Strategies to attain growth
The core objective every business growth strategy in a firm is to increase its sales revenue and the level of profitability within a particular time frame. Over the years it has been in operation Tod has continuously utilized traditional method of creating awareness regarding its new products.
One of the ways through which the firm achieves this is by having the shoe being endorsed by Diego Della Valle, the chairman of the firm by wearing it. In an effort to enhance the firm’s growth, the firm can adopt a number of growth strategies as discussed herein.
Market penetration
The traditional method of assessing whether its new style of shoe is successful in the market is not effective. This has greatly hindered the firm’s ability to increase its profitability. This arises from the fact that the traditional method adopted is limited with regard to its market coverage.
The resultant effect is that the firm’s ability to penetrate the market is has been hindered. To improve its sales revenue, it is paramount for the firm to adopt market penetration strategies. For example, the firm should improve on its marketing efforts in a number of ways. One of these ways relates to creating awareness regarding its new shoes.
Under the direction of the chairman, the firm should incorporate the concept of integrated marketing communication in its effort to create market awareness. To be successful the firm has to incorporate traditional and emerging market communication methods. Some of the tactical actions which the firm should adopt include advertising, public relations and sales promotion.
In its advertising strategy, the firm should integrate different mediums such as the print media, the television and radio. Additionally, the firm should also consider increasing its sales revenue by incorporating electronic marketing through integration of the internet technology.
Considering the fact that Tod is a multinational firm, electronic marketing would enable information about the firm’s product to reach a large number of customers. This is due to the fact that a large number of individuals access the internet on a daily basis.
For internet marketing to be successful, there are a number of tools which a firm can use. Some of these tools include the social networking tools for example Facebook and You Tube. For example, through these social networking tools, the firm can post photos of its shoes being worn by famous individuals such as Princess Stéphanie of Monaco and Gwyneth Paltrow and its handbags being wielded by Hillary Rodham Clinton.
This will act as an endorsement of the firm’s products hence attracting a large number of customers. The resultant effect is that the firm will be able to increase its sales revenue hence attaining growth objective.
In its market penetration strategy, it is vital for the firm’s management team to consider undertaking process improvement. In order to achieve this, the firm should consider producing its shoes and handbags in markets which are cost effective.
For example, the firm can set up production plants in China where production is cost effective. This will greatly enhance the firm’s pricing strategy. For example, the firm will be able to set the price of its shoes at a lower point and at the same time cover its production cost and operates to profitably.
This is due to the fact that a large number of customers will be able to afford the firm’s shoes (Birkholz, 2007, p.34). For example, a men’s crocodile loafer costs 3,500 Euros which approximately equals $4,850 in Italy with its cost of production being equal to 1,590 Euros. However, producing the same shoe in China would cost the firm half the cost incurred by producing it in Italy.
Product development
The designer shoe and handbag industry is saturated as a result of the large number of firms in the industry. In order to enhance their competitiveness, firms in this industry have to undertake product development strategy. The strategy entails designing new products and marketing them in its existing market.
The firm should also consider developing new leather products to market in its existing market. For example, the firm can consider improving the features and design of its existing shoes. Product development will help the firm to counter direct competition.
One of the ways through which firms can achieve this is by conducting a comprehensive research and development. Additionally, the firm should consider integrating new technology to enhance its product development. This will play a vital role in increasing the firm’s profitability considering the fact that the firm is already aware of the conditions existing in the market.
Diversification strategy
It is important for Tod’s to consider diversifying its products. To attain this, the firm should implement new product development strategy. This strategy involves developing new products which are not related to the existing products. The new products are to be introduced in new market segments.
Diversification strategy is relatively risky and a firm must have core competencies in order to succeed. In its diversification strategy, Tod’s can consider designing leather jackets. There is a high probability of the firm succeeding in the new market segment considering the fact that it has substantial knowledge with regard to leather.
Market development
According to Barret and Mayson (2007, p. 307), market development is one of the main business growth strategies which is adopted by small firms in an effort to grow. However, also large firms can use the strategy to entrench their competitiveness. Over the years it has been in operation, the firm has been risk averse, which is illustrated by the declaration of its chairman that Tod’s does not take risks.
This limits the firm’s ability to grow. The firm should venture into new markets by expanding its geographic coverage. For example, the firm should venture into emerging economies where it can market its products. This can be achieved through a number of ways such as by opening outlets in these countries.
Alternatively, the firm can expand its market coverage by expanding its distribution channel through exporting. This will have the effect of increasing the firm’s customer base ( Barret & Mayson, 2006, p. 447).
According to Jankovsky (2007, p.64), overtrading arises from lack of a business understanding its time frame and not following the set policies in its trade system. In most cases overtrading arises from a firm’s effort to attain its growth objective. As a result, it increases its operations.
Currently, the firm has a policy which stipulates that the stock days should be 60 days. This means that the firm’s average carrying period is 60 days before it restocks. The suggestion to increase the firms’ stock days by one third, that is 20 days would lead into an increment in the carrying cost.
Assuming that the firm’s operations are not affected by changes in the business environment, the firm’s profit would be reduced due to increased carrying cost. For example, the firm would be required to pass on the cost to the consumers by increasing the price of its products.
This would culminate into a reduction in the firm’s annual sales revenue from the average amount of 10 million pounds. Additionally, reduction in sales revenue would also lead into a reduction in the firm’s gross profit margin.
To ensure efficiency with regard to cash flow, the firm has instituted a credit policy whereby its debtors are required to pay the debt within a period of 30 days. However, one of the managers has made a suggestion to increase the credit period to 90 days.
This is considered to be a traditional method to achieve growth. Traditionally, most firms ensured that they have instituted good credit terms in an effort to increase sales revenue. According to Vause (2009, p.76), adopting this strategy in their sales policy can contribute towards firms attaining a rapid growth in its sales revenue and hence its profitability.
Currently, almost half of the firm’s customers who purchase on credit pay within a period of 30 days as stipulated in the firm’s credit policy. The remaining customers pay within a period of 60 days. Its average bad debt is equal to 1% of the firm’s sales which is a relatively small amount.
By increasing its credit period to 90 days, there is a high probability of the firm experiencing liquidity problems. This arises from the fact that the customers may take more time before paying the debt thus affecting the firm’s cash.
Additionally, the customers may opt to get their supplies from a different source which makes the firm to be exposed to more cash flow crisis. For example, a firm may run out of cash thus hindering its ability to continue operating. In an effort to alleviate the problem, the firm may result into credit finance such as overdrafts which are costly since the applicable rate of interest for an overdraft is usually higher than the base rate.
Currently, the firm’s rate of interest on its overdraft is 7% higher than the base rate. Considering the increment in the level of uncertainty amongst financial institutions as a result of the 2008-2009 financial crises, there is a high probability of these firms increasing their base interest rate on overdrafts. This would have the effect of increasing the borrowing cost.
Over trading leads a firm to expand its operations at a faster rate than its usual capacity. The result is that the firm’s operations are negatively affected since the firm’s working capital is not sufficient to cater for the extra human capital, equipments and machinery required.
To avoid this, the firm may consider leasing some of the equipments and machinery required for expansion other than purchasing them. This would caution the firm from experiencing cash crisis since leasing is relatively less costly in the short term compared to purchasing. By leasing, the firm would be able to cover the cost by reaping the benefits in the short term.
In addition, the firm is required to wait for a substantial amount of time before collecting sales revenue from new contracts. The resultant effect is that the firm experiences liquidity problems which in worst situation can lead into the business being closed.
This arises from the fact that overtrading leads firms to incur cash flow problems. In addition, the cash flow problem is exacerbated by the fact that a substantial amount of money is held up in the large volume of stock either in form of work-in-progress, finished goods, and raw materials held in the firm’s warehouses. Ultimately, implementing these strategies would lead into a strain in the firm’s finances.
Human resource management
According to Hannigan ( 2007, p.23), human resource management entails a number of processes such as deploying employees, motivating and developing them with the objective of achieving predetermined organized goals. Firms should not only be concerned with attaining their goals by using the employees.
However, they should take into account the various levels of employees needs. These needs relate to psychographic needs, belonging needs, self actualization needs, esteem needs, and safety and security needs.
In order to achieve its organizational objectives it is paramount for firms to formulate effective personnel and human resource management concepts (Ferris, 2006, p.1). By taking into consideration these needs, there is a high probability of firms developing a strong human capital.
In its effort to attain a high growth, the owner of Tod’s Luxury Shoes decided to expand the firm. This required the firm to increase its workforce so as to attain operational efficiency. However, the productivity of the workforce is dependent on the management teams’ effectiveness in human resource management and personnel management processes.
According to Hannigan (2007, p.23), human resource management entails a number of management functions which include employee recruitment, selecting the qualified employees, and training the employees to ensure that they are productive.
By undertaking a comprehensive employee recruitment process, the firm will end up with diverse employees. This can be a challenge to the firm. However, it is the responsibility of the firm’s human resource manager to ensure that employee diversity is well managed. This will play a vital role in ensuring that unity within the firm is maintained. The resultant effect is that the firm will benefit in the long term.
Reward system
For example, the firm has to ensure that the employees are satisfied. One of the ways through which the firm can achieve this is by instituting an effective reward system. The reward system should comprise both monetary and non-monetary rewards.
Some of the non-monetary rewards which the firm should consider include medical allowance and recreation allowance. In addition, the firm should include a program aimed at recognizing the employees who portray outstanding performance. This will play a vital role in motivating the employees.
Additionally, integration of an effective reward system will lead towards minimizing employee turnover since the employees will be satisfied. According to Rutherford, Buller and McMullen (2003, p. 322), employee turnover is costly to a firm since the firm has to replace the employees who leave the firm. Conducting a recruitment increases the firms cost of operation.
In addition, the management team should ensure that the reward system is based on employee performance. For example, the firm should ensure that a comprehensive performance appraisal forms the basis upon which the employees are promoted. Promoting employees increases their level of satisfaction.
Employee development
In addition to promotion, it is paramount for the firm’s management team to consider developing a training and development program which facilitates workplace learning. According to Walker (2007, p. 294), firms should develop training programs that are inline with the changes in the market.
This will aid the firm’s towards enhancing its competiveness. For example, training will contribute towards improving the employees’ efficiency in undertaking their current tasks (Brand & Bax, 2002, p.451). On the other hand, development will enable the employees’ deals with future changes in their works.
This is due to the fact that obsolescence in its workforce will be eliminated. This means that the firm’s future success is enhanced.
Investment in workplace learning illustrates a firm’s commitment towards developing its workforce. Training employees will contribute towards improvement in the employee’s morale. In most cases, employees who are well trained are interested in undertaking their tasks.
This will not only enable Tod’s Luxury Shoes to be effective in designing and producing shoes but it will also lead to employee development. The resultant effect is that the employees will develop a strong bond with the employees since it will enable them to achieve their career objective.
According to Aswathappa (2005, p.5) assisting employees to realize their personal goals improves their contribution towards the firm’s operational efficiency. However, it is only possible for a firm to ensure that its employees attain their personal goals if they are motivated and retained within the firm for a considerable duration of time.
If this is not attained, the employees will leave the firm. The training program will also contribute towards the firm attracting qualified employees from the labor market hence strengthening its human capital. According to Bratton and Gold (2001, p.58), integrating employee development is a core element in a firm’s effort to survive and attain growth in the current competitive business environment.
Effective communication
It is also important for the management team of Tod’s Luxury Shoe to ensure that communication within the firm is effective. One of the ways through which the firm can achieve this is by instituting a bottom-up communication system. According to Goyal (2005, p.258), communication is a vital component in the success of the firm.
This is due to the fact that the firm’s decision making process is enhanced since employees share ideas, opinions, and facts with the management team. This means that communication aids in enhancing the development of a superior –subordinate relationship.
This relationship cannot thrive in the absence of an effective communication. By adopting the bottom-up communication strategy, employees will feel that they are included in the firm’s decision making process process. This leads into attainment of the desired results. This will have the effect of enhancing employee satisfaction.
The firm should also ensure that it nurtures a strong organizational culture. This can be achieved through a number of ways. For example, the firm can incorporate the concept of teamwork. This will aid in enhancing employee relationship within the firm.
Teamwork will also aid in creating an environment conducive for working. This arises from the fact that the level of coordination between employees will be improved.
In summary, implementing the above human resource management and personnel management practices will contribute towards the firm being successful in its effort to manage its workforce.
Reference List
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