Growth Strategy
23 important questions on Growth Strategy
What is the importance of firm growth? (2)
- Growth important for survival of firms
- Policy makers interested in firm growth
Why growth strategy? (2)
- Firm strategy to expand business
- Firms that target growth more likely to actually grow
What are 5 common target areas for firm growth?
- Employment
- Pecuniary
- Market share
- Customer base
- Innovation
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What is target growth area: employment? (3)
- Employment: growth in employees' headcount
- Strategies to increase employment may include making jobs more attractive
- increase pool of people with relevant skills
- Example Dyson: growth strategy with their own institute to train people
What is target growth area: pecuniary? (3)
- Pecuniary: growth in revenue or profits
- Strategies to increase revenue or
- profits may include increasing prices;
- reducing production costs
- advertising/ branding and expanding into new geographic regions or new markets
- Example Tesla: growth strategy based on expanding into new markets and on increasing sales in existing markets
What is target growth area: market share? (3)
- Market share: growth in % of industry or market's total sales earned by a specific firm over a specified time period
- Indicates growth in acceptance of product in the market
- Strategies for increasing market share may include:
- offering lower prices
- increasing quality
- advertising and acquisition
What is target growth area: customer base? (3)
- Customer base: e.g. growth in customer satisfaction through net promoter score
- customer's willingness to recommend firm to others
- Strategies may include excellent customer service and support, involving customers
- Example Coolblue: make customers (more) happy by e.g.
- extensive product information and advice
- faster and better delivery
What is target growth area: innovation? (3)
- Innovation: growth in new products and/or services
- Strategies may include doing R&D, networking
- Example Dyson: doing R&D in new areas (e.g. robotics) to develop new products, using existing technology in new industries
What are the drivers of firm growth?
- Founder's human capital
- Venture capital financing
What is the human capital theory? (5)
- Human Resources as 'capital'
- Human capital: set of skills and knowledge that constitute the ability to perform labor and to produce economic value
- Investment in education and on-the-job training (work experience) as sources of human capital
- Such investments provide knowledge and skills which make workers more productive
- When workers (founders, employees) have higher levels of human capital this will be positive for firm performance
What is venture capital (VC)? (2)
- VC as one of the potential sources of finance for new firms
- Some characteristics of VC
- Private equity
- Money given for ownership share in company (which can be sold)
- In return for money venture capitalists often share in the company's value increase
What are the 2 main functions of venture capitalists?
- 'Scout' function: find and select investment opportunities (right industry, team, idea)
- 'Coach' function: provide advice, network and management support
Both functions could contribute to growth of firms that VC's invest in
What 2 types of founder's human capital are there?
- Education
- Work experience
Founder's human capital may have a direct and an indirect (through attracting VC investments) impact on firm growth
What did Cusmano et al. (2018): 'Role of different firms for employment and job creation' had to say?
- Firm size (employment)
- Small and Medium-sized Entrerprises (SME's) (firms with up to 249 employees)
- Large firms (firms with 250 or more employees)
- Firm age
- Young firms (0-5 years old)
- Old firms (>5 years old)
What are High Growth Firms?
What is the (OECD, Eurostat) definition of HGF's?
- at least 10 employees in the start-year and
- annualized employment growth exceeding 20 percent during a 3-year period
How do SME's contribute to growth through 'innovation'? (2)
- Disruptive innovation by start-ups
- Contribution to diffusion of innovation by SME's
How do SME's contribute to growth through 'inclusive growth'? (2)
- By employing low skilled workers
- By serving markets that do not have enough scale to attract larger firms
How do SME's contribute to growth through 'upward social mobility'? (2)
- young people
- women
- seniors
- migrants
- ethnic minorities
What are 3 main opportunities and challenges for SME's?
- Digitalisation
- Financing
- Competencies and skills
How is 'digitalisation' a main opportunity/ challenge for SME's?
- Facilitates 'born global' firms
- innovation and improved production processes; access to skilled and talented employees
- such as through better recruitment sites
- and access to financing instruments
How is 'financing' a main opportunity/ challenge for SME's?
- market failures remain
How is 'competencies and skills' a main opportunity/ challenge for SME's?
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