management of corporate growth

MANAGEMENT OF CORPORATE GROWTH

Differential Growth and Differentiated Leadership

Different kinds of growth strategies require different kinds of leaders.

Growth via turnaround is different from organic growth via homegrown products.

Growth via new product development needs to harness innovation leadership.

Growth via brand equity, and brand extensions needs a strong marketing brand management leadership

CORPORATE GROWTH

CORPORATE GROWTH THROUGHINCREMENTAL INNOVATION

A series of small improvements to an existing product or product line that usually helps maintain or improve its competitive position over time. Incremental innovation is regularly used within the high technology business by companies that need to continue to improve their products to include new features increasingly desired by consumers.

Companies which gained a huge market by fallowing this incremental

innovation process

Company Growth through Mergers and Acquisitions

Organic Growth: Grooming the Next Generation

Organic growth is the process of business expansion by increased output, customer base expansion, or new product development, as opposed to mergers and acquisitions, which is inorganic growth.

Major Corporate Growth Options

1. Open another location. 2. Offer your business as a franchise or

business opportunity.3.  License your product4.  Form an alliance5.  Diversify6. Target other markets.7. Win a government contract8.  Merge with or acquire another business9. Expand globally10.  Expand to the Internet

A Framework for Organic Growth

Internal or

OrganicGrowth

Within existing or proven businesses or industries (“Red Oceans”)

Maintaining or expanding the profitability of these entities so that it trains and motivates the employees

Capturing larger share of markets through newer product and service offerings 

Establishing new and untested business definitions and industries (“Blue Oceans”)

Establishing new business models/entities 

Strategic innovation in establishing new markets and offerings as the destination of particular market or product

Asking the Right Growth-related Questions

Experimentation Stage:

What is our market niche? Who are our customers? What products/services should we offer

them? Do we have the technology/skills/passion

to offer them? Are they profitable?

Expansion Stage:

How rapidly should we expand our business?

How should we grow? Where do we want to grow?

How do we expand? By new product/service offerings? By exploring new markets? By tapping new customers? By reaching out to new geographic

regions? By buying our competitors?

What functional and human resources do we need for these expansions?

How can we organize the new resources for short-term and long-term profitability?

Integration Stage:

How do we link the new businesses to the old ones?

How should we manage, reorganize, restructure and refocus such that we ensure long-term consistency and success?

How do we ensure continued growth and profitability?

How can we obtain them? By acquisitions? By mergers? By Joint ventures? By strategic alliances? By cross-licensing? By freeing capital from divestitures?

Should we go Global in order to Grow

?

AES, a U. S. - based energy firm that operates 124 power generation plants in 29 countries on five continents has yet to benefit from globalization. AES’s share price has tumbled since investors’ initial enthusiasm for globalization, and some investment advisers are calling for the firm to split into three or more parts.

In 1998, Jürgen Schrempp, CEO Daimler-Benz, the architect of the deal that sought merger with Chrysler in order to create a world corporation, never attained the power over suppliers and markets that this global corporation was supposed to deliver. Yielding to shareowner pressure, he resigned, freeing up his successor to sell Chrysler to the private-equity giant Cerberus in 2007.

Alexander and Korine (2008: 72-73) suggest three sets of

questions for senior executives to reflect before going global:

Are there potential benefits for your company?

Where and when would the benefits of globalization show up in your financial statements?

What is the expected economic value of each benefit?

How detailed and solid is our understanding of each benefit?

What is the hard evidence that other companies in similar circumstances have been able to realize these benefits?

Do you have the necessary management skills?

What skills do we need in order to realize the economic benefits expected as above?

The theoretical advantages of achieving economies of scale at home are very difficult to realize abroad on a global scale.

Thus, do we have coordinated supply and support across borders despite diverse cultures and political constraints?

Do we have a clear track- record of exhibiting or realizing such coordinating skills in the past?

Do we know how further to develop them?

Will the costs of globalizing outweigh the benefits? Companies frequently pay far too much to enter

foreign markets. What will it cost the company in terms of

management time and business process investment, to realize the benefits of the globalization strategy?

Even if we have the required skills stated above, are there unanticipated collateral damages to our business that may make our entire international endeavor counterproductive?

What do critics from our other business units have to say about the cost of globalization and its potential impact on their business unit performance?

What would be the most productive alternative use of all the resources that we plan to earmark to our globalization strategy?

Growth Strategy Principles First, define your value proposition. Your growth strategy should be determined by your value

proposition. For instance, is your value proposition low price leadership? If you are a low price leader like Wal-Mart, Dell, or Medco,

then you must extend low cost value relative to adjacent competitive markets.

If your value proposition is innovation leadership e.g., P&G, GE, 3M), then the growth strategy must be continuous innovation that builds your sustainable competitive advantage.

If your value proposition is relational and building lasting relationships (e.g., IBM, Fidelity Investments, GE Aircraft), then you must create value to your long-term customers by offering integrated solutions.

Growth Strategy Principles

Will the proposed venture offer attractive market potential in terms of revenues?

Is this a proposal where the company has sufficient skills, learning and expertise? Or,

Is this proposal in a domain where the company has sufficient advantage to cover the learning costs?

Will the proposal enable the company to pursue vertical integration with its suppliers?

Will the proposal enable the company to pursue horizontal integration with its competitors?

Growth Strategy Principles

Will the proposal enable the company to strengthen its major flagship brands?

Will the proposal enable the company to broaden its core product lines?

Would the proposed venture support the core business, and not undercut it?

Will the company support the proposed venture with an effective leadership team?

Hence, will the proposed venture offer attractive market potential in terms of net earnings?