The importance of business growth
Companies can grow using their internal or external resources. A firm makes organic growth when it uses its operating resources such as retained profit, to finance its growing sales and operation. While external growth is funded by external resources, such as merging or acquisition. Companies benefit from business growth to reach the breakeven point and make profits quickly, and it enables the company to gain the advantage of economies of scale. Moreover, it strengthens the competitive position of the company in the market, and it empowers the business to sell more and penetrate the market. Besides, growth encourages the company to increase efficiency and productivity.
Inputs for growth
Businesses grow by investing in leadership, people and capital. These resources, coupled with a better understanding of customers and the market, are the recipe for business growth. Businesses may grow due to hiring talented staff and management, acquiring unique technology, investing in improving or expanding a business, being innovative or meeting the customers’ needs. A firm operates in a competitive environment, which makes growth a challenging aim if the business is to satisfy customers more fully and thereby survive.
Managing the problems of growth
Not all growth has a positive impact on a business, and some growth may have negative implications. When a company grows more abundant, it needs more resources and control; however, market conditions continuously change, and this may halt any growth by presenting obstacles. As a result, a business may face the diseconomies of scale, which results in increased cost of production and other disadvantages. Diseconomies of scale may be caused by internal and external factors. Internal causes can be lower productivity, deficiency, disorganization of staff, wrong decisions, weak control or all of these. And external reasons can be competition, product substitution, new entrants, technological discovery or changes in consumption trends. For these reasons, growth may cause problems which must be controlled by paying attention to the organizational structure and communication needed to avoid any diseconomies of scale, and ensuring sufficient resources and infrastructure are available to handle economies of scale. Moreover, growing companies may develop their human capabilities to cope with economies of scale and managing the firm’s culture and business differences when merging and acquiring growth. Most importantly, growing merges more investments and working capital, and thus companies must put in place a system for managing financial and ensure profitability and cash flow surpluses.
Analyzing growth opportunities
Growth analysis is conducted by firms to show their readiness to scale up. This analysis takes into consideration both internal and external factors. Internal factors to the enterprise can be financial and non-financial factors, while external factors include reform of political, economic, social, environment and legislation. Growth analysis provides the basis for the firm to identify its strengths and weakness to scale up and includes leadership, people, capital, innovation, technology or competitive advantages. The following is a brief description of the corporate growth analysis:-
- Leadership: This involves assessing the leadership capabilities of the firm to reach growth targets. Leadership reveals the ability of owners and managers to lead the firm, and it involves leading people and other resources to achieve greater efficiency and productivity. Leaders motivate employees, increase job satisfaction, encourage teamwork, create a supportive business culture, yet they lead teams to success.
- People and skills: This involves assessing the competency level of employees to reach growth targets. It is concerned with building up the capacity of employees to improve productivity, enabling them to achieve milestones and objectives. Analysis can be conducted to check staff capabilities, identify any skills gaps, raise staff awareness of targets, improve the organization of people, define roles and duties, productivity or training needs.
- Sales and marketing: This includes evaluating the ability of the firm in sales and marketing to reach growth targets. The evaluation covers business strategy, marketing mix, sales and market share and aims to enhance the impact of the business strategy, identify the right marketing mix and increase sales. Growth is mainly based on the success of the firm to grow sales and customers.
- Access to capital: This involves assessing the availability and access to capital, which a firm requires to reach growth targets. Growth requires money to finance its activities, and lack of capital can be a barrier to growing the firm. Capital analysis for growth includes checking the cash and time scale required, the sources and cost of capital, accessibility of capital, profitability and cash flow projection.
- Strategy: This involves assessing the effectiveness of the corporate strategy to reach growth. Growth strategy provides a clear way to achieve growth and enables a higher level of participation. Growth analysis must check the availability and suitability of a plan for growth, employees’ awareness of strategic targets and activities, the quality of components of the strategy, strategic positioning, competitive strategy, target customer segment, market mix, and profitability.
- Innovation: This involves assessing the innovation system and its ability to make new ideas useful and thereby achieve growth. Growth analysis must check the innovation system in place, the flow of innovative ideas, knowledge of the market, customers, technological change, business processes, employees’ contributions to the innovation, product creation and improvement or intangible assets and protection.
- Competitive advantages: This involves assessing the competitive advantages of the firm and how they are managed to reach growth. Growth analysis must check any identified competitive advantages, the value of these or how they can be adopted to achieve business growth. Competitive advantages are unique resources that increase the superiority of a firm against its rivals.
- Technology: This involves assessing the technological capabilities of the business to reach growth. Growth analysis must check any technology used, its level of advancement or its potential to achieve growth.
This article is extracted from my new book- Mastering Enterprise Skills for Potential Entrepreneurs, which can be found on www.amazon.co.uk. If you want to receive more information about the book and our activities, you can register in our newsletter by using this link.
Prepared by: Munther Al Dawood
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