Levie and Hay 2000:257-261. GROWTH AS AN OBJECTIVE Session 4 Levie and Hay 2000:257-261.

Levie and Hay 2000:257-261

GROWTH AS AN OBJECTIVESession 4


Few small companies enjoy growth

• Why?

• They have a limited product range and they are often uncompetitive.

• Developing new ideas costs money – little profit is generally retained.

• External funds required – new shareholders, dilution of ownership.


What happens if...

• You currently operate at 80% capacity and you get a large order for product or service which represent 50% of your annual capacity...do you accept it?


How do you manage it?

• Need more finance (fixed and current assets) – which may mean more debt.

• Need to change the way you do business.

• Business model becomes more complex – you may need more specialist resources.


Internal/External Barriers to Growth

• External - Mainly seen as intense competition – not access to finance, labour or equipment.

• Internal – Management capability to manage growth and an unwillingness to relinquish control in exchange for equity.


Common Strategy

• Identify and hold a small niche market and to practice financial and managerial self-sufficiency.

• Low barriers to entry make this a very risky strategy.

• While business owners place greater weight on external barriers, Levie and Hay (2000) argue that ‘control’ is the bigger issue.


Is control the only form of management?

• Entrepreneurs that focuses on the control of – rather than use of - assets have adopted a models of capitalism that equate ownership with control and with administrative thinking. They see control as the only form of management.

• High growth companies make greater use of external resources than low-growth companies. That is, asset use is more characteristic of high growth companies than those who focus on ownership and control.


Is there a better way of doing things?

• All businesses need some form of organisation – but there is no ‘one best way’ to organise a business and businesses (even small ones) must change in response to changing market conditions.

• Growth is achieved by obtaining a bigger share of the market or a greater volume of business. This might be through exploiting market growth, increasing market share; developing new products or entering new markets.


Open Systems Approach

• A system is a thing with interrelated parts – each part affecting the other – each dependent upon the whole.

• A system must be understood in its entirety, not by looking at its parts (e.g. the dissected frog).

• Open systems depend upon their environment to feed and support their existence.

• The system is one of input, throughput and output.


Open Systems

Technical Core

(3) Adaptation

(2) Maintenance

Support Support

Accounting; Personnel; Facilities Management

Executive decision making; Strategic planning, R & D; PR

INPUTS OUTPUTS

(Katz and Kahn’s open systems model)

(1) Purchasing

(1) Marketing


Contingency theory

• Assumed an essentially bureaucratic model of management around which contingencies could be adjusted.

Contextual Factors

Organisational Structure

Performance


Opportunities

• A chance to do something – it may be a new opportunity, an opportunity to do the same thing, but differently.

• A new product – a new means to satisfy a new need or to solve a problem. A new way of adding value to an existing product.

• A new service – may be a combination of a new product and service -


Opportunities

• New means of production – a new way of adding value to an existing product. The new technology may not be an opportunity in itself, but offers a new way server the market.

• A new distribution route – may be a new way of getting the product to the market or a new way of working with intermediaries.

• Improved Service - providing a traditional service better. Adding service elements that meet customers needs.


Opportunity

• Relationship Building – building strong trading relationships based on trust. Clients would find it hard to abandon the relationship and probably reluctant to do so.

• It is important to be open minded about the ways in which an opportunity might be exploited.


Levie and Hay 2000:257-261. GROWTH AS AN OBJECTIVE Session 4 Levie and Hay 2000:257-261.

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