Growth Strategies of Firms

Dr Ajit Prasad,

MA, PGDM, PhD, MSc

why organizations need growth ?

achieve economies of scale

achieve strategic control through increasing
market share
employee morale in a growing organization
if you don't grow, someone else will !

is growth always desirable ?

Porter (1994) : The managerial obsession

with growth is hazardous to Strategy
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pathways to growth

keeping up with the market growth

growing faster than the market
forward integration [also down-the-line VA]
backward integration
The confusion between
Backward integration and
related diversification
Concentric diversification
unrelated diversification MicroTech inverters getting
Lead batteries

Rent seeking behavior

Exploiting the inelastic supply of an asset, ie there is only one

Taj Mahal
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ansoffs product-market matrix

existing market
existing pdt

market
penetration

new product

product
development

new market
market
development
diversification

Questions, Corporate Vs Business Strategy; Red Vs Blue Ocean; two conflicting strategies
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Ansoffs strategies for

The Upside-Down
growth
bottle makes you

spill more !

Increasing per
capita
consumption

Penetration :

Another Ansoffs

Coke gets into bottle

water and wine

Coke was successful

in bottled water, but
failed at wine

Getting into areas

that involve different
competencies

Diversification

Cokes competencies: branding and distribution management BUTnot

making wine
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Ansoffs yet again

Sweet & Low

gets the
diabetics in..

Adds to the
total number of
customers

Market
Development

Ouch !, not another

Ansoffs

Giving existing
customers more
choice

Product
Development

Contradicts
penetration

As it reduces per
capita consumption
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Growth via Scale Vs Scope

?
Existing
markets

New markets

Existing
products

Penetration

Market
development

Economies
of scale

New Products

Product
development

Diversificatio
n

Economies
of scope

The sequencing of
Ansoff

For TVs

Mkt Development
Product
Development
Penetration
Diversification

For Life Insurance

Product
development
Mkt development
Diversification
Penetration

What do you conclude?

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why companies diversify?

Markets are becoming saturated

Decreasing efficiency of capital
Declining PLC : slow down imminent
Loss of strategic assets in existing
business

What are strategic assets?

Want to allocate resources on rational

lines
Where to diversify?
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When to Diversify (MEC

Curve)

ROCE ->

The higher the interest rate, the more the

diversification !

Capital Employed ->

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On Strategic Assets

Assets

Those tangible things

that add value

Strategic Assets

Those tangibles that

drive your strategy

For Mr Amitabh
Bachhan

Core Competence

How you protect the

integrity of your
assets

Assets = his voice,

his height, his
bungalow, Jaya etc
SA = his voice
CC = do not smoke,
dont drink too much,
dont party late.
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pros and cons of

diversification

Spreads risk
Managerial
experience
Corporate
advantage
Necessary for long
term survival
Allows company to
experiment [OS,
wages etc)

Resources get
spread thinly
Emotional blind
spots
Industry boundary
begins to change
Dilution of CC
Conflicting OS
May attract anti trust
legislation
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What is Corporate
Advantage?

When the total is more than the sum of

the individual parts.

If ITDC = Ashoka + Ranjit

And Ranjit is = Rs 200 cr

And Ashoka is = Rs 800 cr

Then

If ITDC = 1200, Corp. Advantage

If ITDC = 900, Corporate Disadvantage
If ITDC = 1000, Corp Indifference
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SYNCHRONOUS VS
ASYNCHRONOUS
DIVERSIFICATION

ASYNCHRONOUS
DIVERSIFICATION
(Steel & Pepsi)

SYNCHRONOUS
DIVERSIFICATION
(Steel & Cement)

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The need to search for new

markets

The growth imperative

The efficiency imperative

The dissemination and generation of knowledge

The globalization of customers

Maintaining the ROCE at market levels

The knowledge imperative

Exploit different positions on the PLC

Preference for consistency

Preference for dealing with small number of suppliers
Retention of customer loyalty

Globalization of competitors

First mover advantage

Multi-markets presence to cross subsidize
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At the end of the day :

Porter (1994),
The managerial obsession with growth
is hazardous to strategy

Schumacher (1973), Small is

beautiful !

A rethink of corporate priorities is

required
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