Strategies for Growth

A common goal with companies is growth. This could be growth in sales, assets, profits, clients, resources, personnel or a combination of all of them. Companies that are in industries that are expanding, require growth to survive. Established companies also need growth strategies to increase sales and take advantage of the experience by reducing the per-unit cost of the service or product to increase profits

Growth is by far the most common goal that clients have when they come to FrogDog. This goal might include growth in sales, assets, profits, clients, resources, and/or personnel. Companies in industries that are expanding must grow to survive. Established companies need to grow to increase sales and take advantage of opportunities such as reducing the per-unit cost of their service or product to increase their profits.

Growth strategy is considered an attractive business strategy because:

• Many companies only experience business growth due to industry growth. The associated increase in demand may temporarily hide a company’s weaknesses, but they will become apparent once the market starts to decline.
• Growing firms offer more executive job security and opportunities for staff advancement, promotion, and innovation.

Growth strategies fall into two main categories: concentration strategies and diversification strategies.

Concentration Strategies

Concentration strategies are used when a product or service line has high growth potential. These strategies are generally pursued before diversification in a growing marketplace. Two types of concentration strategies are vertical growth strategy and horizontal growth strategy.

When a company employs a vertical growth strategy they take over a function previously held by a supplier. The organization grows by taking more control over their product or service. This growth can be accomplished internally by expanding operations or externally through acquisitions.

Vertical growth is a compelling strategy for companies that have a strong competitive position within a popular industry. They are able to improve their competitive position by expanding along the value chain.

An example of vertical growth can be seen with clothing retailer Zara. The Spanish company produces many of their clothes themselves rather than outsourcing to suppliers. This gives Zara greater control over the quality of their products and allows them to quickly turn around supply.

In contrast, companies that pursue a horizontal growth strategy expand their products or services into new markets, increasing the size of their target audience.

Organizations can grow horizontally through internal development or externally through acquisitions or strategic alliances with other firms in the same industry.

An example of horizontal growth in action is the acquisition of Continental Airlines by United Airlines. The acquisition of an airline with strengths in different markets allowed United to increase their overall market share.

Diversification Strategies

Diversification strategies are most often used by organizations that have become mature and have reached the limits of growth achievable through vertical and horizontal strategies. The two types of diversification strategies are concentric and conglomerate diversification.

Concentric diversification is a strategy that focuses on the characteristics that have given the company its competitive advantage. Companies pursing concentric diversification attempt to secure a strategic fit in a new industry where they have significant knowledge or development capabilities.

This can be an effective strategy when a firm has a good competitive position but the attractiveness of the industry is low. One example would be a population health company diversifying into the wellness industry. Another example is a telephone company diversifying into selling Internet service.

Companies who pursue a conglomerate diversification strategy instead expand into an industry unrelated to their current industry. This strategy is better suited for firms that lack the abilities or skills needed to enter a related industry.

Conglomerate diversification is usually taken on when there are financial concerns and cash-flow and risk reduction considerations. Disney, for example, started off in movie production and has since diversified into theme parks and vacation properties.

Does your business have aggressive business goals? FrogDog can assist you in developing a growth strategy and an effective marketing plan to help you achieve them. Get started now—contact us today.