Both the growth and development of the company refer to an evolution by which the company modifies its size or the field of activity in which it operates but are terms that cannot be used as synonyms. Company growth refers to increases in size in variables such as asset volume, production, sales, profits or staff employed. It is one of the fundamental ingredients in the definition of your corporate strategy. Randall Castillo Ortega, the founder of RACO Investment, a firm dedicated to supporting SMEs, explains growth and development of a company in order for it to achieve new success.
Growth is interpreted as a sign of health, vitality and strength. In today’s competitive and dynamic business environments, companies have to know how to grow and develop continuously to maintain their lead. The growth objective is closely related to the utility function of the company’s managers. The concept of company development goes somewhat further by proposing both quantitative and qualitative modifications. It is broader than growth because it includes qualitative variations of the company and although it is usually accompanied by growth in most cases, this is not always the case. Development strategies must be oriented towards the creation of value; they can create value with or without growth through restructuring.
“Development strategies refer to the decisions taken by business management in relation to the future development of the field of activity, both in terms of its quantitative (growth) and qualitative aspects (composition of the business portfolio),” asserts Castillo.
Management has several options that are generated from the response given to the two basic problems. Development management refers to which direction to follow in the development of the business, that is, to decide if the company should focus or specialize in the activities it has been carrying out, develop new ones or restructure the whole of its businesses. Decide on whether or not to modify the field of activity. The concept of growth strategy refers to the methods or ways to achieve the objective of transforming the structure of the company. That is, to increase their size, sales, profitability, quality or quantity of products, or improve positioning.
The importance of growth strategies is that they offer different possibilities to achieve the objective of introducing changes that make the company’s progress possible. None of the advantages of growth strategies exist in themselves. The benefit derives from the proper application of the same. There are no fixed formulas, but each company, according to its circumstances and its possibilities, must analyze what modifications it must make in order to grow.
Internal growth is one of a company’s growth strategies. It refers to the increase of its productive capacity, which implies an investment in the productive factors (new facilities, new workers, machinery, etc.) to increase that capacity. Internal growth is also known as “vegetative,” “organic” or “natural,” since in the very nature of the company is implicit the tendency to grow. “The main reason why internal growth strategies are implemented is to reduce costs,” asserts Castillo. “However, they can also be advanced to eliminate competitors, increase utility, ensure supply, implement new distribution channels, optimize management, etc.”
In the specialization strategies the company continues to sell the same product, or similar ones, but intends to increase demand. In this case there is a natural continuity, but the effort is intensified in the current products, placing emphasis on improving sales in the markets already conquered, but also on the achievement of new markets. There are three types of specialization strategies, market penetration, market development and product development.
One of the growth strategies of a company, in terms of internal growth, is market penetration. It consists of increasing the company’s participation in the current market. In other words: sell more, but without modifying the products or services you offer. The goal is to reach more customers (taking them away from the competition) or increase spending for current customers. The usual ways to achieve this are the increase in advertising and promotion, improvements in the quality of the product or service and reduction of prices, among others. An example of this are communications service companies that periodically call their customers to offer them new services or advantages, such as faster internet, etc.
Market development consists of opening new markets for the products already existing in the company. Sometimes that expansion is geographic and other times it’s geared towards segments that aren’t current customers, but can be. In this case, what is sought is to sell the product or service in areas or to groups of people who previously did not acquire it. An example of this may be a food, such as vegetable soup, that is traditionally consumed by adults and then promoted for children as well.
Product development takes place when the company develops new products related or complementary to the current product. In this case, the development is aimed at the same market that the company already has. The company usually focuses on tastes or needs not adequately met in its current market. In general, adaptations are made to the product, more or less substantial, aimed at specific niches. For example, a drink that launches its “light” version.
The second type of business growth strategy, in the internal framework, is diversification. In this case, new products are developed that are destined for the current market or for markets that are not yet caught. The purpose is to grow from new products and/or markets. Adds Castillo, “Diversification implies a certain break with the usual line of behavior of the company. These types of strategies are implemented when surpluses are available and these are invested in an expansion of supply or market to prevent long-term risks and with the expectation of greater utility.”
Growth strategies are a frame of reference to advance various processes, aimed at increasing the company in size, market share or prestige. However, all of them require a prior, very thorough and detailed analysis. Strategic tools, on the other hand, are instruments that facilitate or guide the analysis of various aspects associated with business growth. While they are a valuable help, they also require careful implementation.