Unit 42-LO1 Analyse the key considerations SMEs should consider when evaluating growth opportunities-BTEC-HND-Level 4 & 5

Course: Pearson BTEC Levels 4 and 5 Higher Nationals in Business

The key considerations SMEs should pay attention to when evaluating growth opportunities are the resources available within their organization. In order to expand by capturing new customers, most startups will need complementary goods, and this requires a company to tap into its resources of production capacity, labor pool, and inventory.

For example, if a company doesn’t have enough skilled labor or raw materials for future projects then it is unlikely that they will be able to accommodate new projects.

This means that companies should evaluate their current position in these three areas before assessing how much they can grow through taking on new work or expanding abroad. Startups naturally lack capital but as long as they use wisely what money there is available certain external investments may also offer good potential such as tapping into the capital of different levels of government. However, it is advisable that any company should focus on its own strengths and opportunities in order to expand.

Also Read: Assess the various methods through which organizations access funding and when to use different types of funding

Competitive advantage:

The basis of competitive advantage as a foundation for growth: resources and capabilities and core competencies

The three main factors of competitive advantage are resources, capabilities, and core competencies.

• Resources are tangible assets that include physical assets such as cash and equipment. Physical assets are important because they represent an initial outlay on behalf of the company which can be used to generate future benefits. Resources also include intangible things like intellectual property or information that generates new ideas for the business by marking potential opportunities before they become mainstream in their industry
• Capabilities represent the talents or abilities necessary to execute a strategy, while core competencies are essentially the strengths of a company– its distinguishing qualities. A successful organization will invest sufficient capital in developing both internal (capabilities) and external (core competencies).
• Core competencies are the strengths of an organization that allow it to attract and retain customers, as well as lower overall costs. In other words, core competencies are what makes a company unique in this business environment.

Generic strategies (Porter)

The Porter diamond is a model which can be used to classify companies so as to understand what strategies they might be using. It was created by Michael Porter in 1979. The following steps are required for assessing the company using this model:

• Examine the current market situation- (potential industry attractiveness, threat of new entrants, strength of suppliers and customers).
• Determine current strategy- (internal analysis including capability and competencies, customer and needs segmentation).
• Choose a company position- (find an “economic niche”).
• Implement tactics- (select one or more exploitable external opportunities from Porters’ five forces mentioned above).

Each step must be completed before proceeding with the next one.

Business Process Outsourcing (BPO) is considered a core competency by many companies today, with large corporations such as Accenture and IBM operating globally. These companies are able to offer cost-effective services to clients through utilizing the capabilities of local suppliers in emerging markets: India, Malaysia, Philippines, etc.

Linking competitive advantage with opportunities for growth (PESTLE)

PESTLE analysis is a critical tool for understanding the environment in which a company operates. The following are the five components of PESTLE: Politically, Environmentally, Socially, and Technically (Political, Environmental, Social).

The analytical focus is on things that affect all organizations within an industry. It also looks at social changes to see if they create opportunities for growth.

Environmental Changes – The sea levels have risen concurrently with rises in temperatures leading to extreme weather events such as hurricanes and tornadoes. These extreme weathers are increasingly devastating agricultural production due to high winds and heavy rains leading up from rising seas levels destroying farmland with higher numbers of people and higher population density in coastal areas leading to greater numbers of casualties from these storms.

New products and services: innovation:

The development of products and services is a basis for growth

The development of products and services is key to any growth strategy. If you have an idea for a product or service but no outside funding, find investors or request a loan from your bank on the condition that 20% of the money invested goes to product development–every dollar spent on developing your pitch will be one less dollar wasted if it’s not funded. If you do have outside funding, spend 30-40%. And if you believe in your success potential as strongly as I’m guessing you do base on how protective people are about their ideas here (this is why they create accounts), invest all funds available into developing something awesome! This way you’ll never make excuses later on about why you didn’t make it.

Portfolio strategies (Boston Consultancy Group Matrix and GE/Mckinsey matrix)

The Boston Consultancy Group Matrix is used to prioritize projects based on how well they fit in with the company’s overall strategic direction. The GE/Mckinsey matrix, or growth-share matrix, categorizes projects by their rate of return and their degree of participation in firm strategy.

Pairing these two frameworks will help companies make resource allocation decisions against two important benchmarks for success. If decision-makers are unsure which framework might be more appropriate for a certain project, it can be helpful to step back and simply ask themselves “Which kind of project is this?”. Afterward, they can quickly Google the name of each framework to learn which one suits best given the project’s focus.

Product life-cycles

A product life cycle is the period of time during which a given product is offered for sale. It can have few stages: introduction, growth, maturity, and decline.

The main purpose of the PCL is to study the effect that income has on attitudes towards products. The sample used is purchased goods across 50 local areas in the United States.

Several scholars have empirically studied these effects by exploring “the shift from mass consumption to de-massified consumption.” They found that marketing shifted from creating demand for products with expensive pricing structures to promoting lower-priced luxury goods at department stores; they conclude that this shift may be due to changing consumer tastes and needs as well as businesses seeking ways to reduce their debt load during periods of recession and economic downturn.

This decline can lead to a new beginning, so it’s important not to let your business stall while in the mature stage — try different ways of promoting yourself, hustle like never before to build relationships with bigger companies, or start looking into expansion opportunities overseas.

The diffusion of innovation

The diffusion of innovation is often described as an evolutionary process in which the greater the level of ambiguity associated with new innovations, the slower its acceptance. The more ambiguous a new innovation, such as for example cluster randomized trials in HIV research, the people will only be willing to adopt those technologies whose benefits are more certain. This is because they want to make sure that their time and effort spent on trying out a new technology pays off by making them better off overall.

Growth options:

The main routes to growth (Ansoff’s growth vectors − market penetration, product/service development, market development, unrelated diversification) Identifying and mitigating risk

The main routes to growth are market penetration, product development, market development, and unrelated diversification.

• Market Penetration is the expansion of a company’s sales volume among an already established customer base with products or services that do not fall in other categorizations. This process can also be known as geographic diversification or geographic extension as it involves pushing the business into new geographical markets to establish sales groups.
• Product Development is the introduction of innovation in production processes and goods that are either complementary to existing ones or entirely new and based on different technologies such as by developing a lower grade but cheaper variant of varieties sold earlier; this process can be called technological progression or technological substitution when it results from changes within one sector rather than across sectors.
• Market Development is the process of expanding a company’s sales volume among new customers in different markets. This may involve entering developing markets for products that have already been established elsewhere, or the inverse situation where companies start by selling their products and services in emerging markets before trying to sell them in more developed economies.
• Interrelated diversification is also known as unrelated diversification when it does not share any synergies with the existing core business; it involves entering other industries or product groups that fall outside current products and/or services but may be related to the firm’s headquarters location, selling points, customer profile, or production methods.

Exploiting technology and digital platforms to expand the network and generate growth

By exploiting technology and digital platforms to expand its network and generate vital growth-

One of the first things to know about the digital age is that it’s all about reach. Brands in this new era need to think like marketers who have one objective – expanding their reach. And it’s not just enough for them to focus on audiences they’re already reaching, instead, they should be thinking outside of demographics from different perspectives- as individuals, as influencers, and as groups.

Ultimately, this is a challenge faced by industries such as the food industry with issues such as obesity rates or zero waste initiatives for recovering valuable items that are thrown away every day. The key principle is looking past what has been done before in order to connect with those who are interested in the brand but not necessarily those enjoying it.

Collaboration:

The benefits and drawbacks of collaboration, including mergers, acquisitions, joint ventures, and strategic alliances, and how they might be applicable growth options for small businesses

There are many benefits and drawbacks to collaboration. The best method of determining the effects for any given situation is by mapping current and future growth using a SWOT Analysis before committing to any kind of decision.

The SWOT (strengths, weaknesses, opportunities, threats) analysis uses a matrix in which we plot four categories of issues that affect the organization in order to help us see where we have strengths and also where there might be weaknesses or areas where other organizations could take advantage. These four cells will point out our current position but also give an indication as to the possible future positions.

After this evaluation, one needs only consult with their stakeholders on what they would like as a next step- defining objectives for collaborative ventures can be very success-oriented.

Collaborative ventures are not always successful but they can pay off with significant benefits- the key is by ensuring that each party involved has a stake in the outcome and also actively participates in drafting terms for future agreements based on the mutual agreement so stakeholders are assured of their interests while visioning synergies which will ultimately lead to mutual gains.

Businesses have to consider many different factors depending on the type of merger or alliance that has been proposed- one needs to be careful not only when considering key growth opportunities but also with potential pitfalls as well.

The benefits of horizontal and vertical integration

Horizontal integration is a business strategy in which a venture acquires supply or distribution components. Vertical integration, on the other hand, is when companies own certain segments of the value chain. Let’s take bourbon whiskey as an example. A company might produce and sell its own molasses for distilling purposes, then process and age their whiskey at internal facilities before bottling it under the company label and selling it to consumers through retail outlets owned by that entity.

Partnerships in the value chain (e.g. bidding consortia)

There is a number of ways partnerships form in the value chain. The best way to identify what type of partnership you have is first to consider how much control either party has over the other. Here are some examples:

co-opetition where both parties have an equal amount of control – not very common;

Exclusive coordination whereby one party controls a high level and the other has little relation to it – this is used for outside factors that effect all levels, but does not play a large factor at any given level, such as the price of fuel; Complementary coordination whereby one party’s interest in the relationship requires them to rely on another party by providing something they don’t have or cannot provide themselves with their current means – one party might be able to produce a crucial element or part but lack other means to complete the project;

Collective coordination whereby all parties in the relationship have equal status – this is also known as a buyer’s club where each of the involved members is by themselves lacking and needs access to resources for which they cannot provide and in order to gain these resources they must rely upon one another; Joint venture or merger whereby all parties are equal in the arrangement.

The potential of franchising for expanding a business

It is very high, as you have taken advantage of the marketplace and will be producing predictable revenue from your outlets. The costs involved are also minimal, as all that is required is the fee to create the franchise.

You should know however that there are many risks associated with franchising; For example, if any outlets produce inadequate sales volume then this will endanger your profitability. Remember too that you may not visit all outlets regularly – so some may fall behind in terms of market trends while others might become obsolete quickly or outdated which means they need updating on a regular basis just like you do!

Your employees can pose risks too as people often fail to recognize their colleagues’ strengths and weaknesses. They may also be unsuccessful at doing certain tasks, so the franchisor must keep a close eye on all outlets in order to maintain a strong reputation both internally and externally as well as keeping the brand image looking consistent.

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