Importance of Growth in Business
Discuss about the Firm growth and barriers to growth firms.
The business environment is not stagnant. It is very dynamic and multi-faceted. Various factors present in the external environment have an effect on the operations of the business. Since a business is believed to have forever entity, it is assumed that a business will not remain the same. If many opportunities are available for the business then it plans to expand its operations (Flamholtz & Randle, 2007). In the given report, I will be discussing the concept of growth strategies and throw light on the challenges faced in growing a business. The solutions to overcome these challenges have also been provided, along with the role of organization systems and strictures in it. The benefits and disadvantage of the different types of exit-strategies will be discussed. In the following section I will be discussing the importance of growth in a business.
According to me, it is extremely important for a business to grow in terms of revenue and business because growth plays a crucial factor in deciding the future of the organization. If an organization is not growing, it means that it is dying. Growth helps the company to earn greater profits and attain to the needs of the larger population. Without adequate growth strategies, the firm will not last long in the competitive business environment (Hofer & Charan, 1984). However, there are certain challenges faced by the various companies to expand and grow their business. The challenges faced by the companies are given in the next section.
I believe the primary challenge faced by all businesses these days are competition from online e-commerce websites. The e-commerce platform has been doing exceptionally better in the last few years. Local businesses have been facing a lot of competition and therefore, it is difficult to expand the business as the mass market has already been captured by the online retail stores (Roberts, 1999). The offerings given by the online stores range from plumbing, doctoral, books, groceries, car parts to clothing and accessories.
The convenience that the online websites offer tends to influence the customers and attracts them. Many retailers closed in 2017 in the United States because of various online websites. The online shopping is very impulsive and this tends to increase the sales of the given website. Due to this, the businesses are not being able to expand their operations.
Challenges Faced in Growing a Business
According to me, the next problem arises when the business is unable to connect with the customers outside the area of operation. Businesses are unable to connect with the businesses, which lie outside the domain of the organization. Most of the local business houses are able to connect with the business that lies in the same city of operations; however, they are unable to connect with the businesses, which lie outside the geographical location. This may be due to lack of knowledge about customer demand or lack of human resource. It may also be due to lack of expertise. The next problem is lack of proper human resource.
Very often, the organizations fail to analyze which employees it should hire and which ones it should not (Sahlman & Stevenson, 2007). Attracting and retaining the right talent at both middle and higher levels is an extremely difficult task, which a majority of companies fails to do. Many companies have a habit of appointing a full time Chief Financial Officer for their company in the early years. This is not correct as a better approach would be to hire a part time CFO who would set the company`s direction correctly. This shall help in saving extra costs and minimizing expenses. Lastly, I believe that cash flow management also plays a big role in the growth of a company.
Many companies appear to be financially healthy from the outside perspective. However, this is not the case. Many businesses have a very poor cash flow system as compared to their competitors (DeTienne, McKelvie & Chandler, 2015). Accounts receivable and other relevant components of accounts are extremely difficult to maintain and often form a hindrance in front of the company, which resist their strategies to grow.
In the given section, I have tried to elaborate upon the role of organizational system and structure in overcoming the various growth challenges. An organization`s system and structure has a key role to play in its growth strategies. The organization`s strategy is a key plan b the directors and managers for the whole business. The organizational structure is a way in which the various pieces of an organization can fir in together. The strategy and the structure of an organization need to be combined effectively so that it is able to overcome the various obstacles that come in the way of achieving growth in an organization. As mentioned earlier, it is extremely important for an organization to grow in order to keep up with the various requirements in a business (Collewaert, 2012). It is for this reason that the organization needs to have a proper structure and a well-managed system so that the various strategies in an organization can be fulfilled.
Solutions to Overcome Growth Challenges
According to me, a good organizational structure helps to give out tasks to the various members of a firm. The goal of a good structure is to ensure that the workforce has collaborated properly and that all the employees work together towards the goal. When the roles and responsibilities of all the team members are divided properly then one can ensure that the various growth challenges are easily overcome (Nordqvist et al., 2013). A good organizational structure helps to overcome the challenges which range from online competitors where the firm is unable to cope up with the online merchants to unable to meet the demand of the consumers where the company is unable to expand due to lack of proper resources mainly the staff. When there are good employees present in an organization due to the presence of a good structure then the company can expand and prosper efficiently.
It often happens that structure is not given much importance and it is viewed separately from the success and strategy of an organization but it is not so. Structure tends to help the firm in managing their cash flows by allowing sufficient transparency. It also helps to form a clear method of hiring and recruitment which tends to form another barrier in growth
It is often believed by experts that good governance has an important role to play in a business. Governance can be referred to as the practices and culture that is followed in an organization. Governance plays an important role in forming the strategy of the organization as it helps to grow the organization and take it to new heights (Balassa, 2014). Good governance is important because it promotes community confidence, leads to better decisions and supports ethical decision-making.
However, very often a situation arises where the business needs to exit from the market. In this section, we have discussed the various exit strategies, which can be adopted by a firm. Business needs to be based on logical thinking. A company must be smart enough to realize when it should make the move and exit a market (Coad & Tamvada, 2012). A company can exit the market because of many reasons like high loss rates, unhealthy competition, reduced demand, internal problems and others. The following section will discuss the various exit strategies and high light their advantages and disadvantages.
The first method is Liquidation. In a liquidation strategy, the owner of the business simply sells all the assets in a business thereby ending his business. The advantages of this method are that the outstanding debts are written off, legal action is halted, leases can be cancelled and relatively low costs involved.
Role of Organizational Systems and Structures in Overcoming Growth Challenges
The disadvantages of this method are that it becomes a personal liability for company debts and liability for overdrawn director`s current accounts.
The second method is taking the company public. In this method, an Initial Public offer is made and thus the owners of the business transfer their issues into the public markets (Eggert et al, 2014). The advantages of the method are that the stock becomes the worth of millions of dollars and the company is listed and the owners become extremely popular.
The disadvantages of the method are that it is a difficult method as there are various rules to abide by and the cost of an IPO can run into millions.
The next method is Acquisition. A business buying the other business is referred to as an acquisition. British American Tobacco and Reynolds American is one of the biggest acquisitions in the globe. AT & T and Time Warner is also a good example. The advantages of the method are that if the business has a strategic value then it may pay far more than what the business is worth of and the prices can be raised as much as possible based if the worth of business.
The disadvantages are that they are a difficult process, the legal proceedings are not easy and the business me be acquired in a very low cost.
Therefore, from the given discussion, it can be clearly stated that the external environment of the business today is extremely dynamic and multi-faceted. Several companies are trying to grow and this leads to extensive competition. There are various barriers faced by each company in order to make their business grow. Hence, it is advisable that the company has a strategic vision, foresees all future threats, and excels in its operations.
Balassa, B. (2014). Development Strategies'. International Economics and Development: Essays in Honor of Raúl Prebisch, 159.
Coad, A., & Tamvada, J. P. (2012). Firm growth and barriers to growth among small firms in India. Small Business Economics, 39(2), 383-400.
Collewaert, V. (2012). Angel Investors' and Entrepreneurs' Intentions to Exit Their Ventures: A Conflict Perspective. Entrepreneurship Theory and Practice, 36(4), 753-779.
DeTienne, D. R., McKelvie, A., & Chandler, G. N. (2015). Making sense of entrepreneurial exit strategies: A typology and test. Journal of Business Venturing, 30(2), 255-272.
Eggert, A., Hogreve, J., Ulaga, W., & Muenkhoff, E. (2014). Revenue and profit implications of industrial service strategies. Journal of Service Research, 17(1), 23-39.
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