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Chapter 10 Growth: success. Entrepreneurship and Small Business Paul Burns. Back to Contents. Business Success. Entrepreneuial character. Business culture. LUCK. Business decisions. Company strengths . Increased competition (2.67, 1990: 2.40)

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Presentation Transcript
slide1
Chapter 10

Growth: success

Entrepreneurship and Small Business

Paul Burns

Back to Contents

business success
Business Success

Entrepreneuial character

Business culture

LUCK

Business decisions

Company strengths

constraints on growth 1997
Increased competition (2.67, 1990: 2.40)

Availability and cost of finance for expansion (2.63, 1990: 2.75)

Marketing and sales skills (2.53, 1990: 2.29)

Availability and cost of overdraft finance (2.38, 1990: 2.72)

Growth of market demand (2.35, 1990: 2.59)

Management skills (2.31, 1990: 2.14)

Skilled labour (2.25, 1990: 1.90)

Acquisition of new technology (1.95, 1990: 1.29)

Difficulty implementing new technology (1.89, 1990: 1.20)

Availability of appropriate premises (1.75, 1990: 1.16)

Access to overseas markets (1.60, 1990: 1.05)

1 = insignificant, 5 = crucial

Constraints on growth (1997)
constraints on growth
Manufacturing SMEs face greater constraints in most areas than do service firms

Larger (medium) SMEs face greater constraints than do micro firms

Innovating SMEs report higher levels of constraints than do non-innovators

Constraints on growth
constraints on growth1
Larger SMEs rate inadequate management skills – and to a lesser extent, marketing and sales skills – exceptionally high as a constraint

Newer and fast-growing SMEs rate financial constraints as serious

Fast growing SMEs rate management skills and skilled labour shortages more highly

Constraints on growth
slide6

Mission

External appraisal

Internal appraisal

Business objectives

Market research

Company analysis

Business environment: opportunities and

threats

Company capability:strengths and weaknesses

Marketing segmentation

Marketing mix:Product PricePromotion PlacePeople

Marketing strategy

Marketing plan

Marketing planning

slide7

INTERNAL ANALYSIS:

Strengths and weaknesses

Techniques:

Generic marketing strategies

Life-cycle analysis

Product portfolio analysis

Value chain

Benchmarking

Financial ratio analysis

Cultural evaluation

EXTERNAL ANALYSIS:

Opportunities and threats

Techniques:

Porter’s five forces

Futures thinking

Scenario planning

SLEPT analysis

Economies of scale

Market research

The SWOT analysis

slide8

Generic market strategies

Broad market

COMMODITY SUPPLIER

OUTSTANDING

SUCCESS

Low cost/price

High cost/price

Low differentiation

High differentiation

MARKET TRADER

NICHE PLAYER

Focused market

slide9

The value chain

Firm infrastructure

Human resource management

Support activities

Margin

Technology development

Procurement

Inbound logistics

Outbound logistics

Marketing and sales

Operations

Service

Margin

Primary activities

slide10

The product life-cycle

Sales value

Introduction

Low sales

Low growth

Low profits or losses

Few competitors

0

Time

slide11

The product life-cycle

Sales value

Introduction

Low sales

Low growth

Low profits or losses

Few competitors

Growth

High, increasing sales and higher profits

Entry ofcompetitors

0

Time

slide12

The product life-cycle

Sales value

Introduction

Low sales

Low growth

Low profits or losses

Few competitors

Growth

High, increasing sales and higher profits

Entry ofcompetitors

Maturity

Static but high sales and profits

Emphasis on low costs

Fight for market share with established competition

0

Time

slide13

The product life-cycle

Sales value

Introduction

Low sales

Low growth

Low profits or losses

Few competitors

Growth

High, increasing sales and higher profits

Entry ofcompetitors

Maturity

Static but high sales and profits

Emphasis on low costs

Fight for market share with established competition

Decline

Declining sales

Declining profit or losses

Exit of competitors

0

Time

slide14

Influence of the product life-cycle

Sales value

IntroductionCohesive culture

Founders dominant

Outside help not valued

Try to repeat success

Related developments favoured

0

Time

slide15

Influence of the product life-cycle

Sales value

IntroductionCohesive culture

Founders dominant

Outside help not valued

Try to repeat success

Related developments favoured

GrowthLess cultural cohesion

Mismatch and tensions arise

Diversification often possible

Vulnerable to take-over

Structural change needed

0

Time

slide16

Influence of the product life-cycle

Sales value

IntroductionCohesive culture

Founders dominant

Outside help not valued

Try to repeat success

Related developments favoured

GrowthLess cultural cohesion

Mismatch and tensions arise

Diversification often possible

Vulnerable to take-over

Structural change needed

MaturityCulture institutionalised

Culture breeds inertia

Strategic logic may be rejected

Related developments may be favoured

Incrementalism favoured

0

Time

slide17

Influence of the product life-cycle

Sales value

IntroductionCohesive culture

Founders dominant

Outside help not valued

Try to repeat success

Related developments favoured

GrowthLess cultural cohesion

Mismatch and tensions arise

Diversification often possible

Vulnerable to take-over

Structural change needed

MaturityCulture institutionalised

Culture breeds inertia

Strategic logic may be rejected

Related developments may be favoured

Incrementalism favoured

DeclineCulture becomes defensive

Readjustment necessary but difficult

Divestment may be necessary

0

Time

slide18

The Boston matrix

High

Star

Problem Child

Introduction

Growth

Product/

Service launch

Market attractiveness

Failure

Maturity

Decline

Cash Cow

Dog

Low

Market strength

High

Low

slide19

The Boston matrix

High

Problem Child

Star

Revenue

+

Expenditure

– – –

_________

Cash flow

– –

Market attractiveness

Cash Cow

Dog

Low

Market strength

High

Low

slide20

The Boston matrix

High

Problem Child

Star

Revenue

+ + +

Revenue

+

Expenditure

– – –

Expenditure

– – –

_________

_________

Cash flow

neutral

Cash flow

– –

Market attractiveness

Cash Cow

Dog

Low

Market strength

High

Low

slide21

The Boston matrix

High

Problem Child

Star

Revenue

+ + +

Revenue

+

Expenditure

– – –

Expenditure

– – –

_________

_________

Cash flow

neutral

Cash flow

– –

Market attractiveness

Cash Cow

Dog

Revenue

+ + + +

– –

Expenditure

_________

Low

Cash flow

+ +

Market strength

High

Low

slide22

The Boston matrix

High

Problem Child

Star

Revenue

+ + +

Revenue

+

Expenditure

– – –

Expenditure

– – –

_________

_________

Cash flow

neutral

Cash flow

– –

Market attractiveness

Cash Cow

Dog

Revenue

+ + + +

Revenue

+

– –

Expenditure

Expenditure

_________

_________

Low

Cash flow

+ +

Cash flow

neutral

Market strength

High

Low

slide23

The Boston matrix

High

Star

Problem Child

Introduction

Growth

Product/

Service launch

Market attractiveness

Failure

Maturity

Decline

Cash Cow

Dog

Low

Market strength

High

Low

slide24

Directional policy matrix

Problem Child

Star

Develop opportunities

  • Be critical of prospects
  • Invest heavily in selective products/services
  • Specialise in strengths
  • Shore up weaknesses

Cash Cow

Dog

slide25

Directional policy matrix

Problem Child

Star

Invest for growth

Develop opportunities

  • Penetrate market
  • Accept moderate short-term profits
  • Sell and promote aggressively
  • Expand geographically
  • Extend product range
  • Differentiate product/service
  • Be critical of prospects
  • Invest heavily in selective products/services
  • Specialise in strengths
  • Shore up weaknesses

Cash Cow

Dog

slide26

Directional policy matrix

Problem Child

Star

Invest for growth

Develop opportunities

  • Penetrate market
  • Accept moderate short-term profits
  • Sell and promote aggressively
  • Expand geographically
  • Extend product range
  • Differentiate product/service
  • Be critical of prospects
  • Invest heavily in selective products/services
  • Specialise in strengths
  • Shore up weaknesses

Cash Cow

Dog

Maintain market position and manage for earnings

  • Maintain market position with successful products/services
  • Differentiate products/services to keep share of key segments
  • Prune less successful products/services
  • Stabilise prices, except where a temporarily aggressive stance is required to deter competitors
slide27

Directional policy matrix

Problem Child

Star

Invest for growth

Develop opportunities

  • Penetrate market
  • Accept moderate short-term profits
  • Sell and promote aggressively
  • Expand geographically
  • Extend product range
  • Differentiate product/service
  • Be critical of prospects
  • Invest heavily in selective products/services
  • Specialise in strengths
  • Shore up weaknesses

Cash Cow

Cash Dog

  • Monitor carefully, judge when to discontinue
  • Live with low growth
  • Improve productivity
  • Reduce costs
  • Look for ‘easy’ growth segments

Maintain market position and manage for earnings

  • Maintain market position with successful products/services
  • Differentiate products/services to keep share of key segments
  • Prune less successful products/services
  • Stabilise prices, except where a temporarily aggressive stance is required to deter competitors

Genuine Dog

  • Prune aggressively
  • Maximise cash flow
  • Raise prices at expense of volume
  • Minimise expenditure
slide28

The Boston matrix

High

Star

Problem Child

Market attractiveness

Low

Cash Cow

Dog

Market strength

High

Low

slide29

The Boston matrix

High

Star

Problem Child

Market attractiveness

Low

Cash Cow

Dog

Market strength

High

Low

slide30

The Boston matrix

High

Star

Problem Child

Introduction

Growth

Product/

Service launch

Market attractiveness

Failure

Maturity

Decline

Cash Cow

Dog

Low

Market strength

High

Low

slide31

Shareholders’ wealth

Return to shareholders = Profit after interest

Shareholders funds

slide32

Shareholders’ wealth

Return to shareholders = Profit after interest

Shareholders funds

Depends on

Gearing

=   Loans  

Shareholders funds

Return on capital

=   Operating profit  

Capital/Net assets

Keep high if interest rates are low

slide33

Shareholders’ wealth

Return to shareholders = Profit after interest

Shareholders funds

Depends on

Gearing

=   Loans  

Shareholders funds

Return on total assets

=   Operating profit  

Total assets/capital

Keep high if interest rates are low

Depends on

Profit margins

= Profit

Sales

Asset efficiency

=   Sales  

Net assets

Keep high

Keep high

asset efficiency
Debtor turnover

  Sales  

Net assets

Stock turnover

Sales

Stock

Asset efficiency
liquidity ratios
Current ratio

  Current assets  

Current liabilities

Quick ratio

Current assets excluding stock

Current liabilities

Liquidity ratios
gearing ratios
Gearing ratio (%)

All loans, overdrafts, HP etc

Capital

Short-term debt ratio (%)

Short-term loans, overdrafts, HP etc

All loans, overdrafts, HP etc

Interest cover

Operating profit

Interest charges

Gearing ratios
slept analysis
Social

Legal

Economic

Political

Technological

SLEPT analysis
futures thinking
Holistic perspective

Avoiding a rigid approach to strategic planning

Developing a vision about a desired future state

Planning backwards from that state

Futures thinking
slide39

INTERNAL ANALYSIS:

Strengths and weaknesses

Techniques:

Generic marketing strategies

Life-cycle analysis

Product portfolio analysis

Value chain

Benchmarking

Financial ratio analysis

Cultural evaluation

EXTERNAL ANALYSIS:

Opportunities and threats

Techniques:

Porter’s five forces

Futures thinking

Scenario planning

SLEPT analysis

Economies of scale

Market research

The SWOT analysis

hamel and prahalad
What types of customer benefits should you seek to provide?

What new competencies do you need to deliver these benefits?

How will you need to reconfigure your customer interface to deliver these benefits?

Hamel and Prahalad
strategic intent
Using a common vision

Aligning staff behaviour with a common purpose

Decentralising in response to turbulence

Strategic intent
treacy and wiersema
What are the dimensions of value customers care about?

For each dimension, what proportion of customers focus on it as their primary decision criterion?

Which competitors provide the best value in each of these dimensions?

How do you compare with competitors in each dimension?

Why do you fall short of the leaders?

Treacy and Wiersema
the ideal strategy
Emphasises something that makes you as unique as possible

Delivers as much value to customers as possible

Delivers it today and, more importantly, tomorrow

The ‘ideal’ strategy