how big: a plan or accident
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How Big: A Plan or Accident. By R. Henry Migliore. Abstract. How big? Four considerations Optimum size Five-year horizon Update and revise. Optimum Size. Expected return Market share Competition Resources. Introduction. Should firm grow and expand Chase market or control growth - PowerPoint PPT PresentationTRANSCRIPT
How Big: A PlanHow Big: A Planor Accident or Accident By R. Henry MiglioreBy R. Henry Migliore
AbstractAbstract How big?How big? Four considerationsFour considerations Optimum sizeOptimum size Five-year horizonFive-year horizon Update and reviseUpdate and revise
Optimum SizeOptimum Size Expected returnExpected return Market shareMarket share Competition Competition Resources Resources
IntroductionIntroduction Should firm grow and expandShould firm grow and expand Chase market or control growthChase market or control growth Size of the firm in the long runSize of the firm in the long run Strategy of General Patton in Strategy of General Patton in
World War IIWorld War II ““Big is better”Big is better” Growth doesn’t always mean Growth doesn’t always mean
expansionexpansion Understand why firms should Understand why firms should
grow in the first placegrow in the first place
X = f(a,b,c,d,e…?)X = f(a,b,c,d,e…?) X = the dependent variableX = the dependent variable X is the function of various X is the function of various
combinations of independent combinations of independent variable a,b,c,d,e…. on to variable a,b,c,d,e…. on to infinityinfinity
Why Should Firms Grow?Why Should Firms Grow? Understand how organizations Understand how organizations
grow as systemsgrow as systems Any organization is a systemAny organization is a system May self-destruct in a process May self-destruct in a process
called entropycalled entropy
First Law of OrganizationsFirst Law of Organizations An organization at rest tends to An organization at rest tends to
stay at reststay at rest Organizations don’t like changeOrganizations don’t like change Inactivity breeds inactivityInactivity breeds inactivity Complacency Complacency
Second Law of OrganizationsSecond Law of Organizations Organizations at rest tend to decayOrganizations at rest tend to decay
““If you snooze, you lose!”If you snooze, you lose!” Business world is not stableBusiness world is not stable Complacency means firms fall behindComplacency means firms fall behind Example: IBM and Compaq didn’t Example: IBM and Compaq didn’t
maintain technological edgemaintain technological edge In slow-moving industries complacency In slow-moving industries complacency
can breed troublecan breed trouble AT&T’s effort to transform back into a AT&T’s effort to transform back into a
competitive organizationcompetitive organization
Third Law of OrganizationsThird Law of Organizations Organizations in trouble tend to Organizations in trouble tend to
get worseget worse ““flailing about”flailing about” American Motors death spiralAmerican Motors death spiral
How to Combat the 3 LawsHow to Combat the 3 Laws GrowthGrowth Growth in different directions Growth in different directions
such as Mother’s March of such as Mother’s March of DimesDimes
Growth can be achieved by Growth can be achieved by getting smallergetting smaller
Consolidation of Northeastern Consolidation of Northeastern RailroadsRailroads
How big the firm should be for How big the firm should be for the long run?the long run?
Determine the firm’s share in Determine the firm’s share in the total marketthe total market
Three categories of Three categories of organizational resources – land, organizational resources – land, labor, and capitallabor, and capital
Just having resources is not Just having resources is not sufficientsufficient
Downfall of Dakota SoftwareDownfall of Dakota Software
Key part of managing growth is Key part of managing growth is figuring out what resources are figuring out what resources are needed, in what amounts and needed, in what amounts and when those elements are when those elements are neededneeded
Figure 1 – Market ShareFigure 1 – Market Share
Firm AFirm BDesign/ BuildFirm D
Roles of three tangible Roles of three tangible resources: Information, Time, resources: Information, Time, and Legitimacyand Legitimacy
““Information Age”Information Age” ““Network” Organizations like Network” Organizations like
Nike and DellNike and Dell Innovation will leave firms Innovation will leave firms
behind that cannot process behind that cannot process changeschanges
Management of growth requires Management of growth requires sufficient timesufficient time
Two types of legitimacy Two types of legitimacy Market legitimacyMarket legitimacy Social legitimacySocial legitimacy
Examples of firms facing market and Examples of firms facing market and social legitimacysocial legitimacy Sony and BetamaxSony and Betamax TylenolTylenol
Intangible resources help or impede Intangible resources help or impede growthgrowth
Guidelines to help managers Guidelines to help managers decide how much of each decide how much of each tangible resource is necessary:tangible resource is necessary:
1.1. Recognition importanceRecognition importance2.2. Realization that intangible Realization that intangible
resources have costsresources have costs3.3. Acquiring and maintaining Acquiring and maintaining
intangible resources may intangible resources may outweigh it’s benefitoutweigh it’s benefit
4.4. Learning to tolerate ambiguityLearning to tolerate ambiguity
Figure 2 – Long Run Average Cost CurveFigure 2 – Long Run Average Cost Curve
Every of business Every of business must respond if the must respond if the firm chooses to firm chooses to growgrow
The closer the firm The closer the firm operates at the operates at the bottom of the Long bottom of the Long Run Average Run Average Curve, the better Curve, the better opportunity to use opportunity to use pricing as the pricing as the competitive competitive strategystrategy
Average Cost per CarAverage Cost per Car
Resources and GrowthResources and Growth Each area of business needs Each area of business needs
resourcesresources Both tangible and intangible Both tangible and intangible
resources are neededresources are needed
ConclusionConclusion Emphasis is proactive planningEmphasis is proactive planning Long-term size based on Long-term size based on
revenue/return, competition, revenue/return, competition, market share and resourcesmarket share and resources
Short-term targets control and Short-term targets control and coordinate growthcoordinate growth
Conditions change, alter planConditions change, alter plan