Part-C

Chapter 15 New Venture Expansion Strategies and Issues

Rate of change in future is not going to slow down. Actually, it will increase in the next few decades putting enormous pressure on the leadership to win the war at the market place. What are the qualities required in leaders to spearhead these changes? The following three are considered most important:

High conceptual skills to create a vision for the organization

Excellent communication skills for communicating the vision through out the organization

Skills in building teams and having committed change agents

Vision:

A well-articulated vision galvanizes a large number of employees to align themselves to take action to produce the desired change. This conceptualization has to be done by the leader himself. A consultant cannot do it. It has to be a leaders dream, and not that of a consultants. When it is the leaders dream, he will speak from his heart with impact on his employees. If it is a consultants dream, the articulation will come only from the lip of the leader with diminished impact on employees. Therefore, leader must have conceptual skills to create a vision of the organization.

But, that alone in not enough. The leader has to do a lot more. Let us understand how.

A war generally is won, when the entire armed forces are galvanized to fight the enemy. Similarly in a serious organizational development effort, all employees have to be galvanized against the enemy. Here, the enemy is the dysfunctional activities, traits, values etc., which are required to be changed by the selected change process. Unless the whole population of the organization is galvanized, nothing much happens. This could best be attained by providing a symbol to fight. I will call that a flag.

Three cases of leaders, two well known and the other completely unknown are illustrated here. They invented their flags to galvanize their people.

First Example is that of Late Aditya Vikram Birla. He invented a unique flag called the Birla Management Centre. He galvanized the whole Birla empire under this flag.

The logo of BMC was designed to reflect the concept of Group Dynamics and Group Synergy. Six symbolic persons, one in dark blue and five in light blue, denote one group with various constituents of the group, all fusing their energies and knowledge to form a strong nucleus. The skill of the units merge together and radiate outward more forcefully. The arrows pointing inwards denote pooling of resources and knowledge. The arrows pointing outwards reflect the dynamic expansion and growth of the various units of the group in various industries globally.

The flag represented the will to achieve excellence. It represented excellence and perfection in all spheres of management by continuous improvement. The six specific steps are: Participative Management by consensus and consultation through Management Committees; Shop Floor Committees and Quality Circles

Knowledge Integration Program (KIP)

Skills Development Program (SDP)

Systems Perfection

Delegation and Decentralization

Human Resources Development

The second example is from GE. Jack Welch, the chief executive officer of General Electric has described his formula of bringing about a change in organizational culture. He says, Changing the culture fundamentally meant going beyond incentive plans and a hundred other suggestions from the how-to-do-it books; beyond the hero-of-the-week who single-handedly saves or transforms a company. We have to move from the incremental to the radical, toward a fundamental revolution in our approach to productivity and work itself a revolution that must touch every single person in the organization every business day. Jack Welchs formula is to shift gears from controlling things to liberating the potential energy of each and every employee of the organization.

He achieved this through his flag called workout, which removes the blocks that keep employees out of the decision making process. Workout is essentially a place. Its a forum where three things can happen:

Participants can get a mental workout

They can take unnecessary work out of their jobs

They can work out problems together

In an article published in Fortune the author writes: Work-Outs started in March 1989. Like kernels of corn in a hot pan, they began popping one at a time in GE Plastics silicones unit in Waterford, New York; at NBC; in the lighting business, then in a great noisy rush. No one keeps count, but Baughman guesses that 40,000 employees better than one in eight took part in at least one Workout in 1991.

Initially, all followed the same format, which Welch introduced in New England town meeting. A group of 40 to 100 people picked by management from all ranks and several functions goes to a conference centre or hotel. Its a blunder to wear a tie. The three-day sessions began with a talk by the boss, who roughed out an agenda typically, to eliminate unnecessary meetings, forms, approvals, and other paper work. Then the boss leaves. Aided by the outside facilitator, the group breaks into five or six teams, each to take part of the agenda. For a day and a half they go to it, listing complaints, debating solutions and preparing presentations for the final day.

Its the third day that gives workout its special power. The boss, ignorant of what has been going on, comes back and takes a place at the front of the room. Often senior executives come to watch. One by one, team spokesmen rise to make their proposals. By the rules of the game, the boss can make only three responses: He can agree on the spot; he can say no; or he can ask for more information in which case he must charter a team to get it by any agreed upon date.

Jack Welchs flag has galvanized GEs whole work force.

The third individual is an unknown leader. He was in the Armed Forces during the Second World War. After the war the then government gave him a job of a postman. But, he had a vision to build a Hindi High School. He used to deliver letters and ask for two Annas /four Annas for his dream project.

Some people used to make fun of him. But, several others used to give him a few annas. He ultimately built up the Hindi High School situated in Ghatkopar.

Communication Skills:

Late Aditya Birla had excellent oral and written communication skills. He used to mesmerize the audience. He articulated the change process and got overwhelming support for his plan, mainly because of his communication skills.

Jack Welch stammered. Yet he is a powerful communicator. His frequent visits to GEs management development school in Crottonville and his communication sessions there are world-famous. A quote from his biography.

Not only did Grace (his mother) instill ambition in Jack. She also thought it crucial that he build up self-confidence. She wanted me to be independent. She thought I should control my own destiny. It was Grace who told Jack that his stammers, which persisted slightly into his adulthood, was no defect at all but merely a sign that his mind was racing faster than he could speak. She could have unwittingly made her son feel inferior for having this handicap. This she did not and it was perhaps the greatest gift she gave Jack. He might have turned out shy and introverted, lacking in the self-confidence, he needed to excel in business. The trace of the stammer never gets in his way. Indeed most of the people who notice it feel a sense of awe that Welch managed to reach the height of business world despite it. One such person, Michael Gatner, President of NBC News admired Welch so much for overcoming the handicap that he, probably jokingly said: He is so forceful and dynamic, I wish I stammered.

Our hero of Ghatkopar must have great communication skills to collect money from people in those days of pecuniary difficulties after the World War.

Team building and Commitment to Change:

No war can be won without good Generals. This is what GE does to put the right Generals at the right place. GE devotes enormous energy to matching key managers with jobs in a process called session C. This consumes nearly a month of Jack Welchs time each year. Starting in January, 80,000 GE-ers and their bosses fill our one-page Internal Resume forms filling spaces for

Skills

Career Goals

Development needs.

Between March and May, Welch and a few other Senior Executives visit each of 12 operating units to conduct fiercely focused one-day personnel reviews. Meeting mainly with the top leadership at each site, they end up considering the prospects of about 500 GE senior managers. Pairing people with job assignments is part of the process. The choice of right commanders is a must for winning any war. So is the case in an organizational development exercise. You have the wrong generals and the whole exercise ends as a great fiasco.

Bringing about growth is like fighting a war. It needs to bring about a total reorientation. As in fighting a war so in managing a change process you need a flag. Excellent communication skills are needed by the leaders to galvanize all employees by explaining what the flag stands for and how important it is to keep the flag flying. A nation at war needs committed commanders who can build effective teams. Similarly, an organization needs committed change agents with effective teams supporting the initiatives for change. These organizational commanders have to be line managers, and not HRD managers. Late Aditya Birla chose his commanders wisely. Jack Welch chose a larger number of commanders equally wisely. Our hero of Ghatkopar could not afford commanders. He was a one-man army.

Industrial Scenario:

There is turmoil in the industry all around. Indian companies are being gobbled up by multinationals. Mergers and acquisitions are the order of the day. Reduction in manpower follows in all such cases. Then there are Voluntary Retirement Schemes. Permanent employees find their jobs disappearing. All jobs are slowly becoming temporary and contractual.

In this scenario, there are two ways to survive in organizations;

First one is easy. Keep your boss happy by apple-polishing. But, there is no guarantee that the boss himself or herself will not be shown the door. In that case you will not last long in that organization.

Second, run faster than your competitors.

The story goes that seeing a bear one of the two friends camping in the woods started putting on his sports shoes. The other friend chided him by saying, You cannot run faster than the bear! I have to run faster than you, and not the bear, was the reply. The end of the story is obvious.

How do we learn this art of running for survival in the turbulent years ahead? The name of the game is self-development, a subject ignored by most of us. One needs to answer following questions;

Which books have I read during the last one year?

Which training course did I attend during the last one year?

When did I sit last to evaluate my strengths and weaknesses for better achievement planning?

Over 90% of people have big No as answers to all these three questions indicating that they had ignored self-development reducing their capacity to run. In the difficult times ahead, however, they have to continuously keep on increasing their capacity to run. In other words, they have to keep on adding value to remain competitive. Let us understand this with the help of an example from a group that has significant business interests in Uganda.

It has a sugar mill. The sugarcane for this mill is grown in the groups 25,000 acres farm. The company decided to reserve a small part of the farm, about ten acres, for cultivation of flowers, especially roses, which fetch very good price in the international flower market in Holland. In a few years the price of produce from this 10 acres was much more than another 10 acres of land producing sugar cane. What did they do here? They increased the value of the land.

Same principles govern the value of human resource or a Company. By acquiring skills that are scarce in the market a person or a company could increase its value. Let us evaluate some examples.

A graduate, who learns computer operations, has added value to himself.

When a dropout from school learns car driving, he adds value to himself.

When a simple graduate takes a correspondence course in management, he adds value to himself.

A Chartered Accountant by also acquiring qualifications in cost accountancy and company secretaryship adds value to himself.

An engineer can add value to himself by doing a management course.

A Company going for backward or forward integration or acquisition adds value to itself.

This value-addition has to be a life-long affair for both a person or a company.

The value of raw materials needed to produce any commodity rarely has any bearing on its market value. For example, the cost of the oil and pigment that an artist uses to paint a masterpiece has absolutely no relation to the value of the finished painting.

As an additional example, an ordinary piece of iron is worth about $5.50. If the same piece of iron is forged into horseshoes, its value increases to $10.50. However, if it is processed into needles, its saleable worth rises to $4,285. Yet, if this identical piece of raw material is selected for transformation into steel balance wheels for watches, its value becomes $250,000. The same principle governs the use to which you put your talents. Their usable value depends upon what one does with them.

What is said above confirms the importance of value addition.

Some general rules for adding value for growth are given below:

The knowledge and skills needed in future would be different. One such skill needed will be computer literacy. Therefore, one needs to understand skills needed in future and prepare oneself by acquiring these skills. If an organization has to make a choice of retaining one of two employees equal in all respects but only one having computer literacy the choice will be for the one with this additional skill.

It is advisable to make an estimate of the supply-demand scenario in the future. Skills in short supply should be acquired. This will automatically enhance the competitive value.

An update latest Research-Finding needs to be undertaken periodically. It is better to know what is happening all around.

Certain basic skill makes an individual or an organization immune from economic downturn.

It is advisable to take rotational assignments at regular intervals to broaden your experience. This is the best way of value addition in the organized sector. Somebody can claim to have 20 years experience. It may really be one years experience multiplied 20 times. There is little value addition here. But, if that experience were four blocks of 5 years each in different assignments, real value addition would have taken place. A person taking a rotational assignment acquires flexibility. He gets multi-skilled. In case of any restructuring or downsizing one could be considered for not one but several positions. His chances for survival will be much brighter.

In most cases value addition goes by default. Therefore, it is important to prepare a written plan. This plan should be reviewed for implementation at regular intervals. Competition in the near future will be much more intense. The preparation for facing that competition through continuous value-addition should start without any delay. Otherwise you will face the bear without any capacity to run.

The Growth Strategy could be collaborative:

Incase of individual a collaborative growth strategy could be followed. A firm for example goes in for following type of growth strategy:

Expansion

Forward Integration

Backward Integration

Merger

Acquisition

Amalgamation

Expansion:

Expanding the scale of business in terms of increasing it by 10% or doubling it etc. It is also called as increasing operation of the business. This is undertaken only when there is unexploited demand for the same product the company is producing or the market is likely to grow or some innovative usage for the same product has been found.

Integration:

Integration stands for associating or starting a complementary business in addition to existing business. This could be done in the form of backward and forward Integration.

This is undertaken when the firm has an additional resource that could be ploughed back in the business:

Backward Integration: When a firm takes up the business towards the raw material processing, it is called backward integration. For example a shoe manufacturing firm going in for leather processing as well.

Forward Integration: When a firm takes up a step further towards the consumer in the complimentary business it is called forward integration. For example a garment manufacturing firm going in for chain of retail outlets.

Amalgamation:

When two firms join in to form a new entity altogether separate from their existing entity. Amalgamation is undertaken to combine the strength of the two firms.

Acquisition:

When one firm buys out the another firm, the process is called acquisition. Recently, Compaq the computer hardware firm is bought over by Hewlett Packard ltd., computer peripheral firm. In this case, the buying firm adds the competencies of the firm bought to its business operation.

Merger:

Merger is on the similar lines as amalgamation though it is not same. In case of amalgamation, both the firms lose their identity while in case of merger one firm merges into another. Generally, the smaller or the merging firm loses its identity.

Each growth strategy has it own negative and positive aspects. Therefore, entrepreneurs need to plan and select the most appropriate one for their enterprise. This need not be an impulsive decision or a decision based on the demonstration effect i.e. imitating other enterprises.

It is also need to be seen whether the business environment supports the ambition of the entrepreneur. For example for acquisition, there needs to be a firm available at the purchasable price.

Market forecast is a very important factor in planning out the growth strategy. In a shrinking market, growth strategy could be a defeating exercise. Hence, in planning out growth strategy entrepreneurs should seek to meet some advantages or profit margins.

Last but not the least, growth should be integrated to the original line of business. A growth that is unplanned and tangential to original line of business is like tumor that is not good for the health of the enterprise.

Conclusion:

The growth strategy for an enterprise depends on the entrepreneurs initiative and his vision. In a small-scale enterprise, a well planned, exercise is necessary for an entrepreneur to implement the growth strategy. Unlike a large-scale enterprise where the entrepreneur has luxury of advice of specialized experts and abundance of resources to implement the same, a small-scale entrepreneur is constrained. In terms of both planning expertise as well as resources, an entrepreneur has to depend on himself. He has to carefully and judiciously plan and select the growth strategy for his business. Growth is necessary for business, as non-growth is a sure sign of death.

An entrepreneurs personal time and efforts are needed for implementation of the growth strategy. Therefore, it should be planned out at the time when entrepreneur is able to spend the required time and energy. This is also an opportunity for self-development for the entrepreneur. Hence, he needs to enjoy all aspects of growth. This would lead the entrepreneur to excel in his endeavor.

Integration

Backward Integration

Forward Integration

Acquisition

Amalgamation

Merger

Growth Strategy