Handling Rapid Growth

Note taking for the Objectives and Strategy Topic

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  • Created by: Emma Rudd
  • Created on: 19-06-08 15:29
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Emma Rudd
Objectives and Strategy
Handling Rapid Growth
Definition = Rapid growth implies a sustained, substantial increase in sales turnover,
sufficient to affect the managerial structure of the business.
Growth is a common business objective. When a new market is opening up it can be
crucial to become the dominant supplier. There can be no doubt that certain business
circumstances make rapid growth essential.
For many other firms, growth may not be essential but certainly seems desirable. The
reality is though rapid growth is extremely difficult to manage. The problems of growth
are threefold:
Financial ­ especially the effects on cash flow and gearing
Managerial ­ notably problems of coordination and control
Operational ­ especially the difficulty of boosting supply in line with demand.
The problems arise as a result of various internal and external causes of growth. The
internal ones (such as a change in objectives) should at least be planned for. External
causes of growth may be unexpected, though. This makes them far harder to manage.
Some Possible Internal and External Causes of Growth
Internal Causes External Causes
New growth objectives set by Rising consumer demand/ the
management product becomes fashionable
Decision to open up new export Economic boom benefits a luxury
markets product
Reorganisation makes increased Closure/fire/strike hits
output possible. competitor, boosting your sales.
New laws favour your product, e.g.
new safety laws boost sales of
first aid kits.
Business Effects of Forecast Rapid Growth
In certain circumstances managers can anticipate a period of rapid growth. This may be
temporary (such as the effect of a change in law) or may seem likely to be permanent,
such as the growth in demand for computer games software. The most successful firms
will be those that devise a plan that is detailed enough to help in a practical way, but
flexible enough to allow for the differences between forecasts and reality.
When rapid growth has been forecast, firms can:
Compare the sales estimate with the available production capacity
Budget for any necessary increases in capacity and staffing
Produce a cash flow forecast to anticipate any short term financial shortfall
Discuss how to raise any extra capital needed
Timescales remain important though. The forecast may cover the next 3 months, but
increasing the capacity may involve building a factory extension which will take 8

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Emma Rudd
months. In which case there may be 5 months of excess demand to cope with (perhaps by
subcontracting). However there remains a lot of scope for error. The starting point is
the increased workload on staff. Extra sales may put pressure on the accounting
system, the warehouse manager and the delivery drivers. With everyone being kept busy
occasional things can start to go wrong.…read more

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Emma Rudd
These unpleasant possibilities can largely be set aside if a good example is set from the
top. Is the founder of the business continues to be involved ­ especially on customer
service ­ all may still be well. The leader needs to make sure staff keep sight of the
qualities that brought the business its success in the first place.…read more

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Emma Rudd
this fully and carry on writing about the firm when every set of financial result comes
The purpose of going public is usually to achieve a substantial increase in share capital.
This can enable a highly geared private firm to achieve a more balanced capital
structure. It might give a huge opportunity for expansion, however if the management
act slowly the shareholders might get restless, so the managers may be inclined to make
a big move.…read more


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