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Planning for Growth

University: UKBC COLLEGE LONDON

  • Unit No: 42
  • Level: Post Graduate/University
  • Pages: 24 / Words 4750
  • Paper Type: Assignment
  • Course Code:

    J/508/0601

  • Downloads: 0
Answer :

INTRODUCTION

In the present era, small business units are contributing in very effective manner in country's economy. The present report will be giving brief description about ways that how SME are move towards development and growth. There is presence of various applicability of different techniques which identifies opportunities for growth, appraise options for accomplishing growth which includes via collaboration. In the present report, Ovation system as SME has been selected for understanding various concepts of operations of SME. Further it has included different options which are undertaken by growth for optimizing it in different analytical framework for achieving competitive advantage. It has also evaluated all possible risks which are directly associated by selected growth strategy. In the same series it has assessed different potential sources of finance which are applicable to Ovation system for growth and along with these recommendations have been provided. Further the report has discussed about business plan which is well structured and preferred for option for growth along with its strategic objectives, methods and all essential components of business plan. In the last part it has elaborated about different exit strategy and succession options in context of Ovation system which has been evaluated by merits and demerits with its repercussions.

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P1 Analysing key considerations that organization must consider while evaluating growth opportunities

Ovation system is a private organisation which has approximate 23 employees as it is based on electronic design and manufacturing. Usually, it manufactures and supplies scrambling systems, rugged digital video recorders, encryption and video surveillance equipments. It has maintained its status in this specific industry; but for innovation and growth capabilities it had ensured about different market demands and competitive dynamics for defending and maintaining their competitive position. Ovation system must give special focus on these dimensions for evaluating gaps and more plans for improvement (Forshey and Levitas, 2016).

  • Management processes and metrics:There are different growth minded organizations as they lean towards simple place, straightforward, and very well crafted processes for articulating, identifying, executing and evaluating growth opportunities as it consist of core processes such as strong management focus on portfolio of growth, tracing performance with scorecards and metrics and custom stage gate process for adapting culture and operations.
  • Financial aspects:The main objective of any organization is to invest some amount of money with context of different potential opportunities to get more returns. So Ovation system must be able to conduct financial evaluation before making investment for identifying that proposed investment will be giving suitable return or not. The results of cash flow analysis and investment appraisal should be tracked in mind. Ovation system must be able to start business by assessing various monetary aspects.
  • Competitive context:Organizations do not operate in vacuum as there is presence of understanding various competitive threats and opportunities which are emerging in market place. The main motive of organization is to build and sustain competitive advantage over other firms. It must have capability for evaluating offerings of its competitor and even position. Innovation and productivity are main factors by which an organization can accomplish success.
  • Customer centric:It is one of the most obvious factors which every organization must be able to perform as they exist for delivering real value by fulfilling requirements and needs of their target consumers. The organization who is customer centred must be able to trace and understand dynamics of every customer (Rostamkalaei and Freel, 2016).
  • Legal aspects:For carrying operations of business in very smooth manner, Ovation system must be complying with legislation and laws. If the legal framework is not complied in essential manner then it will directly affect brand image of organization. For manufacturing electrical products, it has major requirement of license to fulfil other legal formalities. The growth option must be given as priority for evaluating legal agreement.
  • Expansion plans:The growth of firm is directly associated by merger, acquisition and franchise agreement as it expands operations of business and serves customers in huge volume. In this context, Ovation system must provide special emphasis on performing cost benefit analysis which will be indicating fair view of growth aspect. The organization must chose appropriate option which is directly linked to opportunities which is higher than cost.
  • Team management practices:The base of competitive advantages is termed as presence of effectiveness in managing teams. In the present era, growth can be sustained by depending on ability of organization for coordinating critical information and resources which are spread in various locations.

P2 Evaluation of growth opportunities by Ansoff Vector Matrix

Ansoff matrix is determined as planning model of marketing helps business for identifying growth strategies of market and products as well. It gives recommendations to business for growing and it must be directly linked towards new markets or products that already exist or in new markets. The outcome of this strategy gives four elements such as market penetration, product development, diversification and market development. The organisation is able to generate strategies for future growth and success at distinct level (Chang, Fernández and Gulan, 2017).


(Source: Growth decisions,2018 )

The brief explanation about four elements is mentioned below:

Market Penetration

  • It helps in maintaining and increasing market of existing products by various competitive pricing strategies, sales promotion and advertising.
  • The main motive is to give different products and services to consumers at low prices.

Product Development

  • The main objective of business is to introduce new products in existing market. It must be having need for developing new competencies and for developing modified products of existing market.
  • Special focus should be given to R&D and innovation department, first mover advantage of market and providing detail insights about customer requirement.

Market Development

  • Under this strategy, business must be able to sell existing products in new market.
  • For approaching this strategy, Ovation system can widen its reach by entering new geographical market, new dimensions of product, various policies of pricing and distribution channels which will attract its different customers and it will tend towards creating new market segments.

Diversification

  • In this strategy organisation enters in new market by introducing new products as it is more risky due to migration of business in markets where it does not have experience.

There is presence of all these four options but in context of Ovation system, market development strategy has been chosen by its owner. In this modern area, manager has taken decision in context of offering its existing services and products by ensuring the highest possible product quality and reliability. They are planning for their process of design and production to get certificated by ISO 9001 which is quality management standards. The main objective behind this certification is that as all PCBs are framed for highest standards and usually most products are housed in rugged and they want to create competitive advantage. Ovation's main motive is to create quality and all sub assemblies should tested in proper manner. In this strategy of market development it will be enabling opportunity of organization for targetting the huge number of people and to accomplish huge margin via giving convenience factor. They give special focus on supplying products which are of the best quality and full support to their customers. In UK, trend of sales is either directly given to end user or it might be through different number of systems for integrating partners (Ng, Macbeth and Yip, 2017).

As per Ansoff matrix and stating current position of Ovation system, it has been recommended that selling and offering products which are existing in new market. Applying this strategy will tend towards focussing and serving on both new and existing customers. In context of market development strategy it will be giving various advantages to Ovation system such as:

  • The reach of its products and services in appropriate geographical region.
  • Level of productivity and profitability has been increased.

While focussing on supply at best level will be able to enable Ovation system to target more new people along with existing market. By offering support to its customers and best product by direct sales to end user will be increasing level of profitability at very distinct level. It is considered as most effective tool which will lead to develop the market and to explore more operations in context of business (Wu, 2015).

Ovation system can also lay emphasis on market penetration strategy for attaining goals and objectives. The organization can give importance to selling its existing product in present market at low price as compared to its competitors. While evaluating it has been assessed that after recession consumers have become very price conscious. In the present era, products are been purchased by consumers to those retailers who provides discount at their product. By applicability of these strategies, it will be enhancing level of profitability and profitability in very efficient manner.

P3 Assessing different potential sources of finance which are available to business with theirs merits and demerits.

The most essential aspect which every organization requires is termed as finance as it helps in process decision making in aspect of expanding operations and functions in context of business. Ovations system is framing plans for developing its market by giving excellent technical support and backup for whole range. In this context, there are various sources of funds by which Ovation system can attain its all financial requirement like:

Bank loan:The business unit can be raised by this source of fund as it is considered as one of the major source which provides fund to various financial institutions. As it is an manufacturer of electrical products so it can have bank loan on context of collateral security and then it might create ability for executing plan in very efficient manner. While undertaking bank loan, Ovation system must consider its various merits and demerits:

Merits

  • It is recognized as most flexible source of fund as it gives convenience to organisation in terms of instalment payment.
  • Ovation system could get benefits of tax by applying bank loan as it will directly reflect in financials in terms of profit margin.

Demerits

  • In terms of monetary institution there is presence of payments of high interest which is periodic which has imposed fixed obligation.
  • Many times whole amount has been not sanctioned by bank which has been applied by business entity.

Venture capital:it is termed as one of the type of private fund or equity which has been provided by investor to all organizations which are emerging and has presence of very high and potential growth. The business plan can be presented to venture capitalists owner of Ovation system which creates ability for generating fund. It will be having capability for executing expansion plan. Ovation system must consider merits and demerits of this stated source of fund:

Merits

  • Financial assistance has been provided by venture capitalists and along with this it provides guidance for both financial and non financial matters. Ovation system can take decision in context of financial and human resource management.
  • It fosters growth and helps in achieving great success to business by giving guidance in context of tax, personal and legal matters as well.

Demerits

  • The business owner loses control if venture capital gains more than 50% stake. It will directly impact business operations and functions as well.

Debt Financing:It can be referred as medium for borrowing money from various institutional or retail investors. The funds can be raised via issuing bonds, securities or bill consideration for payment of interest and coupon. There are various requirements by organization for specific working capital or for incurring capital expenditure. Its metrics are cost of debt, Debt equity ratio and Interest coverage ratio (Debt Financing, 2018.). Ovation system can use debt financing for raising fund but it must consider its advantages and disadvantages as well:

Merits

  • Control has been retained, when debt financing has been agreed for managing the organization. It helps in process of decision making.
  • The interest payment reduce net obligation as it is termed as tax deductible.
  • It is used for framing budget and financial plans as in advance principle and interest amount is known.

Demerits

  • There is huge requirement of qualification and best credit rating for receiving finance.
  • There is also need of financial discipline for repayments on time. Business which id dependent on debt is termed as riskier by various potential investors.
  • Collateral has been agreed to lender by putting some assets for potential risk.
  • It may lead to high rates even after identifying discounting interest rate by deducting tax.

Retained earnings:It can be termed as amount which has been retained within business will be giving direct reflection on dividend. The profits which are earned are re-invested in terms of retained earning as they are paid as dividend. The main perspective of application of retained earning is to finance for new investments instead of paying more dividend and to increases equity for specified investments. It is major belief of Ovation system that it does not cost any single thing but in simple words it can be elaborated as a source of finance which does not tend towards cash payment. The main application of retained earning is to oppose new shares and debentures which ignores the issuance cost (Keough, 2015).

Merits

  • It does not involve any cost for acquisition. Ovation system does not have any obligation for paying anything related to retained earning so it is termed as one of cheaper source of financing.
  • The financial position can be strengthen of business as it provides financial stability.
  • It is one of advantage to shareholders of organization in context of dividend as organization earns profit or not they get stable dividend.
  • While strengthening financial position of organization it increases capital which helps in increment of market value of shares.

Demerits

  • If the objective is not stated properly then it might tend towards careless spending of finance.
  • The dividend policy which is conservative tends for accumulating retained earning is huge aspect which leads to over capitalization.
  • It is also and disadvantage to shareholders as it does not allow them to enjoy actual earnings of organization. Generally it creates dissatisfaction in them but it affects market value of shares.

Government grants:It can be used as source of finance for SMEs when any project or initiative has been awarded for funding of government for financial support. Any grants in context of business does not have any requirement for repaying or accruing interest for having some specific guidelines for application. It is directly interlinked with efforts like job creation, economy development and for empowerment (Grover, Bokalo and Greenway, 2014).

Merits

  • It decreases the pressure on business owner.
  • Money has been given for encouraging SMEs by providing free money with attractive business plan.
  • It increases the visibility and credibility of organization.

Demerits

  • Before writing grant there is requirement of extensive research which is time consuming.
  • There is need for very talented person along with best experience who is familiar to Ovation system.
  • There is presence of fierce competition so it impacts success rate in very low manner.
  • These are usually short term, so they must be able to convert and invest it as soon as possible by giving margin.

P4 Preparing business plan in context of growth

Overview

The present market is stating the trend of digitisation, Ovation system is planning to enter in world of Artificial Intelligence. It will be manufacturing products for virtual products such as censor as it had already manufactured the rugged digital video recorders, encryption and video surveillance equipments. In the present era, everybody is moving forward along with trend of Virtual reality. Now by considering this aspect, Ovation system is giving convenience and satisfaction to their consumers by planning to contribute in AI by manufacturing censor for virtual reality. By manufacturing censor it will provide various applications to its customer, out of which they can choose appropriate which is more useful according to requirements. Along with perspective of small manufacturing business has objective of maximising sales and to built brand image in this specific industry. There is presence of detailed plan which can be applicable for attaining this specific objective:

Goals

  • To gain huge market share in its manufacturing industry.
  • To create brand image and competitive advantage in context of Artificial intelligence.
  • To generate sales and increase profit margin by 30%.

SWOT Analysis

Strength

  • Its product portfolio is very broad as it manufactures encryption of video scrambling, Media card archiving, Video stabilization.
  • Its global presence is in many countries such as Turkish, France, Italy and many more (Tian, 2016).
  • Its employee base is very strong in context of to SME.
  • It caters customer base in huge aspect.
  • It is considered as one of the most reputed SME in electronic company.

Opportunity

  • Inorganic growth can be highly focused via outsourcing some skills.
  • There can be various tie ups for distribution which will help for penetrating in new areas.
  • Ovation system has given flashback-2 Digital recording system which will be deploying Royal National Lifeboat institution in very successful manner for making video recordings in very dramatic view.
  • Artificial Intelligence in context of virtual reality.

Weakness

  • It relies on outsourcing and demands of its services and products which have been originated from industry of semiconductor.
  • Its sales are cyclical which are replicated as period which is marked in boom and slump.

Threat

  • There is presence of very intense competition in context of franchises, availability of product and prices.
  • Majority of revenue has been generated from international business so this replicate threat of global fluctuations will directly impact the organization.

Pestle Analysis

Political Factors

  • Political stability and its significance of wholesale sector of electronics in economy of country.
  • Presence of risk of military invasion.
  • Enforcement of contract in legal framework.
  • Government interference and bureaucracy
  • Requirement of product labelling
  • Protection of Intellectual property (Colantoni and et. al., 2016).
  • Anti- Trust laws in context of electronic industry
  • Corruption level usually in service sector.

Economic factors

  • Exchange rate and level of stability of currency of host country.
  • Skill level of staff of electronic industry
  • Interest rates
  • Economic growth rate
  • Quality of infrastructure
  • Economic growth rate
  • Efficiency in financial markets
  • Unemployment rate
  • Productivity and labour cost in economy.
  • Inflation rate
  • Stages of business cycle

Social Factors

  • Demographics and level of skill of population
  • eisure interests
  • Level of education and standard as well in Ovation Industry
  • Culture
  • Structure of class, power and hierarchical in society.

Technological Factors

  • Technological development such as entering artificial intelligence
  • Product offering due to impact of technology
  • Value chain structure in service sector
  • Advanced technology be competitors

Legal Factors

  • Employment law
  • Intellectual property law
  • Copyrights and patents
  • Health and safety law
  • Discrimination law
  • Data protection

Environmental Factors

  • Climate change
  • Waste management in service sector
  • Weather
  • Air and water pollution regulation in electronic industry
  • Attitude in context of renewable energy

Marketing Mix or & Ps

  • Product:The unit of business will be serving its customers with huge variety of censors which can be used for virtual reality products in artificial intelligence. In this scenario, it will be termed as B2B and its customers will be alternative business.
  • Price: Ovation system will follow penetration pricing strategy which will be directly impact the purchasing decision of business. As in this case censor will be purchased by organization who are manufacturing products of virtual reality so customers will take decision accordingly (Ghezzi and et. al. , 2015).
  • Place:It will be developing a website which will be giving full information about censor along with its application in various products. It will offer its services to only licensed business.
  • Promotion:For promoting its product, Ovation system will be undertaking both traditional and modern method as well. It will appoint sales man who will be setting meeting with different business and then its features will be communicated. On its website portal, this product will be advertised by its benefits and price range.
  • People:It will be directly appointing most talented and qualified personnel for delivering services in very quick and effective manner.
  • Process:Ovation system will be following standardized process which will be taking bulk orders and distributing it by home delivery to its customers.

Analysing its competitors

Basis of difference

Ovation system

Oxalis

Compound security

Employees

It consists of approximate 70 employees.

It consists of approximate 40 employees.

It consists of approximate 50 employees.

Revenues

17.70 Million

15.75 million

16.75 million

Product services

Manufactures and supply rugged digital video recorders, surveillance equipments, scrambling systems and encryption.

Manufactures and design solutions of security and surveillance and closed circuit TV camera stations, public or general alarm systems and other electrical products.

Manufactures alarm systems and security products along with various security systems such as GSM and GPRS alarm systems, PIR sensors, power supplies, security switches and timers.

Strategy for pricing

It follows strategy of penetrating and competitive pricing.

Competitive pricing strategy has been followed.

Via resellers in Europe and internationally.

Place

Exploring its operations in different countries and via website.

There is presence of both wholesale and retail stores in UK.

It has lack of promotional policy but has physical outlet.

Financial plan of Ovation system

The financial viability of business plan which is proposed can be traced by preparing profit and loss statement as it will be providing clear view of profit margin which will be obliged by firm. The monetary requirements are fulfilled by very optimal structure of business which will be evaluating both internal and external sources. To reach gross profit there is requirement of deducting all direct expenses from sales revenue and for identifying net profit all indirect expenses are reduced from operating profit. The sources of funds which are taken by business are elaborated as below:

Internal source: 80000 pounds

External source: 35000 pounds

Income statement for business plan (proposed)

Particulars

Year 1 (pounds)

Year 2 (pounds)

Revenue

   

Software revenue

   

Fees of software

19000

24700

Total revenue

19000

24700

Expenses

   

Salaries and wages

1300

1690

Maintenance of technology

780

1014

Rent

500

650

Employment benefits

250

325

Marketing and travel

900

1170

Public relations and advertising

700

910

Office expense

1000

1300

Hardware acquisition

3000

3900

Depreciation

860

1118

Web hosting expense

1500

1950

Equipment leasing cost

950

1235

Insurance expense

600

780

Utilities and Phone

1400

1820

Other

600

780

Total expense

14340

18642

Operating Income

4660

6058

Less: Tax @ 21%

978.6

1272.18

Net Income

3681.4

4785.82

P5 Identifying options for success and exit in perspective of SMEs

For sustaining in this competitive world, there is huge requirement of succession planning for long term growth perspective. The operations and functions of business can run smoothly by developing and succession plan. There is presence of different plans and options in context of giving very high level of assistance in pertaining activities in very efficient manner while individuals skips to unique opportunities and work on them till last time. Ovation system can achieve huge success and achieve goals and objectives by giving special focus on stated success options below:

  • Planning for long term perspective and effective leadership:The effective plan can be developed by identifying future alterations by which Ovation system can attain goals. For evolving high level of satisfaction among employees participative leadership style has been exercised which directly concern with both business unit. Employees get huge motivation when they are considered as important part for various activities of organization such as planning, budgeting and for execution of achieving goals (Yudha, Tjahjono and Kolios, 2018). It tends towards level of employment satisfaction. The organization can retain qualified and talented personnel for long term perspective by applying this effective leadership style and this approach. By the application of success plan business unit can attain specific goals in the time frame which has been predicted.
  • Session for training and development:The skills can be enhanced and developed along with level of proficiency of various personnel of Ovation system who gives special attention for setting session of training and development. The session of training increases capability of personnel in context of performing different activities related to business. In the case of Ovation system, manager organizes training session which helps in creating ability of employees in context to deal with different aspect of other technologies and alterations. In the same series, any organization can develop most talented workforce by developing training session and it will be providing services in very qualitative manner to its customers. The option of succession will contribute very effectively in productivity and profitability of organization. On very important note, it can be considered as any firm has to incur cost for conducting training session when there is introduction of all alterations. The most important thing which can be determined as drawback as financial expense (Zhang and et. al., 2015).

Options for Exit:The operations of business can be performed by owner of Ovation system which is applicable for selling business to potential person or for liquidation purpose. There is presence of different descriptions of this suitable exit option to various small business are elaborated as below:

  • Selling business or process of acquisition: Usually in the present it can be undertaken by all big firms for expanding their business operations along with functions. Because of absence of proper management and low strategic framework many business operations are not handled by its owner in very effective manner. On its contrary, the organisations which are performing very good in context of finance then they gain interest in acquiring other organization whose performance in context of customer base is very good. By considering all aspects it can be represented that selling that specific business unit to other in terms of acquisition by which Ovations can exit from specific venture. Its advantages and disadvantages are elaborated below:

Advantages

  • The acquisition strategy can be employed by Ovation which gives appropriate balance with interest of stakeholders at extent level.
  • Usually in context of acquisition, various business unit does not alter the base of employee, suppliers and many more (Rakićević, Omerbegović-Bijelović and Lečić-Cvetković, 2016).
  • Brand image and market share has been repaid by acquirer organisation.
  • Ovation system has gained opportunity for process of negotiation and to generating more funds.

Disadvantages

  • It can be refereed as most intensive process as it includes huge aspects like procedure of documentation, formalities and negotiation etc.
  • The culture of both organization varies from each other which might create issues.
  • All these aspects are directly influenced by importance of strategy and process of acquisition.

Liquidation process: It can be replicated as one of the voluntary process which is applicable for closing any unit of business operations. On the same context, Ovation can close its operations by selling it's all assets. On the context of liquidation, the payment has been made by creditors by various organization and fund has been generated by selling various assets. The exit option can be evaluated on various aspects:

Advantages

  • There is not requirement of competent plan of transition by Ovation system.
  • Negotiation aspect has been not presented which will be facilitating settlement or quick dissolution.

Disadvantages

  • Sometimes business has to sell assets in discounted price.
  • If the objective of organization is to quick sell of assets and to stop its operations then it will directly affect profitability aspect in negative manner along with shareholders at distinct level.

By performing this assessment it can be elaborated that option selling business is more preferable. The main objective is to decrease competition level and to increase growth which is leading or any big business is giving special focus on retaining the profitable organization. In the same series there is presence of prospective buyers who are ready to give high for the organization whose brand image, customer base and management is performing in sound manner (Brown and Mawson, 2016). So according to this Ovation system is more beneficial by selling its business in context of monetary aspects.

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CONCLUSION

From the above report it can be concluded that ovation system can asses its growth opportunities via evaluating various aspect of competitive advantage, merger, franchise, acquisition etc. it can be articulated that Ovation system can achieve desired level of result or success by giving special emphasis on different aspect of market development. Further it can be concluded that via process of liquidation or selling business to other exits from or for winding its operations in context of business.

REFERENCES

  • Brown, R. and Mawson, S., 2016. Targeted support for high growth firms: Theoretical constraints, unintended consequences and future policy challenges.Environment and Planning C: Government and Policy.34(5). pp.816-836.
  • Chang, R., Fernández, A. and Gulan, A., 2017. Bond finance, bank credit, and aggregate fluctuations in an open economy.Journal of Monetary Economics.85. pp.90-109.
  • Colantoni, A. and et. al., 2016. Cities as selective land predators? A lesson on urban growth, deregulated planning and sprawl containment.Science of the Total Environment.545. pp.329-339.
  • Forshey, P. and Levitas, E., 2016. The Impact of Venture Capital on Funding Amounts Promised in Alliance Contracts.Academy of Strategic Management Journal.15(1). p.12.
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