Organizations generally seek growth in sales, market share or some other measures as a primary objective. When growth becomes a passion and organizations try to seek sizable growth, (as against slow and steady growth). It takes the shape of an expansion strategy. The firms try to redefine the business, enter new businesses that are related or unrelated or look at its product portfolio more intensely. The firm can have as many alternatives as it wants by changing the mix of products, markets and functions. Thus, the growth opportunities may come internally or externally. Internal growth possibilities may be exploited through intensification or diversification. External growth options include mergers, takeovers and joint ventures.
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 as to when corporations should look for a growth strategy:
1) Growth must be manageable. It should enable the organizations 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.
2) 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 advance thinking and careful planning.
3) 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 sector industries and industries set up in backward areas. Whenever such opportunities exist in the environment, organizations can pursue growth strategies diligently.
Why to pursue 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. The firm that operates in a dynamic environment must grow in order to survive. Growth implies greater sales and an opportunity to take advantage of the environmental opportunities. As the firm grows in size and experience it gets better at what it is doing and reduces costs and improves productivity. A growing firm can cover up mistakes and inefficiencies more easily than can a stable one. There are more opportunities for advancement promotions and interesting jobs in a growing firm. Growth per se is exciting and ego enhancing for managers. A corporation tends to be seen as a winner or on the move by the market place by potential investors. Growth strategies gain importance if a firm’s industry is growing quickly and competitors are engaging in price arts so as to slice out a larger share of the market. If the firm is not able to find a profitable niche, (for example Anchor vegetarian toothpaste, triple refined Dandi salt) it cannot flourish in a volatile environment. More specifically the compelling motives for pursuing growth strategies may be furnished thus:
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 organization does not grow, it may by pushed out of the market by new entrants. Ambassador, Ideal Jawa, Diner’s Credit Card business are the inglorious examples in this regard where the organizations failed to take stock of competitive reactions and were eventually forced out of business.
Source: Strategic Management