Understanding Business Growth how it happens and why

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Date added: 17-06-26


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Different people have different views about the growth of business. In simple language 'Business Growth' can be understood as growth of a business. To understand it more widely and make the concept clear about business growth it is important to understand its meaning in business terms. In other words we can say that how we come to know that business is growing or has shown growth. We can say a business is growing when you achieve satisfaction of end consumers by producing goods or services at minimum possible cost through utilizing all the available resources. For an investor, growth is an investment style which looks for stocks with high earnings and revenue growth. Business growth can also be understood as any firm generating essential positive cash earnings or flows and that flow increases at faster rate than the general economy.

Definitions and Business Platform

The term platform is used in various different situations. Earlier the term platform was used as a synonym of operating system. However, today it has a wider meaning and is used to describe variety of situations. Business platform is a method which creates an environment of integration to accelerate approach of operation towards partners and customers. The business platform reduces the gap between the operations, partners and customers and brings them closer. Reducing the gap between these three important elements enables the business to perform efficiently and properly which leads to reduce cost of production and increase customer satisfaction. For growth of any type of business customer satisfaction is very important and essential as today's economy is a customer oriented economy ands not product oriented (Zook, & Allen, 2001) . The business platform not only brings these three vital elements closer but also finds efficiencies and unlocks innovations from every part of the business. Business platforms have number of characteristics in common. Platforms are open to everyone and can be put up easily. Even though, platforms can be commercial or non commercial no one needs to take permission or pay money before building up a business platform. Platforms magnetize builder's community, in order to increase these communities; these communities should be taken care of and managed properly. Building community helps in building the business more efficiently as because of the community one get help of suppliers, customers and partners. It removes barriers and makes flow efficient by giving the option of self-service access. Platforms do not differentiate between large and small builders. Some platforms allow participation of small builders in the competition and these businesses sometimes even disturb present businesses. It is a two way contract between builders, who utilizes the platform and the platform provider, who offers the platform services to builders. Sometimes it has been seen that platform assist unexpected conclusions. Platform is a good thing when managed properly. We experienced in our project that platforms are very important to make people aware of our product. Platforms can be easily understood as Marketing. For our project we took help of different platforms like we announce about our project in mosque, stick posters on the walls of mosque, send direct marketing emails and text friend to pass this message.

Below given are the stages, which a business goes through

It has been observed that fast growing companies are disordered places to work. With the expansion of work and business, things or strategies which had worked well in past, start weakening and add no help. People and teams get flooded with workload and with the expansion of business, same managers who were very efficient earlier start committing mistakes with their expand area of control. Because of increase work load systems start collapsing (Burke, & Barrow, 2008). Growth is pleasure when everything goes right however it is even more stressful when things happen incorrectly. Apart from this, this situation can prove to be fatal to an organization. The "Greiner Curve" is a helpful way of taking things at the time of crises of an organization which it faces with its expansion. Once you understand the "Greiner Curve" it will be easier for you to recognize the root cause of the problems faced by a fast growing business. Not only this after understanding the "Greiner Curve" properly you'll be able to predict the problem before its occurrence and will be able to find a solution for it. Greiner's Growth Model explains the stages that an organization goes through with its expansion. All types of organizations whether it is a design shop, construction company, manufacturing company or professional services firms face these problems. Every growth stage has an era of relatively constant growth, track by a crisis at the time of main organizational change for on going growth of company. The word crisis in dictionaries is defined as a turning point. However, most of us take it in negative sense as it is something related to fear. Certainly, every company needs to change at this point, however if one is fully prepared for these changes he need not to get panic about the changes. Larry E. Greiner initially proposed this method with five stages of growth in 1972. Afterwards he added one more stage to it in May 1998 (Assenn, 2009).

Below given are the six stages of Greiner Curve

The first stage of Greiner Curve is Growth Through Creativity. At this stage the founder of firm or entrepreneur are busy in creating products or services and opening markets. At this stage due to less number of employees informal communication is common and does not requires documentation of everything and rewards of performance are given in the form of stocks or profit sharing. However with the expansion in number of employees and additional capital formal communication start gaining importance. The first stage of Greiner Curve ends with Leadership Crisis where it becomes difficult to run the enterprise by founders of the firm or unskilled leaders. At this stage need of professional leader arises to mange the expand business. Once there is a need of professional leader in the organization, the founders have the option of either changing their way of working and take up this role or they can appoint a professional entrepreneur to look after the whole business of the organization. It happens with us also that at the initial stage it was not that difficult but as we increase number of product and people it becomes slightly difficult. The second stage is Growth through Direction. An organization with more formal communication keeps on growing and focuses on other different activities of business like production and marketing. At this stage incentive scheme comes into picture in the form of reward for performance. The old form of financial reward given as stock is replaced in this stage with incentive schemes. However in this stage a point comes where processes and products increased to such an extent that it becomes difficult for one person to keep an eye on every process and products. The number of hours available in a day does not seem sufficient to manage all the processes and products. It becomes difficult because of the lower down hierarchy. This stage finishes at an Autonomy Crisis and at this stage need of delegation arises. After growing in numbers decision making, time sustainability and team work gain importance. Rewards and recognition become important to motivate our team members. The third is named as Growth Through Delegation. At this stage new managers are appointed to manage the work or to delegate the work. The mid managers are made responsible for day to day process of the business. The mid managers also react in quick manner to opportunities in latest markets as well as to opportunities available for new products. The top management just takes care of big concerns and monitoring. The top management tries to look for acquisition or merger opportunities to expand the business. Many businesses struggle at this stage as manager whose direct approach solves the problem in stage 1 is now difficult to let it go and the mid managers also struggle with their new expanded responsibilities and increase responsibility as a leader. This stage winds up with Control Crisis. This stage ends up with the need of more classy head office function and requires split parts of business to work together. With the growth in activities and business delegation of responsibilities become important to run business. The fourth stage is named as Growth through Coordination and Monitoring stage. At this stage there arises a need of head office to combine and centralize all the split parts of organization. The growth of business continues with re organizing of previously isolated service practices or group of products. At this stage not only profits but investment finance is also allocated centrally and is managed in accordance with the Return On Investment (ROI). At this stage incentives are distributed in accordance with the company-wide profit share schemes associated to corporate goals. This stage of Greiner Curve last at Red Tape Crisis and with the requirement of a new structure and culture. This stage shows that centralization is important and for us it was the taem work which was required. The fifth stage of Greiner Curve is Growth through Collaboration. This stage of business requires a new structure and culture. In this stage formal control of stage 2 and stage 4 are substitute by professional good sense. In this stage staff is group and re-grouped in teams lithely in teams to transport project in a medium structure which is supported by team based monetary rewards and classy information systems. This stage finishes due to crisis of Internal Growth. At this stage, further growth of business is only possible by doing partnerships with corresponding organizations. This was the stage when we took increased our production, took feedback and accordingly make changes to the product and its market price. The sixth and last stage of Greiner Curve is named as Growth Through Extra-Organizational Solutions. This stage is recently added by Greiner's which states that growth can be continued through outsourcing, merger, networks and further several solutions linking other companies. At this stage an organization needs to combine with other organizations of same nature for further growth. This stage shows that we are stronger together and need to combine with competitor above mention stages can be different for different types of business and may last long or less depend upon the market condition or several other elements.

Factors that determine Growth

It is considered from both historical as well as analyst estimates that expansion is an external variable factor affecting value and is separated from operating derails of firm. The best way of including growth in worth is to make growth endogenous, in other words we can say, make the growth a role of what a firm reinvests concerning upcoming development plus the quality of firm's reinvestment. Let's start with considering the association amid fundamentals and the growth in equity income. When we estimate cash flows in terms of equity, we normally start with estimation of the net income, while equity is valued in aggregate. However if we are determining growth on the basis of equity for each share we estimate earnings on each share. At this part we will first complete fundamentals determining anticipated expansion in earnings on every share.

Expansion in revenue per share

The growth determination based upon revenue on equity on a project and retention ratio is the simplest relationship determining growth. Firms which earn higher returns on equity and have bigger retention ratios are expected to have quite more growth rates on earnings every share than those firms which do not earn high amount of returns on equity and have low retention ratios.

Below given formula will make it easy to understand


Where, NIt = Net Income in year t gt = Growth Rate in Net Income Specified the explanation of the return on equity, net income in a year t-1 can be taken as:


where,             ROEt-1 = Return on equity in year t-1 Net income in a year t can be taken as:


Supposing that e return on equity remains unaffected, that implies that ROEt = ROEt-1 =ROE,


Here b is retention ratio. It is important to note that firms are not permitted to lift up equity by the way of issuing fresh shares. Therefore the rate of growth in earnings for each share and growth rate in the net income are same in above mention formula. The concept will be clearer with the help of below given illustration. In the figure, we would think about the predictable growth rate regarding earnings depending on retention ratio plus return on equity concerning the three companies that are Consolidated Edison, which is a synchronized utility, which put forward the power to the New York City along with its nearby areas, Procter and Gamble, one of the principal brand-name of consumer merchandise firm plus Reliance Industries, one of the biggest Indian manufacturing industry. In the table drawn below, we have summed up the proceeds on equity plus retention percentages and predictable growth rates in income for these three firms.

Basic Rate of growth in Earnings for each Share


Return on Equity Retention Ratio Predictable Growth Rate Consolidated Edison 11.63% 29.96% 3.49% Procter & Gamble 29.37% 49.29% 14.48% Reliance Industries 19.43% 82.57% 16.04% Reliance possesses the maximum predictable growth rate when it comes to income per share, supposing that it could be able to uphold its existing returns on equity plus retention ratio. The first firm Procter & Gamble can be anticipated to place a strong growth rate, even though the actuality is that a company pays even over fifty percent of its revenue in the form of dividends, for the reason of its elevated returns on equity. Alternatively, Consolidated Edison has a very squat predictable growth rate. The reason is that its retention ratios and returns on equity are lackluster.

Expansion in Net Income

In case, we unwind the supposition that the lone resource of equity is saved earnings, then the development in the net income would be dissimilar from the augmentation in revenue per share. Instinctively, remember that a company can cultivate net income drastically by issuing fresh equity to finance latest projects, despite the fact that earnings for each share be idle. To obtain the association amid fundamentals and net income development, we must make a gauge of how much outlay goes further than retained earnings. A way to get hold of a measure like this is be estimating straight forwardly the amount of equity a company reinvests back in the businesses with the shape of funds in working capital and net capital disbursements. Not like retention ratio, the figure can be pretty over and above 100% because companies can elevate new equity. Predictable growth in the net income then can be defined as: Predictable Growth in Net Income =Â

Below given illustration can be helpful in understanding it more clearly.

To approximate development in the operating income depending on fundamentals, we should take a glimpse at the three companies of Coca Cola, Sony and Nestle. In the table given below, we initially guess the constituents of equity reinvestment plus utilize it for estimating the rate of reinvestment for all the companies. We also put forward return on equity along with the predictable rate of growth in net income regarding all these firms. Expected Growth in Net Income


Net Income Net Cap Ex Working capital (WC) Delta Paid Net Debt Reinvestment Rate (equity) Equity return (ROE) Rate of Growth (Expected) Coca Cola  $ 2177 m 468 852 -$104.00 65.41% 23.12% 15.12% Nestle SFr 5763m 2470 368 272 44.53% 21.20% 9.44% Sony  JY 30.24b 26.29 -4.1 3.96 60.28% 1.80% 1.09% The pros and cons of this policy are evident in the above table. This approach in the approved manner confines accurate reinvestment in a firm by concentrating not based on what was preserved but on the amount that was reinvested. A drawback of this way is that, the rudiments, which goes in the capital expenses plus reinvestment, net balance issued and working capital adjustments are all in unbalanced numbers. Notice that Coca Cola cleared off the debt in the previous year, at the same time as reinvesting back in the business plus working capital of Sony also dropped. In reality, it would in all probability be a lot more sensible to gaze at the standard reinvestment rate spanning over 3 or 5 years, instead of merely the existing year. We will come back to scrutinize this question with added profundity when we take a look at development in the operating income (Greiner, Semmler, & Gong, 2005). The experience of this project was all increase knowledge and fun. The key points which we learn are - for growth of any firm or organization whether it is big or small, improved management skill, time management, innovations and team work is very important. Whatever may be the growth level of a business, there's always a scope of improvement.
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