Diversification thus offers the greatest potential for growth, but also the greatest risks to failure. In a product-oriented strategy, the company seeks to modify its products or offer new products or services. A second customer-focused growth strategy is based on the firm’s existing customers. This is a particularly appealing alternative when the core business is approaching its full potential, operates efficiently and generates surplus cash for reinvestment. Employees throughout the organization should connect quickly and collaborate willingly. Market penetration happens when a company penetrates a market in which current products already exist. Forward vertical integration is when a company owns the subsidiaries that market the product. The airline has been profitable for the last 34 years. Some popular external growth strategies are described below: (1) Joint Ventures: Joint venture is a growth strategy in which two or more companies, establish a new enterprise (or organisation) by participating in the equity capital of the new organisation and by agreeing to participate in its management in an agreed manner. In a customer-oriented strategy, the company tries to attract more customers for its current products or services. Ansoff product market growth strategy (Dhirendra Kumar, 2010). Company scorecards should provide a balanced perspective based on the needs of key stakeholders groups and/or major organizational processes – internal operations, value provided to customers and employee development. An evaluation of the overall performance of the core business follows. The article will also explain how the three strategies and three key elements increase the probability for success. Create excellent new products or services which appeal to customers, or. There are three types of Vertical Integration. These include: An important aspect of the clarifying and assessing process requires that senior managers step outside their organization and evaluate both their firm and their competitors’ through the eyes, mind and heart of the customer. Hands-on learning experiences with one-on-one coaching and mentoring are also vital elements of the process. By 2010 the current step of biodiversity loss should be significantly slowed. The description of organization capabilities is adapted from, For a more complete description, refer to, For a more complete description of the Southwest Airlines and KI examples, refer to. An organizations current product can be changed, improved and marketed to the existing market. Employees at all levels and in every role receive performance-related information from the president and discuss how to solve problems and capitalize on opportunities. This article will describe one such thing managers can do, namely build a systematic framework composed of three strategies for growth and three key elements for successful execution. What is the firm’s key competitive market differentiator? It is often used by large companies looking for ways to balance their cyclical portfolio with their non-cyclical portfolio. An entity formed between two or more parties to undertake a specified activity together. A brand must be positioned clearly in target customers’ minds. Main disadvantages of Horizontal Integration are costs increased work load Increased, responsibilities Anti-trust issues and creating a monopoly. In order to provide such a high level of customer service, employees from different departments (not only the Customer Service Department) must be involved in service delivery. In this tactic, there can be further exploitation of the products without necessarily changing the product or the outlook of the product. An organization that already has a market for its products might try and follow a strategy of developing additional products, aimed at its current market. Market Penetration boost sales through effective marketing strategies within the current target market to maintain or grow the market share of the current product range, become the leading player in the growth markets, drive out competitors, increase the usage of a company�s products by its current customers. Provide an outstanding level of customer service. However, attributes are generally the least desirable level for brand positioning. A number of senior leaders view organization capabilities as the key element of their business strategy. The product can also be targeted to another customer segment. Lack of an adequate infrastructure is the second reason cited for not achieving growth objectives. Current Affairs Magazine. Are there attractive growth opportunities within the core? An organizational infrastructure that cannot support successful execution. A third customer-focused strategy is to enter businesses that have strong strategic links to the core – adjacent businesses1. Key elements included (1) defining three market platforms on which the core business is based – Industrial, Fleet and Safety, (2) eliminating products and markets that did not fit on these platforms, (3) adding new products to augment the core and (4) strengthening market coverage with significant investments in the two major channels – sales depots and the firm’s website. Initial successes with one or two close customers can soon fade under the onslaught of strong established competitors. There are 4 main growth strategies that a business can use which include. Such businesses often owe their success to delivering attractive value propositions to different customer sub-segments. Every successful company tailors its own strategy to fit its specific situation. Each of these capabilities is rooted in processes that move across the organization and require the expertise and commitment of various individuals and departments. Backward integration is described as the firm diversifies closer to the sources of raw materials in the stages of production. Synergy may result through the application of management capability or financial resources, but the main purpose is to obtain valuable assets that will increase profitability (Thomas, 2010). A condition that has proven effective is the continual reinforcement by senior leaders of the expectation that all employees should exhibit leadership behaviours. This is a necessary first step in discovering underserved customer groups and hidden growth opportunities. Note that the three organization capabilities selected are vital to the success of specific Customer-Focused Growth Strategies. The venture parties agree to a governance structure to manage the entity and a formula to share its revenues, costs and profits. The International Group Inc., a Toronto-based petroleum specialties manufacturer and third-generation family business. Synergy is the ability of two or more businesses to produce more profits together than they could separately. Balanced Vertical Integration is a company that sets up subsidiaries that supply them with inputs as well as market their product. The high level of cross-departmental collaboration required can prove challenging for some organizations, particularly those with rigid vertical structures. The process starts by answering the question, what should be measured and why? It is also an important option when it is clear that the core’s future growth potential is weak. In addition, some firms choose to focus on lower end customer sub-segments. Privacy Policy. But business growth does not happen accidentally; it's the result of strategic initiatives. Why? An on-going commitment to creating such an infrastructure is a ‘safe bet’. Is there the potential to leverage present positions into attractive growth opportunities? Growth strategy is a strategy to win increasing market shares so that the business is always on a growing trajectory. A firm may expand if current product lines do not have much growth potential, or if current operations are not profitable. Advantages of Vertical Integration include reduce transportation cost, improve supply chain coordination, more opportunities to differentiate by means of increased control of inputs, capture upstream and downstream profits and increase entry barriers to potential rivals. Vertical internal growth is explained as creating businesses within the firm's vertical channel of distribution and takes the form of supplier-customer relationships. Ltd. Salient Features of the Indian Constitution, Monthly A series of meetings with the most innovative customers can be a valuable source of opportunities. Based on our research and experience*, there are two major reasons: Regardless of which growth strategy is selected, a firm’s infrastructure must be up to a standard that supports successful execution. In unrelated diversification, there are generally no previous industry relations or market experiences. The organization created a unique candidate screening process that has been highly effective in selecting individuals whose values and abilities embody unique and imaginative approaches to dealing with challenges. Collectively, relevant information and insights about customers and product or service delivery must be shared. Achieving this requires (1) eliminating departmental or regional silos, (2) utilizing leading indicators and performance drivers that align with the strategy and (3) growing leaders at all levels – managerial and non-managerial. Before we dive into specific examples of growth strategies, let’s take a moment to establish a proper growth strategy definition:A growth strategy is In strategic alliances, the focus is on �sharing� of resources rather than seeking change in control. In such cases, value propositions can be designed which will move the customer to a profitable position or at least minimize the losses. Will India benefit from Joe Biden as President of US? A renewed commitment to operational excellence within the core business. Marketing for a car brand may focus on attributes such as large engines, fancy colours and sportive design. Initially, Ford’s generic strategy was cost leadership. “Life lessons that corona virus taught me”. Many organizations fail to achieve their desired growth targets in revenue and profitability. There are four basic growth strategies you can employ to expand your business: market penetration, product development, market expansion and diversification. But so have mid-sized and small firms, e.g. Phone : +91 96000 32187 / +91 94456 88445. 1. A major contributor to the growth of Reliance Industries in the early stages was backward and forward integration. These leaders focus on continually building and leveraging the organizations’ capabilities to drive new business growth.6, 2. Ansoff. Sales Growth: Five Proven Strategies from the World’s Sales Leaders (2nd edition) This book distills interviews with more than 200 sales leaders at some of the world’s most successful companies into a set of practical, real-world insights across four major areas. Difficult for present and potential competitors to replicate. Is it the quality of service provided, the reputation of the sales staff or the depth of knowledge of the customers’ business and requirements? After the initial shock, many customers welcome the new lower-value proposition. Let’s return to the question of how difficult will it be for a competitor to replicate a key organizational capability. The process of identifying profitable growth opportunities most often begins with the Core Business1, that is, the products, services, customers, channels and geographic areas that generate the largest proportion of revenue and profits. With persistence, the growing network of leaders will tip the scales as other members of the organization from every level and in every role join in and commit. Market Development expand sales in new markets through expanding geographic representation. © Copyright 2018 Ivey Business School Foundation. External growth can be accomplished through merger or acquisition, joint venture, and vertical integration. Related diversification occurs when a firm enters into strategic business area by adding products or services, which are related to the existing core SBA. Who are leaders and what do they do? (Senior leaders who frequently interact with customers can make a significant contribution to this process. co. Providing lease for other items. Civil Service India is a website dedicated to the Civil Services Exam. Such individuals are a good fit with the highly disruptive and innovative low-cost strategy of the airline. After a series of market tests, this prominent Canadian organization identified regions in the U.S. north east and mid west in which there is potential for profitable growth. These are usually groups of customers for which the cost of supplying and servicing exceeds the revenue the customer generates. Also, think of your favorite owner-managed restaurant, the one you select for meetings with important clients or special family occasions. How can it be strengthened? Scorecards depict key strategic relationships, particularly between the desired performance outcomes such as revenue and profit growth and the drivers of performance (e.g. Advantages of Horizontal Integration include Economics of scale, Selling more of the same product in different parts of the world, Economics of Scope, Sharing resources common to different products. Your business will never increase in value without growth. Such structures make it difficult for employees to adapt and respond to special customer service requirements. Who are and who are not the core customers? The process of identifying profitable growth opportunities most often begins with the Core Business1, that is, the products, services, customers, channels and geographic areas that generate the largest proportion of revenue and profits. Inadequate consideration of opportunities within the core business, adjacent to the core business or within new customer sub-segments. As the senior leadership group moves through this process, it will become clear if and when adjacent growth options should be considered. Disadvantages of Vertical Integration include potentially higher cost due to the lack of supplier competition, Decreased Flexability, developing new competencies may compromise existing competencies, increase bureaucratic costs and monopolization of markets. Horizontal integration is an approach where a company acquires, mergers or takes over another company in the same industry value chain. In the future, the growth of food production should not come at the expense of nature. 10 Business Growth Strategies You Can’t Afford to Ignore Most of us have heard this adage, but it cannot be emphasized enough. They are best identified by their behaviours and influence rather than the hierarchical position. Precise measurements are not always possible but proxy indicators established in a thoughtful and open manner are. The main objective of horizontal integration is to grow the company in size, increase product differentiation, achieve economies of scale, decrease competition or enter new markets. Another alternative is to consider the non-core businesses of the firm. In what direction is each of these key indicators headed and why? Many leaders prefer to start this process by focusing on current customers. A process can be created to assist both managers and specialists at the customer interface gain fresh insights into customer needs and preferences. As such, they help colleagues understand the many, How to Govern, Manage, and Work Amid COVID-19, How to Sell When the World Is Upside Down, Maintaining Professional Networks in Good Times and Bad, Understanding the Link Between Crisis and Innovation. It is recommended that the senior leaders begin the process by considering the growth potential within the present core business and/or the opportunities and growth potential associated with creating innovative value propositions for underserved customer groups. Based on the strategies used and its ambitions, a company can choose one of these four strategies. Every firm has to develop its own growth strategy […] Let’s assume that increased market penetration will be driven by the strength of the company’s brand and customer loyalty. Such a perspective on leadership significantly differs from the more traditional ‘leader as hero’- the person who fires-up the troops, leads the charge and performs ‘heroic’ feats. It guides you through the entire gambit of the IAS exam starting with notification, eligibility, syllabus, tips, quiz, notes and current affairs. The scorecard has been aligned with four major stakeholder groups – customers, employees, shareholders and the communities in which the bank resides. It should be very difficult! ; Market Development – the organization looks for growth through process of focusing on its current products and services to emerging market segments. 1. Far too many companies fail to achieve their growth targets in revenue and profitability. Unilever’s generic strategy (Porter’s model) and intensive growth strategies maintain the company’s competitive advantage in the consumer goods industry. Diversification is considered as the most risky since it requires both product and market development and they may be outside the firm�s core competencies. ADVERTISEMENTS: The strategies that you must follow for the growth of your firm are as follow: The term strategy means a well-planned, deliberate and overall course of action to achieve specific objectives. ), Key elements of this process include (1) sub-segmenting existing customer groups based on newly discovered needs, buying patterns and contribution to profits and/or revenue, (2) creating innovative and high-impact value propositions for the most attractive sub-segments, (3) field-testing the new value propositions and (4) scaling-up based on the results of field tests.3. For example, direct sales calls can be replaced with on-line ordering systems and non-essential product/service features can be eliminated. Unrelated diversification occurs when a firm enters into new SBAs which are not linked to the existing core SBA, either through technology or market needs (Ansoff, 1987, Pp:123). This strategy involves creating High Impact Value Propositions for new customer sub-segments. Product development: These strategies modify existing products (Harrison, 2013). Why is growth so elusive? There are two basic diversification strategies that include concentric/related and conglomerate/unrelated diversification (Hunger and Wheelen, 2009). Gross domestic product has grown at … A second key element of infrastructure necessary for successful execution is the Performance Management system and scorecard. This question is best answered by those directly involved. The company’s growth strategy has drawn on the approaches described in this article – redefining and growing the core (expanding the product line), entering adjacent businesses (European expansion) and focusing on new market segments and sub-segments (universities, leading high tech firms). (Note: Performance Management systems are rooted in the widely held belief that “what gets measured gets done”.). 2. Market Penetration – the organization strives to attain growth with current products or services in their existing markets, endeavoring to maximize its share of the market. There are two general types of organic growth strategies. Leaders are found at all levels in organizations, including, non-titled, non-managerial positions. These new product initiatives have significantly increased revenue (and profits) within existing stores.5. It is today the most fully integrated company in the world (from petroleum exploration to textiles retailing). Related diversification can be categorized by the direction of diversification, vertical integration (backward and forward) and horizontal integration. In summation, we can say that the probability of achieving profitable growth is heightened whenever an organization has a clear growth strategy and strong execution infrastructure. Product Development strategies enhance sale through new products/services. One of the common growth strategies is the integrative growth strategy. The shortage of drinking water in many regions of the world is a major barrier to sustainable development. For example: The overall process need not take a great deal of time, but can yield significant returns. Eliminating barriers to flow – breaking down departmental silos- is a necessary first step to building an organization’s strategic capabilities, regardless of the specific capability. W e can examine growth strategies in two basic categorie s, which are or ganic and inorganic growth strategies. A joint venture can be organized to execute a project for a defined period of time or can be a business relationship that is intended to be open-ended. A joint venture can be a good way for an emerging middle market company to diversify its product line and marketing channels, commercialize new products and services, explore entering new markets, acquire new market knowledge, share investments in projects that carry high business or technical risk, increase its ecosystem and sphere of influence. (See Sections 1, 2 and 3.). As an example, let’s examine the capability to provide an outstanding level of customer service in a manner that would make it difficult for competitors to replicate. Ansoff product marketing expansion grid: The Ansoff product and market growth matrix is a marketing planning device which generally assists a business in determining its product and market growth. To minimize this risk, business leaders may wish to test their organization’s capacity by piloting adjacent growth initiatives in stages, one or two degrees of strategic difference at a time. The following guidelines will help with such an assessment. These four strategies can be broken down into two categories: existing markets, products, or services and new markets, products, or services. (Note: As a result of the diligent efforts of the president, all employees are company owners.). Alternative channels, new products or services or even new joint ventures may be suggested as well as entering new geographic markets, serving different customer segments and redesigning the customer’s value chain. 3. The alternative of expanding into new geographic markets provides the advantage of building a larger customer base, but often at the cost of a longer payback period and higher risk. Market development: It identify new market segments for existing products (Harrison, 2013). Highly visible to key individuals within the customer organization, and acknowledged as providing exceptional value. Parties agree to create a new entity by both contributing equity, and they then share revenue, expenses, and control of the enterprise. The three Customer-Focused Growth Strategies described above require a supporting infrastructure to increase the chances of successful implementation. Merger: In merger two firms agree to move ahead and exist as a single new company. Diversification strategy is implemented by the company if the current market is saturated due to which revenues and profits are lower. Some leaders choose to look at adjacent growth options in an opportunistic manner – as one-offs. Insightful conversations on the growth potential of the core business, or conversely. Processes were created to help refocus on the core business. When employees share identical values with the values of the company founder and connect at a very basic level with the organization’s core business strategy, it can be expected that each employee will step forward and lead. Brand positioning can be done at any of three levels: 1. on product attributes 2. on benefits 3. on beliefs and values. To prevent this, leaders are advised to “organize to suit the new business as much as the core”.4. Copyright © 2021 CivilServiceIndia.com | Website Development Company : Concern Infotech Pvt. The capability should be: The following guidelines help answer this question. When considering these questions, input from external stakeholder groups is very helpful, particularly from loyal and even not-so-loyal customers. If unrelated diversified businesses seem to grow faster, the track record of diversification remains poor as in many cases especially if management team lacks experience or skill in the new line of business (Porter, 1987). (Photo: Public Domain) Unilever’s generic strategy (based on Michael Porter’s model) builds competitive advantage by satisfying consumers’ specific needs and preferences. Acquisition: Acquisition is a deal when one company takes over another company and buyer becomes sole proprietor. “In less than 12 months” it had been transformed “to an exciting place to work with (close to) a 20% growth rate and higher profitability”.2 How did such a dramatic change occur? Two organizations, Southwest Airlines and KI (formerly Krueger International), a mid- sized furniture manufacturer, have taken different approaches to the challenge of building leadership at all level and in all roles. China has created an economic miracle since its economic reforms began in the late 1970s, becoming the fastest growing economy in the world. One without the other impairs the probability of success. Types of Growth Strategies:Two types of growth strategies are developed that include Internal and External. Therefore, a major challenge that senior managers face is to clarify, assess and continually strengthen their organization’s strategic capabilities. (See Sections 4, 5 and 6. 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