9396lastW10 - 3/29/2010 ENGI9396:Engineering...

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3/29/2010 1 ENGI 9396: Engineering Management Topics Managing Growth and Internal/External Change Dr. Amy Hsiao Winter 2010 Evaluating the Challenges of Growth y Pace of growth Rate at which a firm is growing on an annual basis y Sustained growth Growth in both revenue and profits over a sustained period of time y Rapid growth firm a firm that grows its employment by at least a firm that grows its employment by at least 15% a year; one that maintains a growth rate of at least 20% per year for 5 consecutive years
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3/29/2010 2 Reasons for Firm Growth y Economies of scale Lower variable costs per unit with growth Spread fixed costs over a greater number of units Make use of unused labor capacity or other resources y Capturing economies of scope Growth with an increased range of a firm’s operations Sell 10 products rather than 5 over the cost of travel Advertising for computers, printers, and accessories at the same time y Executing a scalable business model Increased revenues cost less to deliver than current revenues, so profit margins increase as sales go up (large upfront costs) Computer software Need to have sufficient demand or won’t ever scale up Reasons for Firm Growth y Market leadership Firm holds the #1 or #2 position in an industry or niche market in terms of sales volume y Influence, power, and survivability More influence and power as a larger firm More able to survive with increased staff and skills y Need to accommodate the growth of key customers y Ability to attract and retain talented employees High turnover is expensive Knowledge transfer is costly
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3/29/2010 3 Benchmarking y A firm improves the quality of an activity by identifying and copying the methods of other firms that are particularly successful in that activity If you are a small local microbrewery expanding globally, you would look at other microbreweries who have expanded globally y Collecting information from a variety of sources about how firms meet specific challenges Challenges of Growth y Managerial capacity Productive opportunity set: the set of opportunities the Productive opportunity set: the set of opportunities the firm feels it is capable of pursuing Entrepreneurial services generate new market, product, and service ideas Managerial services administer the routine functions of the firm and facilitate the profitable execution of new opportunities Managerial capacity problem: insufficient resources to implement new opportunities Adverse selection: increased difficulty in finding the right employees, placing them, and providing adequate supervision Moral hazard: new hires typically do not have the same ownership incentives as the original founders, so the new hires may not be as motivated to put in long hours or hard work
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3/29/2010 4 Basic Model for Firm Growth Strategic Growth Recognition of Managerial Capability Recognition of new market, product, and service opportunities Administration of the routine
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9396lastW10 - 3/29/2010 ENGI9396:Engineering...

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