a. How
firms properly prepare for growth?
Ø
Growth
indicates success to firms.
Ø
3
important things business can do to prepare for growth:
1.
Appreciating
the nature of business growth
·
Not
all businesses have the potential to be aggressive growth firms.
·
A
business can grow too fast.
·
Business
success doesn’t always scale.
2. Staying committed to a core strategy
·
It
is important that a business not lose sight of its core strategy as it prepares
to grow.
·
Core
strategy defines how it competes relative to its rivals.
·
Core
strategy determined by its core
competencies.
3.
Planning
for growth
·
Involves
firms to think ahead and anticipate the type and amount of growth it wants to
achieve.
·
Writing
a business plan greatly assists in preparing growth plans.
b.
6 most common
reasons firms pursue growth.
Ø
Firms
cannot always choose their pace of growth.
Ø
Pace
of growth: the rate at which it is growing on an annual growth.
Ø
6
reasons:
1.
Economics
of scale
·
Occur
when increasing production lowers the average cost of each unit produced.
·
Occurs
for 2 reasons:
o
If
a company can get a discount by buying components part in bulk, it can lower
its variable costs per unit as its grows larger. (variable costs: the costs a company incurs as it generates sales)
o
Company
can spread its fixed costs over a greater number of units by increasing
production. (fixed costs: costs that
company incures whether it sells something or not)
2.
Economics
of scope
·
Occur
when the scope/ range of a firm’s operations creates efficiencies.
3.
Market
leadership
·
Occurs
when a firm holds the number one or the number two position in an industry or
niche market in terms of sales volume.
4.
Influence,
power, and survivability
·
Larger
businesses usually have more influence and power than smaller firms.
5.
Need
to accommodate the growth of key customers
·
Sometimes
firms are compelling to grow to accommodate the growth of a key customer.
6.
Ability
to attract and retain talented employees
·
Growth
is a firm’s primary mechanism to generate promotional opportunities for
employees.
c.
Importance of
being able to manage the stages of growth.
Ø Introduction stage:
·
Start-up
phase where a business determines what its core strengths and capabilities are.
·
The
main challenge is to make sure the initial product or service is right.
·
It’s
important to document what works and what doesn’t work during this stage.
Ø
Early
growth stage:
·
Characterized
by increasing sales and heightened complexity.
·
Two
important things must happen for a business to be successful in this stage:
o
The
founder must start working “on the business” rather “in the business.”
o
Increased
formalization must take place, and the business has to start developing
policies and procedures.
Ø
Continuous
growth stage:
·
The
need for structure and formalization increases.
·
Often
the business will start developing related products and services.
·
The
toughest decisions take place in this stage.
·
One
tough decision is whether the owner of the business and the current management team
has the experience and the ability to take the business further.
Ø
Maturity
stage:
·
Enters
when its growth stalls.
·
A
firm is typically more intently focused on managing efficiently than developing
new products.
·
Well-managed
firms often look for partnering opportunities or opportunities for acquisitions
or licensing deals to breath new life into the firm.
·
If
new growth cannot be achieved through a firm’s existing product mix, the “next
generation” of products should be developed.
Ø Decline stage:
·
It
isn’t inevitable for a business to enter the decline stage.
·
A
business’s ability to avoid decline hinges on the strength of its leadership
and its ability to adapt over time.
d.
The challenges of
firm growth.
Ø
2
categories of challenges fo firms growth:
1.
Managerial
capacity
·
Firms
are collections of productive resources that are organized in an administrative
framework.
·
As
a firm goes about its routine activities, it recognizes opportunities to grow.
·
firms
aren’t always prepared or able to grow, because of limited “managerial
capacity."
·
Productive
opportunity set: the set of opportunities the firm feels its capable of
pursuing.
·
2
important kinds of services in the firm’s administrative framework:
o
Entrepreneurial services: generate new market, product, and service ideas.
o
Managerial services: administer the routine functions of the firm and
facilitate the profitable execution of new opportunities.
·
Managerial
capacity problem: when a firm’s managerial resources are insufficient to take
advantage of its new product and services opportunities.
·
Dual
challenges:
o
Adverse selection: the
number of employees a firm needs increases. (it becomes increasingly difficult
for the firm to find the right employees, place them in appropriate positions,
and provide adequate supervision)
o
Moral hazard: a
firm grows and adds personnel. (the new hires typically do not have the same
ownership incentives as the original founders, so the new hires may not be as
motivated as the founders to put in long hours and may even try to avoid hard
work)
2.
Day-to-day
challenges of growing a firm
·
Involved
with growing a firm.
·
4
most common challenges:
1. Cash
flow management: A firm requires an increasing amount of cash as it
grows.
2. Price
stability: If growth comes at the expense of a competitor’s
market share, a price war could ensue.
3. Quality
control: An increase in firm activity can result in quality
control issues if a firm is not able to increase its resources to handle the
extra work.
4.
Capital constraints: an
ever-present problem for growing firms.
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