Chapter 10 Growth: success

1. Chapter 10 Growth: success Entrepreneurship and Small Business Paul Burns Back to Contents

2. Business Success Entrepreneuial character Business culture LUCK Business decisions Company strengths

3. Increased competition (2.67, 1990: 2.40) Availability and cost of finance for expansion (2.63, 1990: 2.75) Marketing and sales skills (2.53, 1990: 2.29) Availability and cost of overdraft finance (2.38, 1990: 2.72) Growth of market demand (2.35, 1990: 2.59) Management skills (2.31, 1990: 2.14) Skilled labour (2.25, 1990: 1.90) Acquisition of new technology (1.95, 1990: 1.29) Difficulty implementing new technology (1.89, 1990: 1.20) Availability of appropriate premises (1.75, 1990: 1.16) Access to overseas markets (1.60, 1990: 1.05) 1 = insignificant, 5 = crucial Constraints on growth (1997)

4. Manufacturing SMEs face greater constraints in most areas than do service firms Larger (medium) SMEs face greater constraints than do micro firms Innovating SMEs report higher levels of constraints than do non-innovators Constraints on growth

5. Larger SMEs rate inadequate management skills – and to a lesser extent, marketing and sales skills – exceptionally high as a constraint Newer and fast-growing SMEs rate financial constraints as serious Fast growing SMEs rate management skills and skilled labour shortages more highly Constraints on growth

6. Mission External appraisal Internal appraisal Business objectives Market research Company analysis Business environment: opportunities and threats Company capability:strengths and weaknesses Marketing segmentation Marketing mix:Product PricePromotion PlacePeople Marketing strategy Marketing plan Marketing planning

7. INTERNAL ANALYSIS: Strengths and weaknesses Techniques: Generic marketing strategies Life-cycle analysis Product portfolio analysis Value chain Benchmarking Financial ratio analysis Cultural evaluation EXTERNAL ANALYSIS: Opportunities and threats Techniques: Porter’s five forces Futures thinking Scenario planning SLEPT analysis Economies of scale Market research The SWOT analysis

8. Generic market strategies Broad market COMMODITY SUPPLIER OUTSTANDING SUCCESS Low cost/price High cost/price Low differentiation High differentiation MARKET TRADER NICHE PLAYER Focused market

9. The value chain Firm infrastructure Human resource management Support activities Margin Technology development Procurement Inbound logistics Outbound logistics Marketing and sales Operations Service Margin Primary activities

10. The product life-cycle Sales value Introduction Low sales Low growth Low profits or losses Few competitors 0 Time

11. The product life-cycle Sales value Introduction Low sales Low growth Low profits or losses Few competitors Growth High, increasing sales and higher profits Entry ofcompetitors 0 Time

12. The product life-cycle Sales value Introduction Low sales Low growth Low profits or losses Few competitors Growth High, increasing sales and higher profits Entry ofcompetitors Maturity Static but high sales and profits Emphasis on low costs Fight for market share with established competition 0 Time

13. The product life-cycle Sales value Introduction Low sales Low growth Low profits or losses Few competitors Growth High, increasing sales and higher profits Entry ofcompetitors Maturity Static but high sales and profits Emphasis on low costs Fight for market share with established competition Decline Declining sales Declining profit or losses Exit of competitors 0 Time

14. Influence of the product life-cycle Sales value IntroductionCohesive culture Founders dominant Outside help not valued Try to repeat success Related developments favoured 0 Time

15. Influence of the product life-cycle Sales value IntroductionCohesive culture Founders dominant Outside help not valued Try to repeat success Related developments favoured GrowthLess cultural cohesion Mismatch and tensions arise Diversification often possible Vulnerable to take-over Structural change needed 0 Time

16. Influence of the product life-cycle Sales value IntroductionCohesive culture Founders dominant Outside help not valued Try to repeat success Related developments favoured GrowthLess cultural cohesion Mismatch and tensions arise Diversification often possible Vulnerable to take-over Structural change needed MaturityCulture institutionalised Culture breeds inertia Strategic logic may be rejected Related developments may be favoured Incrementalism favoured 0 Time

17. Influence of the product life-cycle Sales value IntroductionCohesive culture Founders dominant Outside help not valued Try to repeat success Related developments favoured GrowthLess cultural cohesion Mismatch and tensions arise Diversification often possible Vulnerable to take-over Structural change needed MaturityCulture institutionalised Culture breeds inertia Strategic logic may be rejected Related developments may be favoured Incrementalism favoured DeclineCulture becomes defensive Readjustment necessary but difficult Divestment may be necessary 0 Time

18. The Boston matrix High Star Problem Child Introduction Growth Product/ Service launch Market attractiveness Failure Maturity Decline Cash Cow Dog Low Market strength High Low

19. The Boston matrix High Problem Child Star Revenue + Expenditure – – – _________ Cash flow – – Market attractiveness Cash Cow Dog Low Market strength High Low

20. The Boston matrix High Problem Child Star Revenue + + + Revenue + Expenditure – – – Expenditure – – – _________ _________ Cash flow neutral Cash flow – – Market attractiveness Cash Cow Dog Low Market strength High Low

21. The Boston matrix High Problem Child Star Revenue + + + Revenue + Expenditure – – – Expenditure – – – _________ _________ Cash flow neutral Cash flow – – Market attractiveness Cash Cow Dog Revenue + + + + – – Expenditure _________ Low Cash flow + + Market strength High Low

22. The Boston matrix High Problem Child Star Revenue + + + Revenue + Expenditure – – – Expenditure – – – _________ _________ Cash flow neutral Cash flow – – Market attractiveness Cash Cow Dog Revenue + + + + Revenue + – – – Expenditure Expenditure _________ _________ Low Cash flow + + Cash flow neutral Market strength High Low

23. The Boston matrix High Star Problem Child Introduction Growth Product/ Service launch Market attractiveness Failure Maturity Decline Cash Cow Dog Low Market strength High Low

24. Directional policy matrix Problem Child Star Develop opportunities • Be critical of prospects • Invest heavily in selective products/services • Specialise in strengths • Shore up weaknesses Cash Cow Dog

25. Directional policy matrix Problem Child Star Invest for growth Develop opportunities • Penetrate market • Accept moderate short-term profits • Sell and promote aggressively • Expand geographically • Extend product range • Differentiate product/service • Be critical of prospects • Invest heavily in selective products/services • Specialise in strengths • Shore up weaknesses Cash Cow Dog

26. Directional policy matrix Problem Child Star Invest for growth Develop opportunities • Penetrate market • Accept moderate short-term profits • Sell and promote aggressively • Expand geographically • Extend product range • Differentiate product/service • Be critical of prospects • Invest heavily in selective products/services • Specialise in strengths • Shore up weaknesses Cash Cow Dog Maintain market position and manage for earnings • Maintain market position with successful products/services • Differentiate products/services to keep share of key segments • Prune less successful products/services • Stabilise prices, except where a temporarily aggressive stance is required to deter competitors

27. Directional policy matrix Problem Child Star Invest for growth Develop opportunities • Penetrate market • Accept moderate short-term profits • Sell and promote aggressively • Expand geographically • Extend product range • Differentiate product/service • Be critical of prospects • Invest heavily in selective products/services • Specialise in strengths • Shore up weaknesses Cash Cow Cash Dog • Monitor carefully, judge when to discontinue • Live with low growth • Improve productivity • Reduce costs • Look for ‘easy’ growth segments Maintain market position and manage for earnings • Maintain market position with successful products/services • Differentiate products/services to keep share of key segments • Prune less successful products/services • Stabilise prices, except where a temporarily aggressive stance is required to deter competitors Genuine Dog • Prune aggressively • Maximise cash flow • Raise prices at expense of volume • Minimise expenditure

28. The Boston matrix High Star Problem Child Market attractiveness Low Cash Cow Dog Market strength High Low

29. The Boston matrix High Star Problem Child Market attractiveness Low Cash Cow Dog Market strength High Low

30. The Boston matrix High Star Problem Child Introduction Growth Product/ Service launch Market attractiveness Failure Maturity Decline Cash Cow Dog Low Market strength High Low

31. Shareholders’ wealth Return to shareholders = Profit after interest Shareholders funds

32. Shareholders’ wealth Return to shareholders = Profit after interest Shareholders funds Depends on Gearing =   Loans   Shareholders funds Return on capital =   Operating profit   Capital/Net assets Keep high if interest rates are low

33. Shareholders’ wealth Return to shareholders = Profit after interest Shareholders funds Depends on Gearing =   Loans   Shareholders funds Return on total assets =   Operating profit   Total assets/capital Keep high if interest rates are low Depends on Profit margins = Profit Sales Asset efficiency =   Sales   Net assets Keep high Keep high

34. Debtor turnover   Sales   Net assets Stock turnover Sales Stock Asset efficiency

35. Current ratio   Current assets   Current liabilities Quick ratio Current assets excluding stock Current liabilities Liquidity ratios

36. Gearing ratio (%) All loans, overdrafts, HP etc Capital Short-term debt ratio (%) Short-term loans, overdrafts, HP etc All loans, overdrafts, HP etc Interest cover Operating profit Interest charges Gearing ratios

37. Social Legal Economic Political Technological SLEPT analysis

38. Holistic perspective Avoiding a rigid approach to strategic planning Developing a vision about a desired future state Planning backwards from that state Futures thinking

39. INTERNAL ANALYSIS: Strengths and weaknesses Techniques: Generic marketing strategies Life-cycle analysis Product portfolio analysis Value chain Benchmarking Financial ratio analysis Cultural evaluation EXTERNAL ANALYSIS: Opportunities and threats Techniques: Porter’s five forces Futures thinking Scenario planning SLEPT analysis Economies of scale Market research The SWOT analysis

40. What types of customer benefits should you seek to provide? What new competencies do you need to deliver these benefits? How will you need to reconfigure your customer interface to deliver these benefits? Hamel and Prahalad

41. Using a common vision Aligning staff behaviour with a common purpose Decentralising in response to turbulence Strategic intent

42. What are the dimensions of value customers care about? For each dimension, what proportion of customers focus on it as their primary decision criterion? Which competitors provide the best value in each of these dimensions? How do you compare with competitors in each dimension? Why do you fall short of the leaders? Treacy and Wiersema

43. Emphasises something that makes you as unique as possible Delivers as much value to customers as possible Delivers it today and, more importantly, tomorrow The ‘ideal’ strategy