What is Expansion Strategies?
Expansion strategies refer to the various methods that businesses use to grow and increase their market share, revenue, and profits. An expansion strategy can involve expanding a business’s operations in a particular market, entering new markets, developing new products or services, or acquiring other businesses.
Expansion means increasing the extent, the volume or the scope of operations. Expansion strategies are the most common and popular strategies adopted to accelerate the pace of growth of an organisation. These strategies have a great impact on the organisation’s structure and processes. They widen the scope of the organisation to expand customer groups, customer functions and alternative technologies. Expansion strategies are also known as growth strategies.
Table of Content
- 1 What is Expansion Strategies?
- 2 Types of Expansion Strategy
- 3 When to Adopt a Growth Strategy?
- 4 Why Pursue a Growth Strategy?
- 5 Problems Created by Growth
- 6 How to Manage – Growth?
Expansion strategies aim at gaining control over the market and the competitors. These strategies are formulated when an organisation wants to increase its business horizon to tap opportunities available in the market.
If an organisation exists in the business for a long time, it can gain advantage from its experience and go for expansion strategies. Similarly, if an organisation’s resources are lying idle, it may utilise them for expansion purposes.
Types of Expansion Strategy
Expansion strategies can be further divided into various sub-strategies. Let us discuss these types of expansion strategy in detail.
- Expansion Through Concentration
- Expansion Through Integration
- Expansion Through Diversification
- Expansion Through Cooperation
- Expansion Through Internationalisation
- Expansion Through Digitalisation
Expansion Through Concentration
Expansion through concentration involves attaining expansion by combining the resources in one or more area of the organisation’s business. This is also known as focus or intensification strategy, implying that an organisation would like to concentrate more on the business that it is already doing. It involves the investment of larger resources in a product line for an identified market, with the help of a proven technology.
The expansion can be followed by adopting the following means:
- Market penetration: It implies selling more products in the same market.
- Market development: It refers to identifying the new markets for selling the existing products.
- Product development: It refers to selling new products in the existing markets.
Expansion through concentration has the following advantages:
- Involves minimum organisational changes, thus, it is less threatening
- Enables an organisation to master in one or a few businesses and gain specialisation in them
- Focuses intensely on the available resources and creates conditions to develop a competitive advantage
- Helps managers to deal easily with problems as they are already familiar with the type of problems
Despite the advantages, expansion through concentration strategies suffers from various limitations, which are as follows:
- Highly concentrated: Concentration strategies are highly dependent on the industry; thus, adverse conditions in an industry can affect organisations. For instance, if the textile industry is hit by recession, it would be difficult for an export house dealing only with cloth material to avoid the impact of recession.
- Doing a known thing intensely: It creates organisational inertia. Employees may not sustain interest and may not perceive work as a challenge, resulting in decreased output.
- Cash flow problem: The strategy often results into a cash flow problem that makes the sustainability of an organisation difficult. An organisation requires large cash inflows to expand while using concentration strategies. This is because; these strategies focus on mastering one business. In order to obtain in-depth knowledge of business and expertise, organisations require huge cash inflows at the growth stage.
However, once the organisation achieves the required expertise and market position, it does not require that much of cash inflow. Now due to focus on one business, the organisation neither plans to expand further nor utilises the options to invest its surplus cash. In this scenario, the problem of surplus cash flow arises. The excess cash situation, with limited opportunities for profitable investment is probably one of the major reasons that organisations in a mature market begin to diversify (as concentration strategy is no more profitable).
- Other threats: They include factors, such as product obsolescence and emergence of newer technologies, which can become a threat to organisations following expansion through a concentration strategy.
Expansion Through Integration
Expansion through integration is performed by combining activities or functions of the business with no change in customer groups. This is done through a value chain, which consists of a number of interlinked activities (performed by an organisation) ranging from the procurement of raw materials to the marketing of finished goods.
Thus, an organisation may move up or down the value chain to integrate activities so that the needs of the existing customers could be fulfilled more efficiently. Thus, expansion through integration widens the scope of an organisation’s growth.
While following expansion through an integration strategy, an organisation can move either vertically or horizontally in the value chain to concentrate more specifically on customer groups.
The two types of integration strategies are explained as follows:
- Vertical integration: This type of integration is carried out with the purpose of supplying inputs, such as raw materials or distributing the final product to customers. Vertical integration is further divided in backward and forward integration.
In backward integration, the organisation becomes its own supplier; whereas in forward integration, the organisation takes control of distributing the products. For example, if an automobile organisation buys its tyre supplier organisation, it is a backward integration. On the other hand, if a wholesaler purchases a retailing outlet to directly sell products to end-costumers; it is a forward integration.
- Horizontal integration: It refers to a situation when an organisation merges with or acquires other organisations serving the same customers, with the same or similar products, and adopting the same marketing process. Horizontal integration increases the size and profits of an organisation by increasing its market share. An example of horizontal integration can be a pizza restaurant expanding its product range by acquiring a hamburger chain.
Expansion Through Diversification
Expansion through diversification involves an extensive change in the business of an organisation in terms of customer functions, customer groups or alternative technologies. In simple words, it means diversification into related or unrelated businesses.
Under the diversification strategies, an organisation launches new products, serves new markets, or does both simultaneously.
There are two types of diversification strategies:
- Concentric diversification: This type of diversification strategy is taken by an organisation that expands in business, related to its existing business. This is also known as related diversification. For example, an organisation, selling household electrical equipment, may diversify its business to kitchenware appliances to serve the same set of consumers.
- Conglomerate diversification: It implies a strategy that requires taking up activities unrelated to the existing business of an organisation. This is also called unrelated diversification. Conglomerate diversification is practiced in organisations when they have excess surplus capital. For example, ITC is into numerous unrelated businesses, such as agri-business, hotels, paperboards and packaging.
Diversification strategies help an organisation to:
- Minimise the risks by spreading it over several businesses
- Capitalise strengths and minimise weaknesses
- Maximise the returns by investing into profitable businesses
- Assist in migrating from a stagnant business to a lucrative business
- Stabilise returns by avoiding economic fluctuations
- Reap the benefits of synergies
Diversification strategies may suffer from the following drawbacks:
- Strategy implementation demands a high level of managerial, operational and financial competence
- It also requires an organisation to hire workforce with wide a variety of skills, as different businesses necessitate different skills for performing different tasks
- The strategy may create imbalance in one or more businesses of an organisation due to lack of focussed approach
- The strategy implementation may increase the administrative costs of managing, integrating and controlling different businesses
Expansion Through Cooperation
Expansion through cooperation refers to the mutual cooperation between organisations belonging to the same industry to achieve a shared objective.
For example, if an organisation works in cooperation with other organisations, it can establish a favourable position in the industry relative to its competitors. Cooperation strategies available to organisations are discussed as follows.
Mergers and Acquisitions
Mergers and acquisitions have become popular strategies in the last few decades to expand the scope of business for an organisation. A merger can be defined as a combination of two or more organisations, in which both the organisations are dissolved and their assets and liabilities are combined to form a new business entity.
It is also referred to as an agreement in which one organisation obtains the assets and liabilities of the other in exchange for shares or cash. Thus, in mergers, organisations pool their resources together to gain a competitive advantage.
An acquisition refers to the process of gaining partial or full control of one organisation by another. In most cases, acquisitions are unfriendly in nature as one organisation tries to take over another organisation by adopting hostile measures, which may not be in the interest of the acquired organisation. The main reason behind mergers and acquisitions is the desire of organisations to increase their market power and gain synergy.
Various types of mergers that help in expanding the size of organisations are as follows:
- Horizontal mergers: This type of merger takes place when two or more organisations in the same business activity merge. The merger results in a larger organisation and large-scale operations for the merged organisation. Organisations may merge horizontally by sharing their resources and skills. For example, an organisation in computer hardware manufacturing may merge with the organisation having the same business.
- Vertical mergers: This type of merger occurs between two or more organisations having different stages of business in the same industry. For instance, organisation A, which is involved in the manufacturing of certain products, merges with organisation B, which sells the products of organisation A. In such a case, the vertical merger has taken place between the two organisations. The reasons for vertical mergers are reducing the costs of communication, coordinating production, and better planning for inventory and production.
- Concentric mergers: It refers to a combination of two or more related organisations with similar production or distribution technologies. For example, a merger between the motorcycle manufacturer and a car manufacturer.
- Conglomerate mergers: In this type of merger, two or more unrelated organisations merge horizontally or vertically. For example, the merger of a fast-food outlet with a cloth manufacturing organisation is a conglomerate merger.
Mergers and acquisitions can achieve the following results:
- Increase the value of the organisation’s stock
- Increase the growth rate by making wise investments
- Balance and diversifying the product lines
- Reduce competition
- Avail tax concessions and benefits
- Acquire competence and capabilities
- Enter new markets for increasing market share
Joint Ventures (JVs) are a combination of two or more organisations that want to attain similar objectives for a specific period. A JV is usually a business agreement in which the concerned parties form (for a specified time period) a new entity and new assets, by contributing equity.
Various reasons for forming a JV are as follows:
- Access to new markets and distribution networks
- Increased capacity
- Sharing of risks and costs with a partner
- Access to more resources, including specialised staff, finance and technology
Four situations that necessitate the formation of a JV are:
- Carrying on a business activity alone becomes unprofitable for an organisation
- Sharing the business risk becomes essential
- Coming together of two organisations results in the creation of unique competence or expertise
- Existing political, legal, economic or social hurdles do not allow an organisation to set up a business alone
Thus, JVs prove effective when an organisation seeks to share the risk and minimise its costs. In addition, they provide a distinctive competence to the organisation. Besides having several benefits, JVs also have few drawbacks, which are:
- Partners may have different objectives for the JV, which may ultimately result in conflict generation
- Imbalance in levels of expertise, investment or assets brought into the venture by the different partners may also lead to conflicting situation
- Different cultures and management styles of different partners in the JV may result in poor integration and co-operation
- Resentment among the partners, as they have to adapt to the changes. This often leads to insufficient leadership and support in the early stages of JV
Consider the following examples of joint ventures:
- Balaji Telefilms Limited entered into a joint venture with Star Group Limited to create a television network of regional language general entertainment channels that target the South Indian market.
- Tata Tea has a joint venture with the Chinese state owned organisation, Zhejiang Tea Import & Export Company, which is the largest green tea exporter of China
A strategic alliance is a mutual agreement between two or more organisations. According to Yoshino and Rangan, A strategic alliance is a partnership between two or more organisations that unite to pursue a set of agreed upon goals, but remain independent subsequent to the formation of the alliance to contribute and to share benefits on a continuing basis in one or more key strategic areas.
Organisations enter into the strategic alliance with their suppliers or competitors to gain competitive advantage. These alliances enable organisations to enter new markets, obstruct competitors and generate higher revenues.
The benefits of strategic alliances are as follows:
- Help organisations to enter into new markets by forming partnership with other organisations
- Reduce the manufacturing costs by pooling resources to utilise them efficiently
- Develop technological capabilities by sharing technological expertise
There are four types of strategic alliances:
- Pro-competitive alliance: It involves the relationship between inter-industry alliances, such as manufacturers, suppliers or distributors. These alliances offer the advantages of vertical integration.
- Non-competitive alliance: It involves the intra-industry partnerships between non-competitive organisations. In noncompetitive alliance, the areas of activities of organisations do not coincide with each other. Thus, there is no competition between them.
- Competitive alliance: It refers to a partnership between two or more rival organisations. There can be intra-industry or interindustry competitive alliance. Many foreign organisations enter into strategic alliance with local competitive organisations.
- Pre-competitive alliance: It implies a partnership between two or more organisations from unrelated industries. This alliance is formed to work on different activities, such as development of new technology, new product or new idea. Joint research and development activities are an example of pre-competitive alliance.
According to Hamel and Prahalad, organisations form strategic alliances because of the following purposes:
- Sharing the cost and risks associated with the new developments of products or processes: For example, the alliance between Boeing and a number of Japanese organisations to build 767 aircraft was the Boeing’s attempt to share the costs of manufacturing aircrafts.
- Combining skills that cannot be developed independently: For example, in 1990, AT&T entered into an alliance with NEC Corporation of Japan to trade technological skills. AT&T gave NEC computer-aided design (CAD) chips, and NEC gave AT&T access to its advanced logic chips.
- Facilitating easy entry into foreign markets: For example, Motorola found it difficult to enter the Japanese cellular phone market because of high trade barriers. Thus, it formed alliance with Toshiba of Japan to build microprocessors.
The disadvantage of the strategic alliance is that it gives competitors a low-cost route to new technology and markets.
Expansion Through Internationalisation
Expansion through internationalisation refers to an expansion strategy that helps organisations to perform their operations internationally. Organisations need to devise their strategies to enter into foreign markets. Today, many organisations are internationalising their operations because of high competition in domestic markets.
Organisations that plan to operate in international markets need to consider various issues, such as government regulations as well as economic, social and legal forces that shape the international markets.
Thus, international strategies require a different strategic perspective than domestic strategies. According to Bartlett and Ghoshal, there are four types of international strategies, which are as follows:
- International strategy: This strategy is used to create value by transferring products and services to foreign markets where these products and services are not available. This strategy is often referred to as an exporting strategy as products are manufactured in the company’s home country and send to customers all over the world. Thus, such companies have little requirement for local adaption and global integration.
Take example of large wine producers from countries, such as France and Italy who follow this strategy for acquiring the market share in the foreign market. Similarly, United Parcel Service, Inc. (UPS), which is the world’s largest package delivery company (based in Seattle, Washington), follows this strategy to serve its customers in over 220 countries and territories.
- Multi-domestic strategy: This strategy helps organisations to customise their operations according to the local conditions of different countries. A multi-domestic strategy, also known as high-level of local responsiveness, matches products and services according to the conditions prevailing in the international country, where the organisation intends to operate.
Take the example of MTV, an American cable and satellite television channel that customises its programmes aired on its channel within the number of countries, including India, New Zealand, Pakistan, etc. Similarly, the food company H.J. Heinz customises its products to match the preferences of local customers. Heinz, while launching its products in India, offered a version of its ketchup that does not include onion and garlic, as some Indians do not eat these two ingredients.
- Global strategy: It implies a low-cost approach that aims to reap the benefits of the experience curve. In a global strategy, organisations offer standardised products and services across different countries. Though, there could be some minor modifications to products/services (depending upon the market variations), a global strategy focuses on the need of gaining economies of scale and therefore, offers essentially the same products/services in each market.
For example, Microsoft offers same software programmes around the world but adjusts them to match local languages. Similarly, consumer goods manufacturing company Proctor & Gamble and pharmaceutical company Pfizer can also be categorised as global companies as they aim at creating standardised global brands.
- Transnational strategy: It involves both low-cost and high-level of local responsiveness approaches. This type of strategy requires a creative approach for managing production and marketing goods and services.
A transnational strategy takes a middle path between a multidomestic and a global strategy. The strategy focuses on offering standardised products/services by keeping in mind local preferences within various countries. For example, fast-food chains, such as McDonald’s and KFC focus on the same brand names and core menu items around the world.
However, they take into consideration the local taste and preferences while developing products/services. McDonald’s, for example, follows a standardised approach while running its operations and adapts its products to local tastes and preferences. In India, McDonald’s uses Indian spices in its products as per local demands and preferences. Their Chicken Maharaja Mac and BigSpicy Paneer Wrap are customised to Indian tastes and preferences.
Similarly, in France, the menu includes bagels, seasoned red potato wedges with sauce, cakes, pastries, scones and croissants. These are not available in the United States. In addition, drinks like Dr. Pepper and root beer are not offered in France, but in the United states. Unilever is another example of fast moving consumer goods (FMCG) company that follows transnational strategy to offer its products in all over the world.
Thus, international strategies offer various strategic alternatives for expansion and provide rewards in the form of lower costs, increased sales and higher profits.
Expansion through internationalisation offers the following advantages:
- Realises the economies of scale by expanding sales volume
- Develops valuable competencies and skills by operating in global markets and working on different business models
- Expands local markets to global markets, which lead to increase in organisation’s market share
- Helps in the possession of valuable resources globally, which leads to a competitive advantage for an organisation
Expansion through internationalisation also has certain disadvantages, which are as follows:
- Involves a higher risk related to the economic and political environment of foreign countries
- Faces challenges of cultural diversity; for example, organisations have to manage the employees of different cultural backgrounds
- Requires coordination between domestic and foreign operations, which leads to high bureaucratic costs
- Leads to higher costs because of differences in distribution channels
- Involves trade barriers, such as tariffs, pricing restrictions or different standards for different countries
Every organisation faces various issues that need to be solved before entering into an international market.There are three basic strategic decisions taken by organisations while going global. These decisions are:
- Which international markets to enter: The organisation that plans to go global needs to analyse which international market to enter as different markets may serve different demands of customers in different countries. Every market has its own advantages, disadvantages and risks. This requires appraising the market of different countries for knowing the benefits, costs and risks involved. Based on the analysis, the organisation needs to decide the most suited market for its business.
- What should be the timing of entry in international markets: The organisation should analyse whether it should be the first mover or the last mover in entering a new international market.
- What should be the scale of entry in international markets: An organisation before entering into an international market requires deciding the scale of entry. A small-scale entry implies investing fewer resources and making fewer commitments; whereas a large-scale entry implies making important commitments by investing large resources. The large-scale entry tries to create a major presence of organisation in a country; whereas a small scale entry helps in reversing the decision if it comes out to be unprofitable.
Thus, we can state that expansion through internationalisation is an important strategy that is adopted by various organisations for global operations.
Expansion Through Digitalisation
Digitalisation refers to the digital coding of information. It enables information to be available efficiently, economically and widely within and outside organisations. In this way, it puts a significant impact on the strategies of organisations.
Digitalisation has guided the usage of E-commerce, E-learning and E-banking. These developments have created a new term for product category, called bitable or digitised products. For instance, books, magazines, newspapers and financial services.
Digitalisation strategies used by organisations are as follows:
- E-channel pattern: It involves a chain of relationships between organisations and customers and between customers and their partners/suppliers. The following are four business models, possible in the E-channel pattern:
- Transaction enhancement: It involves replacing the old transaction method with advanced functional technologies to make marketing information (from the manufacturer or distributer) available electronically. For example, Home Depot introduced its first website as an informational tool to enable customers to easily locate the nearest store.
- E-channel compression: It implies using technology to reduce the number of steps in the distribution and marketing through e-channel. It eliminates redundant steps in the channel and results in a more direct relationship between the customer and the supplier.
For example, Southwest Airline is one of the pioneers that started selling tickets online by removing the ticketing agent link in the chain.
- E-channel expansion: It involves lengthening the legacy channel. This approach is needed in a market where customers desire several unrelated products/services.
Take an example of an automotive market, where a customer may need information on a new car, used car, parts, car insurance or other products/ services. Finding information on each of these from a single information source is difficult.
Therefore, the role of online infomediary or information broker becomes critical to such markets. Adding an online infomediary into the existing market channel is an example of E-channel expansion.
- E-channel innovation: The model develops new e-channels to satisfy unmet customer needs online. The model is applied to attract customers by pioneering new channels to satisfy potential customer’s desires. Usage of computer-generated postage (downloadable from the Internet) is an example of e-channel innovation, where customers can buy postage online by any electronic transfer of funds.
- Transaction enhancement: It involves replacing the old transaction method with advanced functional technologies to make marketing information (from the manufacturer or distributer) available electronically. For example, Home Depot introduced its first website as an informational tool to enable customers to easily locate the nearest store.
- Click-and-brick pattern: When traditional organisations (brickand-mortar) adopt the new technology of new organisations (clickand-order) to achieve greater productivity, it is called the click-andbrick (C&B) pattern. Merrill Lynch, Toys “R” Us, Walmart, Barnes & Noble are a few examples of brick-and-mortar companies that had transformed their traditional operations to support the digital business model.
At the same time, there are several Internet-based companies, like eBay and Amazon that are building a real-world physical channel in addition to the virtual one. Thus, the C&B pattern is becoming a hybrid online/offline business model, incorporated by both brick-and-mortar and click-and-order companies.
- E-portal pattern: It involves intermediaries offering a set of services to a specific group of users. For example, Yahoo, Google and e-Bay are E-portals. They act as intermediaries between suppliers and customers and offer value-added services.
- E-market maker or net market pattern: It is an online intermediary that connects different buyers and sellers within a common vertical industry like chemical or steel. E-market eliminates channel inefficiencies by combining offerings from different sellers or by matching buyers and sellers in an auction. Thus, it facilitates the real-time transfer of information, products and money.
- Pure E-digital products pattern: It involves production, delivery and consumption of products or services electronically. New in novations in software, hardware and communications are revolutionising our economy and resulting in the emergence of digital goods business that provide digital content. Such businesses deal with software, music, photos, videos and documents that can be produced, delivered, consumed and licensed electronically.
When to Adopt a Growth Strategy?
There are certain inherent limits to corporate growth and a firm intending to grow beyond a particular limit, should look into the pros and cons carefully before embarking upon an ambitious growth strategy. This compels us to examine the issue of when corporations should look for a growth strategy:
- Growth must be manageable: It should enable the organization to stabilize its operations over a period of time and ensure profitability. When an organization achieves stability after a time, it can pursue growth strategies in the same field or in diversified fields depending on its strengths.
- Growth must take into account environmental demands: The limitations imposed by various pieces of legislation (for example FDI limits in print media, banking, etc.) must be carefully looked into before going ‘all out’. Growth, as a matter of fact, should be in consonance with environmental demands. An organization can grow only to the extent permitted by (all the above factors) the environment. This, however, requires advanced thinking and careful planning.
- Growth should be the natural choice where the environment presents several opportunities and special concessions and incentives are readily available. For example, the government offers special benefits to small-scale industries and industries set up in backward areas. Whenever such opportunities exist in the environment, organizations can pursue ‘growth strategies’ diligently.
Why Pursue a Growth Strategy?
Growth strategies are extremely popular because most managers tend to equate growth with success. Obviously, a firm that fails to move ahead may fall behind in the competitive race. A firm that operates in a dynamic environment must grow in order to survive. Growth implies greater sales and an opportunity to take advantage Growth strategies are extremely popular because most managers tend to equate growth with success.
Obviously, a firm that fails to move ahead may fall behind in the competitive race. A firm that operates in a dynamic environment must grow in order to survive. Growth implies greater sales and an opportunity to take advantage.
- To Ensure Survival: In the long run, growth is necessary for the very survival of the organization, especially when the environment is turbulent and highly competitive. If the organization does not grow, it may be pushed out of the market by new entrants. Ambassador Car, Ideal Jawa, and Diner’s Credit Card business are inglorious examples in this regard, where the organizations failed to take stock of competitive reactions and were eventually forced out of business.
- To Obtain Scale Economies: Growth is tempting because of the innumerable benefits offered by large-scale operations. Fixed costs could be spread over a large volume of units and the resultant savings could be recycled into the product and offered the same at economical rates ensuring continued organizational success. Great penetration into the market is ensured thereby.
- To Stimulate Talent: Managers and entrepreneurs with a high degree of achievement and recognition would prefer to work in companies always on the move rather than companies where there are limited opportunities to exploit their talents fully. The stupendous rate of growth achieved by Hero Honda, Infosys, and Wipro in recent years bears ample testimony to this fact.
- To Reach Commanding Heights: Growth ensures market control. It means prestige and power. It means securing investor confidence. Companies such as Nestle, Britannia, ITC, HLL, etc. have a high level of reputation in the corporate world owing to this reason. They are held high and rated as ‘winners’ in the corporate world owing to their relentless efforts to grow in various profitable directions.
Growth, obviously, brings satisfaction to employees, investors in particular and innumerable benefits to society in the form of increased employment, low-price-high-quality goods, and so on. Growth allows the organization to reach commanding heights in the economy; it can increase its market share, secure a high degree of control over the market and influence market behavior in a significant way.
Problems Created by Growth
Growth, however, is not an unmixed blessing. In some firms, as pointed out previously, growth beyond an optimum limit creates many problems. According to P.F. Drucker, a business that grows at an exponential rate, would soon gobble up the world and all its resources. Growth at a high rate and for an extended period makes a business exceedingly vulnerable.
It makes it all but impossible to manage it properly. Even from a financial point of view, a growing company does not offer sound investment opportunities. Sooner or later the firm runs into tremendous losses, has to write off vast sums, and becomes, in effect, unmanageable. It takes years then for such a firm to recover and establish itself in the market.
How to Manage – Growth?
It is true that a firm has to grow in order to survive in a competitive environment. Without this strategy, it would be impossible for the firm to attract, motivate, and hold men of talent and competence on a permanent basis. However, the desire to grow must be supported by a rational growth policy, having the following objectives:
- Minimum Growth: The firm, initially, must set its growth targets both for the short-term and the long-term. It must meet these targets, of course, without losing its standing (in terms of sales, margins, and market share) in the marketplace. It should be able to grow in economic performance and economic results.
According to Drucker, growth objectives have to be economic objectives rather than volume objectives. This requires the company to slough off its unprofitable lines and concentrate on products that have growth potential.
- Optimum Growth: The company should be able to strike a happy balance between risk and return on resources. It should be able to combine activities, products, and business in a useful manner. Growth should be at least the minimum growth. But it should not exceed the optimum point.
Growth, like any other business policy, requires objectives, priorities, and strategies necessary to exploit the strengths of the business successfully. More importantly, growth goals should be rational and grounded in the objective reality of a business, its markets, and of its technologies, rather than in financial fantasy.
- Internal Preparation: Growth requires internal preparation. As pointed out by Drucker “When the opportunity for rapid growth will come in the life of a company cannot be predicted. But a company has to be ready. If a company is not ready, opportunity moves on and knocks at somebody else’s door”. Growth should be based on the strengths of a company. It requires financial planning and, above all, requires a human organization capable of achieving different and bigger things continuously. However, the controlling factor in managing growth is management.