacturer taking-overa supplier of car components). Backward Vertical integration is often the resultof a company being able to exercise much greater control over the quantity and

quality of it supplies, as well as securing its supplies at a lower cost.

Conglomerate.

This occurs where two firms merge which are in different industries andproduce different goods - in other words, it is pure diversification. The majoradvantage to the new, larger firm is that it has diversified its product range andspread its risks.

Lateral.

This occurs where two firms combine which are similar in some way, but arenot in the same industry (e.g. Cadbury-Schweppes). Here, both companies

produced products which were sold to similar market segments (confectioneryand soft drinks). Often, the firms can benefit from the management andmarketing techniques employed by the other.

Conclusion

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Organization is a living organism that can be energized to affect every

and any thing related to it. The secret to keeping an organization alive and

youthful is to keep it operating at its maximum capacity and to keep increasingthat capacity by constantly upgrading the building blocks of organization (job

positions, activities, and systems), and then coordinating and integrating the

subunits that make up that building block. In addition, organization is

maximized when top management develops a vision and mission, including

clear objectives and business values, which are well communicated by top

management to the staff, and well executed by the employees in the company.

Organizational growth, then, may well require as much planning, effort,

and work as did starting a company in the first place. stablishing and

improving standard practices is often a key element of organizational growth

as well. Organisation must implement changes in order to be cost efficient,

innovative, decrease customer complaints and increase sales. Change will

always be a factor for organizations wanting to increase their prolonged

existence and prosperity in volatile markets.

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Bibliography

The information contained in this project has been taken from various sources.

www.google.com (search engine),wikipedia, www.investorswords.com

www.web-enable.com and various books.

The information is true in the best of our knowledge.

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Project on growth of business organizations

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