Three Strategies for Managing Growth Erin, Giang, Jason, Mike, Scott BA 569 -- Fall 2007 Agenda The Three Strategies: Scaling -- Giang Duplication -- Mike Granulation -- Scott Combining -- Erin Scaling: Doing more of what you are good at What does it start with? - A coherent vision about concrete product, technology and customer segment - A brief, clear and understandable vision that reflects company’s commitment growth Is it the right the strategy? Potentially large market Unique product Wide distribution system at low cost How to do it? Invest aggressively Specialize and Standardize Hire the right mix Adapt the structures Find ways to learn from customers early Video: Creating a Great Strategy: Business Week Duplication “Repeating The Business Model In New Regions” When you discover what works in one region do the same thing in the next! Duplication starts with a coherent vision of products, technologies and customer segments plus goals for geographic expansion EX: IKEA “Swedish Design skills and stores that could communicate an appealing lifestyle to young people everywhere” Balance standardization and adaptation “Package the companies entrepreneurial know-how for new geographic areas” Balance Standardization -Keeping processes and organizational details close to the way they are done in the original location Adaptation -Changing the organization and processes to address the needs of the local region Standardized Staffing, Training, and remuneration plans -Company can rotate employees instead of having to hire and train new people when sales work in one locale increases Is Duplication The Right Strategy! -The business requires physical presence and the company can repeat its business model in new geographic markets EX: For businesses that sell items that the customer wants to see and touch! -There is a need for local distribution -A company would shift from a scaling strategy to a duplication strategy when distribution channels are underdeveloped -The company can Adapt Its Experiences in product development, manufacturing and marketing approaches fairly easily -New trends from foreign markets can lead to better target marketing Duplicate key parts of the infrastructure! • A company needs to externalize or transfer key elements of the infrastructure EX: Ikea's European Expansion -European expansion group, “Knowledge Marines” Buy Land Construct Outlets Design Sore Decor Hire Employees -Two months before opening First Year Group would take charge Training People, Setting Up Operations Arranging The Store Openings Establishing local organization to run the operations Duplicate Entrepreneurial knowledge -Site locations -Store design’s and layouts -Catalog Format -Logo -Standardized and documented products -Personnel selection and training Be aware Of The Limitations Of Duplication strategies! Customer tastes and employee backgrounds are too diverse for one set of processes and programs to fit all situations When Ikea expanded to the US there many subtle differences in tastes and shopping, European sheets did not fit American beds A company must be able to learn quickly, fixing procedures and products that don’t work and make the people who created them aware of the new requirements Senior management must have the openness and flexibility necessary for modifying a formula that was a winner back home Especially true for young high-growth companies expanding abroad in highly competitive market Duplication Challenges! For a company to utilize duplication they need to learn information on each market they are entering into Local market conditions Mass manufacturing Mass Marketing Competitors in each market with their own strengths and weaknesses Currency risks Regulatory differences The best way to handle logistics Granulation Strategy: gran·ule [gran-yool] • n. a tiny grain or cell gran·u·la·tion [gran-yuh-leyshuhn] • n. A business strategy focusing on growing select cells within a company Granulation: SAP 1972 - Founded in Germany in 1972, • releases R/1 1992 - SAP Scales up • Launches R/3, becomes global software juggernaut 1996 - SAP Duplicates • Reorganizes into industry business units 1999 – SAP Granulates - Began focusing on Web interfaces 2003 - Launched NetWeaver Is Granulation the Right Strategy for You? Has your company: • Exhausted growth through Scaling & Duplicating? • Identified a new technology that could be substituted for your own product? • Matured sufficiently to handle Granulation? Granulation: Evaluate & Monitor Obtain external knowledge Focus on your new industry Granulation: Learn from Customers, Partners, & Competitors Strategic Alliances • Share the knowledge Acquire smaller companies • Buy the knowledge Granulation: Key Takeaway: • Know the industry you’re entering. http://www.youtube.com/watch?v=MeOk x0q1qFs The Original Strategies Scaling: A company expands their business product development, new product lines, increasing distribution channels, to name a few. Duplication: Using the company’s vision to expand geographically. Granulation: Aggressively growing select areas of the company. Combining the Strategies A company must select the growth strategy of best fit. The scaling strategy is the easiest strategy to implement. • The company expands upon its core competencies, with the company’s original vision in mind. The duplication strategy is more complex because companies must expand and adapt to a new geographical market. Granulation is the most difficult strategy • Involves studying competitors, new markets and opportunities Combining the Strategies Some companies apply all three growth strategies at once. • These are large companies that have different parts of their business in different stages of growth A company may first try scaling until it reaches its upper limits to begin duplication and then eventually pursue granulation. • Example: Disney Scaled by expanding product lines from original Mickey Mouse cartoon to other movie ventures, themed amusement parks, etc. Duplicated by introducing amusement parks overseas i.e.: Disneyland Paris Pursued granulation by growth of their television business sector (ABC) Combining the Strategies Some successful companies implement all three growth strategies at once • Example: SAP First attempted scaling when they developed the R/1, then R/2, and eventually the R/3, a program that helped companies integrate resource planning across functions and customersuppliers. Realized they had over engineered the R/3 and decided to introduce AcceleratedSAP. Used the duplication process based on their knowledge of software systems. SAP SAP uses granulation by sharing entrepreneurial knowledge in new business areas for new markets.