Sunday, September 13, 2009

Strategies for Growth

(Source: Kourdi, J (2003). Business Strategy. UK: The Economist. Page:111-112)


One of the most fundamental decisions for any organisation is to choose the most effective strategy for growth. It is tempting to believe that doing in the future what has been done in the past will lead to continued growth – “if it ain’t broke, don’t fix it” – but the past is no guarantee for the future.


Continuing down the same path may lead to continuing success or it may lead off a cliff. If managers are to make the right decisions, therefore, a strategic direction and set of guiding priorities are needed together with an assessment of the most effective strategy for growth.

The different routes to growth fall broadly into five options:
  • Organic growth
  • Mergers and acquisitions
  • Integration
  • Diversification
  • Specialisation

The characteristics of each are outlined below, but they are not mutually exclusive and can overlap. They are, however, limited by the resources available and all require a clear focus on objectives and a sustained level of commitment.

Organic growth

This is when a business grows from its own resources. Organic growth can happen because the market is growing or because a firm is doing increasingly better than its competitors or is going into new markets.

Exploiting a product advantage can sustain organic growth; examples are a law firm with a star partner or a software firm with a unique programme. But there is only so much growth that one person or one product can generate and people eventually retire and products mature, so
organic growth normally requires launching new products or product extensions, entering new markets or establishing wider distribution networks and sales agency agreements, or licensing or franchising.

Organic growth depends on a number of things outlined below.

Core competences and capabilities

Organic growth depends largely on what an organisation is good at and capable of. It is helped by identifying and exploiting synergies across different parts of an organisation’s activities; by structuring the organisation to take advantage of “priority” opportunities; and by creating a culture that is able to spot opportunities when they arise and make the most of them.

Planning

Growth can be achieved quickly and unexpectedly, but for it to be sustained a co-ordinated plan of action is needed among business functions such as marketing, production, finance and human resources. Organic growth gives an organisation total control over the process of development
and relies on the experience and expertise within the firm.

Time

Growing organically can be a slow process, as with acorns that become mighty oak trees. It requires patience, application and strong, focused leadership to keep the strategy on course and maintain support for it.

Cash

Cash is essential for organic growth, preferably cash generated from within the business being used to develop other parts, or cash provided as a loan or in return for an equity stake in the business. Cash is needed to pay for expansion and new developments, either by taking on new
staff, buying in new resources (such as it systems), developing and producing new products or undertaking marketing initiatives.

Mergers and acquisitions

The fastest route to growth is through an acquisition or merger. But more than half fail to add value and they are notoriously difficult to pull off successfully.

(Source: Kourdi, J (2003). Business Strategy. UK: The Economist. Page:111-112)


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