Internal Hazards Affecting Business Growth - Coursework Example

Internal hazards affecting business growth Introduction Each and every businesses has a life cycle, they start with an idea of providing a service or a product. When entrepreneurs write the ideas, the idea starts to take direction. However, it will only come to reality when the capitalist takes a risk and it is at this point that the born. And just like a living being, it goes through different stages. The company’s lifecycle are the levels of progression of a business’ existence. Every stage has its own distinctive characteristics and the business activities at that point will reflect the current point in the lifecycle. Knowing where the business is at on the lifecycle can be important to its success. A business will always be changing with the passage of time. Parenting strategies that work for your toddler cannot be applied to your teenager. What the business focuses on today will change and require different approaches to be successful. The following are the stages that a new venture will undergo. Source: http://businesscasestudies.co.uk/business-theory Seed This is the stage that thoughts or proposals are created. This is the very beginning or birth of a new business. Nearly all upcoming businesses are obligated to face the challenge of market reception and hunt a niche opportunity in order to familiarize the consumers of their existence. At this stage of the business the center of attention is on matching the business opportunity with the available skills, experience and passions of delivering the good or service. Other crucial points take in; choosing the business ownership structure, looking for professional advisors, and planning of business. The company will depend on money from owners, close associates and relatives. Other sources may include suppliers, customers, government grants and bank loans. Completion of a business plan structure is a major success factor for an up -coming company. A good evaluation of the need of cash for the coming months is critical. During the first months, the company is going to develop its business model without getting revenue from sales. There are multitudes of good ideas when attempting to launch a company. To be victorious, the up-coming business will require imaginative managers and flexible in order to enthusiastically settle in the business model and survive in the rapid market progression. Start-Up During start up the products or services are in production and you have your first customers. Major challenges in this stage are learning what profitable needs your clients have and do realities check to see if your business is on the right track. The business will look forward to putting in place a consumer based and market existence alongside tracking and safeguard cash flow (Klofsten, 2005). All the energy is aimed at marketing of the business. The business experiences high risks at this stage, 25% of new businesses start-ups do not reach their 5th anniversary. During the start-up stage unpredictable circumstances often affect plans and business model, if more cash is needed; the banks are not a suitable solution. Public institutions can leverage equity increase; venture capital inflow is not easily negotiable. Growth The business is no longer at toddler age; it has moved to be a child. Returns and customer recognition are increasing rapidly with new market opportunities. At this stage the business is likely to break even due to the increased sales and the awareness of its product by the consumers. The most successful entrepreneurs are masters in finding knowledgeable brains to complement his/hers DIY approach. To be competitive, innovation is essential, this is because innovation combined with sales & marketing are the only money makers & growth busters in any business no matter seize. Use of exterior business development organization leads to dazzling of the competitors and surprise & surpass consumers’ expectation. Established The business is now mature and booming in the market with loyal customers. The increasing Sales are controllable with the business. It is difficult to accept for successful CEO’s, who have had confirmation that their original ideas worked well, now need to reassess whether their original project is still optimal to satisfy customers needs their operating model is still the most efficient to maximize profitability and long-term development This “rethinking the model” phase is essential before additional growth is possible. Entrepreneurial CEO’s might not prepared to deal with such situations and external assistance from knowledgeable friends may be very essential. Expansion This stage is identified by a new state of expansion into new markets and modes of distribution. This is an intention by business owner to increase their market share and identify new revenue and profit sources. Mature For many years, sales and profits have a propensity to be stable, however competition remains violent. Sooner or later the sales start to decline and a decision is required on whether to expand the business or exit the industry. Exit This means shutting down the business. This is due to the incapability to survive the highly competitive market or lack of internal control and address of potential hazards. Factors that facilitate to breakeven of a business The growth stage is characterized with increased sale and therefore increased revenue earnings from the large sales. This will facilitate the firm to breaking even, however competition is beginning to creep in the market and therefore drastic measures need to be taken to sustain the market command and the high profits for the firms’ continued survival in the industry. According to Klofsten (1987), he argues that for a business to continue existing and developing. The business needs to establish a business platform early enough. Therewith, the firm has achieved a condition where the initial vulnerabilities have been overcome, although this is not any guarantee that the firm will survive. A business platform is not a goal in itself, but the first very important step towards a stable growing firm (1998). Klofsten (1998: 7), defined the Business Platform as “the newly-started business has achieved a state where weakness has reduced to the point where the business is able to move on to the subsequently stage of further development.” The possibility that a business would generate stable growth is determined by its ability to satisfy the eight pillars of Klofsten’s Business Platform (Klofsten 2001). In this stage, the business earns supernormal earnings. Supernormal profit is the extra earnings up and above that point of standard profit.  Abnormal profit are realized when AR>ATC. Abnormal profit will therefore create an incentive for other firms to go into the industry this means that the competition will also beginning to increase. Some of the factors that contribute to the high profits that facilitate the firm in breaking even include; good working condition for employees in the organization, adequate financing of the projects within the firm, effective communication mechanism, good customer relations and adequate involvement in the community social welfare. The management therefore needs to put in place strategies to maintain their position in the market (Mustar, 1997). www.economishelp.com According to Adizes at stability stage, Companies are still strong, but without the eagerness of their earlier stages (Mainprize, 2003). They welcome new ideas but with less excitement than they did during the growing stages. It is at this a stage they majority of companies breakeven, in order to sustain market share, businesses begin to look beyond traditional metrics like price earnings ratio to assess their effectiveness at generating growth through innovation. Source: Adizes Prentice Hall Press (1999) Determining a company’s future-value premium provides a simple but effective way for management to diagnose and understand the complexities of market expectations, as well as the investment community’s confidence in the company’s long-term outlook. Handling internal hazards Phase 1 – Creativity The first phase is characterized by the following:  Founders are technically or entrepreneurially oriented Communication is frequent and informal Long hours and modest salaries Reactive to feedback from the marketplace The Leadership Crisis As the company grows, new systems are needed – manufacturing, accounting, personnel, etc. The founders usually do not have the expertise to manage this new set of systems nor can they motivate new employees. This is the Leadership Crisis. The company may bring in management who can manage in this new environment or may flounder as founders try to “maintain the old guard Phase 2 – Direction This phase is characterized by:  Functional organization structure Accounting systems Formal, impersonal communication Direction centralized to the new, top managers Autonomy Crisis As the company grows, centralized management is unsuitable. Junior managers come to possess improved knowledge of the marketplace but are unable to respond rapidly. The solution to the first stage becomes the crisis for the second phase. The solution to this crisis is to push decision responsibility to lower level managers. Phase 3 – Delegation This phase is characterized by:  Greater responsibility in the plant and field marketing managers Use of profit sharing and bonuses for incentives Top managers manage by exception Management becomes active in acquisitions Communication from the top is infrequent Control Crisis Field operations become diversified and inefficiencies creep into the system. Top management loses control over planning, money, technology, and manpower. Management must solve it by bringing in special coordination techniques. Phase 4 – Coordination This phase is characterized by:  Decentralized units are merged into product groups Formal planning procedures are established and reviewed Staff is hired at headquarters to initiate company-wide programs Capital expenditures are reviewed and distributed across the organization Return-on-Capital becomes the criteria for measuring field operations Certain technical functions, such as data processing, are centralized Stock options and profit sharing are used to encourage identity with the firm Red Tape Crisis lack of confidence gradually builds between the line and staff, and between headquarters and the field. Systems begin to outlive their convenience and field managers begin to resent formalized control by staff managers who do not understand the local markets. Staff personnel resent the “uncooperative” line managers. The business has become cumbersome and everyone dislikes the bureaucratic system that has evolved. Phase 5 – Collaboration This phase is characterized by:  Focus on solving problems through team action Teams are formed from across functions Headquarters staff are reduced and reassigned to teams which consult with field units A matrix organization structure often develops Formal systems are simplified and combined Conferences of key managers are held frequently Educational programs are utilized to train managers Real-time information systems are used in decision making Economic rewards are geared to team performance Experiments in new practices are encouraged ? Crisis Here Greiner contemplates about the solution to this new crisis that comes about from workers who become saturated psychologically and physically exhausted by the intensity of teamwork and the heavy pressure for innovative solutions.” He illustrates that this has created a structure which permits workers to include a “reflective” period in their day to day activities. Inform and empower employees Creating organizations’ structures that authorize and present employees with the freedom to make broader line-level decisions.  This accompanied by leadership putting in place a management teams underneath them in the organizational heart for competencies that are required for bring about enterprise strategic goals attainment. Align strategy to operational initiatives Make straight the business strategies to operational execution is a huge factor in achieving profitable growth.  A huge source of strategy failure is an immature strategic planning process which fails to sufficiently identify strategic plan goals and objectives to make them brief and quantifiable and achievable.  Communicate the message Communication of the plan goals is a vital part of that process is a major factor in achieving sustained top-line growth and profitability. The intention is to successfully distribute the administrative vision right through the organizational positions and levels so that the empowered workforce is energized and able of helping their organization in attainment of set objectives. Reward performance Empowered employees act and understand the organization’s strategic goals as they relate to their roles, management in-turn oversees, facilitates, corrects, and recognizes as well as rewarding performance of this workers.  Conclusion Companies that have upheld operational brilliance survive the economic crises by out-doing the performance of their competing partners. Internal influences must be given preference in the business management program, the customers and employees must be given first preference (Yin, 1994). The businesses track a cycle of continued innovation addressed towards value addition, to product and / or service dominance, brand alertness and market control.  Achieving operational excellence is indefinable, but still attainable.  To produce continuous growth, businesses must develop in the areas outlined in this paper, this is not one-time event rather it is a continuous process.  They must therefore put in place a plan and execution strategies in an effort to progress in business market command and continued high returns.  References List 1. ABS, 2005. Experimental Estimates of Business Entries and Exits, Australia. Canberra: Australian Bureau of Statistics 2. ABS, 1997. Business Exits Australia, Canberra: Australian Bureau of Statistics, Australian Research Council, CSIRO and National Health and Medical Research Council (2002) National Survey of Research Commercialization 2000, Canberra: Australian Research Council. 3. Adizes, I 1999. 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