Too many business owners and operations managers don't have a clear plan for growth and change management. Perhaps the hardest part of managing change in the business climate is that many variables affecting business operations (e.g., political conditions, economic cycles and levels of competition) are beyond our control. As a result, we should make every effort to ensure that factors within our control are planned in a very deliberate way.

Strategic planning for growth is among the most—often overlooked variables, standing out as the most critical factor to the success of any business. One must be prepared to support the various stages of the business life cycle—from startup, through expansion, and succession of ownership.

Growth takes place in two forms: horizontal and vertical. Vertical growth is defined as coming from established sales. Horizontal growth results from establishing new products, new market areas or new directions.

Vertical growth is usually the least risky form, since it adds profit with a minimum of capital outlay. With this form of growth, one experiences very little increase in manufacturing, warehousing or marketing costs. Therefore, most of the growth goes to profitability for the company.

Horizontal growth also can yield excellent profits when introducing new products or entering new markets that are only slightly different from what is currently provided. However, moving into a totally new area results in dramatic changes. This may require some major capital outlays and necessitate other changes in the organization. All of this added overhead and the increase in operating expenses will reduce a company's profitability.

So does this mean one shouldn't add new products or enter new market areas? Of course not! But recognize that these new ventures will not be as profitable as existing products or markets. Introducing new products and entering new markets is absolutely necessary if a business is going to grow. As products become old, they lose their superior edge, lack competitive position and must be replaced. Even IBM, once the epitome of success in the computer industry, has fallen on hard times in recent years. Examples like this happen all the time in the business world. One must constantly be aware of changes in the industry and try to read the tea leaves in an effort to set future direction.

Look at the business' external environment to determine key threats and opportunities that exist. You must not only identify and track changes in the key factors outside the business, but you must also carefully assess the impact these forces and changes will have on the firm and its operations. Analysis of the external environment is future-oriented. It seeks to recognize problems and potential created for the firm by changes in its environment, thus allowing you to be prepared for that future.

Planned growth is necessary for the survival of any business; it should be implemented on a regular basis. Growth can be achieved by introducing new products or by moving into new market areas. Selecting the best alternative is a very challenging task and must be done by the best-informed people in the organization. The only way this can be done is by studying and analyzing the problems and opportunities and developing the best alternative. Then pursue that alternative long enough so it can be accurately tested and measured.

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Authored by: Rick Sparks, Business and Industry Specialist, University of Missouri Extension
Source: Creating Quality Newsletter, Volume 10, Number 1, January 2001

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