Planning for Growth: Evaluation of Growth Opportunities and Funding Sources

This report explores the evaluation of growth opportunities in the macro environment and the identification of funding sources for business expansion. It discusses the use of PESTEL analysis and Ansoff Matrix model to identify growth opportunities. It also examines different sources of funding, including internal and external sources.

Planning for growth

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Evaluation of growth opportunity in macro environment.....................................................1
P2 Evaluation of growth opportunities in context with Ansoff Matrix model...........................3
TASK 2............................................................................................................................................5
P3 Identification of source of funding for business....................................................................5
TASK 3............................................................................................................................................6
P4 Suggestion of a new business plan........................................................................................6
TASK 4............................................................................................................................................9
P5 Assessment of various exit and succession options...............................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Growth planning refers to various business activities that allows entrepreneurs or business
owners to formulate strategy or plan out for expansion of an organization. This approach helps
enterprises to utilize their limited resources optimally in different area of markets in order to
adapt changes prevailing in particular industry. Every small start-up owners desires to enlarge
their business in other locations in order to grab large market share and for long term survival.
AirDri Ltd is a small enterprise part of electrical/electronic manufacturing industry.
Company has been specialised in designing and manufacturing of air hand dryers products with
unique feature such as reliability, reduced energy consumption and noise reduction. The size of
company is about 51-200 employees and its headquarters situated in Oxfordshire, UK.
This report contains information related to the study of micro environment with help of
PESTEL and Porter's generic models with purpose of determining opportunities which help in
expanding Airdri business in UK. It explains the different growth strategies through Ansoff
growth model and state about potential sources of funds by which firm can raise its capital.
Further, it exhibits a business plan for growth along with exit or succession options (Akter and
et. al., 2016).
TASK 1
P1 Evaluation of growth opportunity in macro environment.
Macro environment consists those factors related to economy which exists outside from
an organization. These forces are related with whole economy of country over which firm has no
control. The success of organization is rely on how it can adapt and convert the changing
condition into its advantage. During planning for growth company required to consider
opportunities and threats prevailing in external environment which may influence their decisions
and business affairs. This analysis can be done by with the help of PESTEL analysis model
(Amran and et. al., 2016)
PESTEL ANALYSIS is a framework of understanding the factors related to external
surroundings and also determine intensity of how favourable these conditions are for company.
This represents political, economical, social, technological, environmental and legal forces.
1. Political Factors: UK is one of the strong nation across the globe with modern
parliamentary democracy system. The great strength of country is its political stability
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and good relation with other nations. Government of UK is taking corrective measures to
solve deteriorating economy. It create an opportunity for AriDri to expand its business in
other areas of UK as there are stable tax policies, easy way of raising funds etc. which
enables owner to generalize optimistic sectors to expand their business growth.
2. Economical Factors: UK enjoys powerful economic position as compare to other
nations with higher GDP growth in world. It has diversified economy with wide public
and private sectors and huge population enable small markets to generate high profits.
Sustain economic stability with increased foreign direct investments. All these factors are
creating lucrative opportunities which are favourable for AirDri owners to open its stores
at different locations to expand its market share (Bentley-Goode and et. al., 2017)..
3. Social Factors: UK dominates big consumer market and has multicultural population
which allows companies to evolve variety of exclusive products to meet different
religions needs. Country has most successful social venture of health care system across
globe as well as high quality of educational infrastructure which increases high standards
of living. This factor is favourable for AirDri and cultivate opportunity for company
because there are different class of people with distinct needs on basis of which firm can
extend their production activities in order to fulfil those demands and generate profits.
4. Technological Factors: UK is world's leading nation in technological enhancements as it
is a combination of financial and technological industry. These advanced factors offer
unlimited opportunities to AirDri owners to do business in UK and develop new
technology in order to provide best solution for their customers.
5. Environmental Factors: Government of UK, local bodies, NGO's and many other
charitable trusts conducted various programs and taken number of initiatives to reduce
adverse impact of economic growth as well as create awareness regarding environment.
This foster positive opportunity for AirDri to extend its business as it already produce
noise free and less energy consumable products.
6. Legal Factors: UK is a political stable country due to which there are limited or zero
chances of fluctuation in legal laws and standard regulations. AirDri can easily expand its
growth in different areas as UK rules and legislative acts are so effective and strong
which reduces the threat of loosing organizational secret policies (Higgins, Omer and
Phillips, 2015).
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BOSTON MATRIX is a framework which enables organisation to understand and
examine their current portfolio of business units and brands. It is one of famous method
undertaken by management in order to formulate marketing as well as business strategies. This
particular matrix was proposed by Boston Consulting Group with purpose of determining
company's products and service on basis of its growth and market share. This particular
mechanism helps firm to obtain perception on what products are profitable which enables them
to take advantage of market share growth opportunities.
 Stars: those products or business units that garb large market share and cultivate huge
cash or revenue for firm are consider as stars. These star products enjoys high growth rate
due to which they required large investment of cash. In case of Airdri, star product of
company is 'AirDri Quantum' and although with such product company is facing high
competition from other firms. In such case, company required to formulate effective
marketing strategies such as sales promotion and advertising in order to sustain its
competitive advantage.
 Cash Cow: these type of products or business units create more amount of cash but
consume less of it. These have high market share but low scale of growth aspect. In case
of AirDri, 'AirDri Quazar' hand dryer range come under this section. Company required
to adopt strategy related to increasing its potential customer base through providing best
after sales services, loyalty programs etc.
 Question Mark: these business units or products are those which have low potential of
market share but have high growth prospects. Question mark section needs considerable
investment in order to expand its market share. In case of AirDri, 'AirDri Quad' hand
dryer come under this section as it has potential to grow and attain high market share so
for this company can obtain new customer acquisition strategies in order to convert it into
cash cow or star product.
 Dogs: these products or business units are those which generally have low market share
as well as low growth aspect. These are company's unattractive products which brings
zero profits for company. In case of AirDri, dog products of company are 'AirDri Quarto'
range which generate low profits for firm. So in such condition, company required to stop
its production process and divest this product range.
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PORTER'S GENERIC MODEL
This framework justify how an organization can gain competitive advantage and
determine its relative position within following industry. It explains whether or not firm's
profitability is above from industry average. Porters recommended four generic strategies which
can be used by companies for purpose of attaining competitive edge.
1. Cost leadership: This strategy states that competitive advantage can be achieved through
lowering the cost of production. This can be done by reducing the cost at each level of
value chain such as production, marketing and other stages. Ways of gaining competitive
benefits differs according to structure of industry. Company can value its products as
same as other rivals and efficiently invest in different business units (Holotiuk and
Beimborn, 2017).
2. Cost focus: This strategy emphasize on small or narrow target with lower cost of
production. In Cost focus approach company pursue its competitive edge only in one or
small market segment.
3. Differentiation leadership: This approach helps business enterprise to consider large
market in order to attain competitive advantage by producing differentiate products for
different target segments. A variety of diversified goods helps company to be less price
sensitive and can charge premium prices for differentiated items (Moseley III, 2017).
4. Differentiation Focus: This method concentrate on small or narrow segment in order to
achieve differentiation in that single target market.
AirDri can consider Differentiation leadership strategy for purpose of serving to large
market. This can help the company to target each customer group and may create value of
product in mind of consumers. Also, this approach can enhance the reputation and goodwill
company which in result bring productivity and profitability in organisation.
P2 Evaluation of growth opportunities in context with Ansoff Matrix model.
Ansoff Matrix growth model was developed by H. Igor Ansoff. This model states that for
taking any decision company requires right type of strategic methods which helps a firm to
expand its market and product growth. It refers to the process of continuously growing business
for enhancement success and survival of company. This framework depicts distinct corporate
expansions strategies which focuses on firm's existing customers and products. It exhibits
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product and market expansion grid emphasise on four methods to expand organisation growth
(Johnson, 2016).
1. Market Penetration: This strategy is adopted when company wants to increase its sales
of their current products within already existing market. This particular technique is used
to expand current customer base that an organisation is targeting. For example, AirDri is
a hand dryer manufacturing company so owners aspire to boost up its sales then they
strategic to introduce new stores with exclusive offers and discounts in different areas
and also make use of exclusive marketing methods which can raise firm's consumer
portfolio (Kane and et. al., 2015).
2. Product Development: This strategy is opted when firm want to create or develop fresh
products for its existing customer base market. In such a way company can do some
modification or add few new features in order to increase value of current products and
able to remain active in competition (Leonidou, and et. al., 2015). AirDri can develop
Antibacterial treatment hand dryer for its highly hygienic customers base to ensure
sanitary conditions.
3. Market Development: Company apply this strategy when it desire to enter a new market
with its existing products. This medium of growth tells about how a firm can reach target
its new customer base or enlarge its business across overseas by introducing its current
product. AirDri can enter in Chinese market with its products at lower cost (Marx, 2015).
4. Diversification: This particular strategy is riskiest one because here company decides to
explore new market by launching or innovating brand new product. The product can
either purely related or unrelated to company's product. There are two types of
diversification concentric diversification refers that firm enters new market with new
product which somehow related to its existing offering whereas conglomerate
diversification adopt by firm when new product is completely different from its current
offering. AirDri can make use of related diversification approach where firm can develop
unique hair dryers so that company can target professional salons and households
consumers.
Airdri can select Product Development strategy with purpose of exploring newly
different areas of UK because currently company is a small enterprise and wants to expand its
market share also probe to reach out different customer base. The new commodity that firm
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launch will be Steam bath generator. It will be a low voltage goods. (Kitsios and Kamariotou,
2016). This strategy is beneficial for firm cause it generates willing in consumers to test new
features and also improve its product quality. Company can contribute in corporate social
responsibility through enhancing healthy environmental conditions.
TASK 2
P3 Identification of source of funding for business
Every company no matter big or small need money for streamlining its operations.
Money can be procure from external sources or internal sources (Akter and et. al., 2016). Firm
usually explore source of funding when it decides to expand its business. In Airdri scenario
finance is required for production and marketing of new product. The new product is stream bath
generator. Based of source of generating capital funding are of two types:-
Internal Funding: Capital generated for business without approaching any outsiders
mainly from retained profits. The other two internal source of funding are selling of assets and
reducing working capital (Amran and et. al., 2016).
External Funding: Capital bring forth for business from outside the company. Except
the three internal funding all others are external source of funding. Some internal source of
funding are venture finance, corporate bonds, bank loan, peer to peer funding and crowdfunding
(Bentley-Goode and et. al., 2017).
Internal Source:
Retained Earnings: These are portion of profits reserved by business for the objective of
further investment. Advantage of retained earning is that it is cheap because no cost incurred in
using surplus profit (Sources of Finance, 2020). There is no risk of bankruptcy for the company.
Company is not liable to pay any sort of interest to any individual or institution. There is no
dilution of ownership of firm. Company is free from any legal formalities while using retained
earnings. Shareholders receive steady profit in the form of dividend even if company is not
earning profit. Disadvantages of using retained earnings are over capitalization that means
accumulation of money more than sufficient. In the scenario of conservative dividend policy
shareholder get low rate of dividend which create dissatisfaction among them (Kossyva, Sarri.
and Georgolpoulos, 2015).
External Sources:
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Peer to Peer Funding: It is the practice in which borrower procures loan directly from
lender. All intermediaries including financial institution are removed. It is also called social
lending or crowd lending. Advantage of P2P lending is that borrower get loan at a very low
interest because of exclusion of middleman and intense competition between lenders. P2P loan is
easily accessible because of easy eligibility criteria and less formalities. Disadvantage of P2P
loan is that is highly vulnerable to default risk and also lender does not have legal protection
from default (Leonidou and et. al., 2015).
Venture Finance: It is a method of raising money for new business with a profitable idea
from rich investors. Advantage of venture capital is that unlike bank loan borrowers is not liable
to pay interest if start-up did not succeed. Another advantage is that there is need of collateral
security. It can provide large amount of capital for watering business. Disadvantage of venture
capital is that company's ownership go diluted. Venture capitalist withdraw their money in a very
short span of time. It is not appropriate for those start-up which which needs long time to reach
at prosperity stage. It is not easy to ask out rich investor to invest until and unless idea seems to
be innovative and highly profitable (Malerba and et. al., 2015).
Bank Loan: It refers to a procedure of borrowing of sum amount of money by customer
for their specific use such as purchasing of car, for children education, buying house and many
more. Loan can also borrowed for business purpose and its a business for bank to lend money on
interest to customer. Bank loan are provided to customer by keeping their confidential paper as
security and lend money to customer and charge some amount of interest over certain period of
time. Bank loan provide capital for operating business or fulfilling customer need with fixed rate
of interest. Bank charge processing fee for giving loan to customer and some compliances are
increased in recording of security (Higgins, Omer and Phillips, 2015).
From the above mentioned sources of funding, venture capital is best suitable for
expansion of business as there is no obligation to repay money in case of loss. It will provide
huge capital which will be more than enough for business's needs. Also idea is profitable and
innovative. Venture capital is best for the new product development because along enough large
amount of capital company will also gain access to technical assistance that will enhance the
features of the Steam bath generator. Hence chances of success will increase.
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TASK 3
P4 Suggestion of a new business plan
Company Overview
Airdri is hand dryer manufacturing company. It had been received award by UK noise
abatement society in the year 2012. It was the first company who receive quit mark award.
Vision
Airdri vision statement is to improve the life of people by providing best quality hand
dryer to them.
Mission
To become the largest hand dryer company in the world and providing best hand drying
solution to customers.
Objectives
Company is planning to cross break even point by 20% with the tenure of six months.
Airdri is aiming to increase its sales by 30% in next three years.
Firm is targeting to achieve 30% market share with the tenure of one year.
Financial Information
Jan Feb Mar Apr May Jun Total
Cash Inflow
Investment 20000 20000
Credit Sales 5000 20000 20000 20000 20000 20000 105000
Total Outflows 25000 20000 20000 20000 20000 20000 125000
Cash Outflows
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Project
Materials
6000 6000 6000 6000 6000 30000
Sub-contract
labour
8000 8000 8000 8000 8000 8000 48000
Marketing 1000 1000 1000 1000 1000 1000 6000
Legal &
Accounting
2500 2500
Equipment 5000 5000 10000
Sophie & Jack
Salaries
2000 2000 2000 2000 2000 2000 12000
Other costs 1000 1000 1000 1000 1000 1000 6000
Total Outflows 19500 18000 18000 23000 18000 18000 114500
Net Cash Flow 5500 2000 2000 -3000 2000 2000 10500
Opening Balance 0 5500 7500 9500 6500 8500
Closing Balance 5500 7500 9500 7500 8500 10500
As the strategy suggested is product development. Airdri should create a new product for
its existing market. Airdri is advised to develop an equipment that generate steam. Steam bath
generator is used for cleaning body through steam (Martinez-Simarro, Devece and Llopis-Albert,
2015).
STP model for Airdri
Segmentation: It is a procedure of dividing the consumer base into various divisions
according to their income, gender, occupation, taste and preferences, regions and mindset. There
are four kinds of segmentation that are demographics, geographic, socio-cultural and psycho
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graphic (Holotiukand Beimborn, 2017). Demographic segmentation includes person income,
occupation, gender, education and so on. Geographic segmentation covers all regions where
consumers live. Socio-cultural includes culture,belief and value of a person. Lastly psycho
graphic segmentation which consider a person lifestyle, mindset, taste and preferences. Psycho
graphic segmentation has been chosen for targeting consumer for new commodity.
Targeting: It emphasis on providing goods and services to a specific consumer segment
which seems to be profitable to be considered. In Airdri context, the targeted segment for steam
bath generator can be those consumers who are health conscious especially gym freaks. Steam
generator mainly purchases by owner of gym to cater the steam bath services to their gym
members. Also steam bath generator is purchases by royal people that means it is affordable by
rich consumers with high bank balance. Hence Airdri needs to target rich health conscious
consumers and gym's owners (Marx, T. G., 2015).
Positioning: It is a marketing term in which company take effort to induce a specific
image in the mind of consumers towards the product. It also considered the area of mind
captured by the brand of the respective industry (Johnson, 2016). For example, Maggie became
the synonym of instant noodle because of its strong positioning. Positioning for steam bath
generator by Airdri should be as the full body cleaner and germs killer with less electricity
consumption. Consumer concerned with health and cleanliness should have the perceived image
that this equipment is a must have for them.
Marketing Mix of Steam Bath Generator
Products: These are tangible elements like goods or intangible elements like services
which company wants to offer its consumer for a price. Steam bath generator is the product of
Airdri. It will be a low voltage steam bath generator. It will equipped with automatic off function
after certain time period. Temperature of the commodity will also be easily controllable by the
user. It is tangible product for existing marketplace. Like Airdri it is also a bathroom equipment
used clean body with help of steam. Airdri will use product differentiation startegy to stand apart
from the competition (Moseley III, 2017).
Price: Price is the monetary value company wants to procure from consumers in
exchange of its goods and services. Airdri will use premium pricing strategy to established its
product as superior commodity than others (Kane and et. al., 2015).
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Place: It concerned with location where the company establish its unit of sale. Airdri
needs to set up its sales unit offline in heart of the city. It is required establish retail store easily
accessibly by the consumers. For expansion purpose, it will be sold online also through
company's websites (Kitsios and Kamariotou, 2016).
Promotion: It is a method of creating awareness among customers towards the product.
Airdri can use social media platform with large user base like Facebook, Twitter and Instagram
in order to promote its new product to substantial number of customers.
SWOT Analysis of Airdri
SWOT analysis is an instrument used for finding out the competitive position of the
company. SWOT is an acronym for strength, weaknesses, opportunities and threats. SWOT
analysis of Airdri is given below:-
Strength: Quality of Airdri hand dryer is the main strength of the company. Airdri able
to deliver highest quality hand dryer to customer. Firm brand image is good. Durability of Airdir
hand dryer is five times more than rivals (Nagy, and et. al., 2018).
Weakness: Market of Airdri is limited to hand dryer. Marketplace of the company is
very narrow. Market share of the firm is very low. Range of Airdri products is narrow.
Opportunities: Extreme internet penetration in the country is an opportunity of cheap
digital marketing of the firm.
Threats: Cost of making a hand dryer is very high. People prefer using towel and
handkerchief for drying hand as it is extremely cheap alternative of hand dying machine.
Evaluation
Monitoring and evaluating the success of new product is important phenomenon in
businesses. In Airdri context, the evaluation technique that company will use will be key
performance indicator. The key performance indicators that company use will be number of
sales. High Number of sales will will indicate that product is successful.
TASK 4
P5 Assessment of various exit and succession options
Every entrepreneurs start business with the expectation of long term growth but not every
business succeed. Some entrepreneurs is required to quit their business because business fails to
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achieve its objectives. After businesses fails question arises how to choose suitable exit strategy
for business. Some of the exit strategies are mentioned below:-
Flotation of business: It is a procedure followed by private companies to transform
itself into public company by issuing shares to public for the purpose of raising fund. Major
benefit of flotation is that company can obtain new capital for expansion of existing business or
starting a new business. Venture capitalist and other investors can easily realize their invested
capital. Shares can distributed to employees as incentive which make them motivated.
Disadvantage of flotation of business is that market fluctuations can affect the company
adversely. Cost of formalities related to flotation of business can be very high. Company
ownership go diluted due to which firm have to consider shareholder interest which can be
different from their own objectives (Nagy and et. al., 2018).
Acquisition: An acquisition is a business phenomenon in which one company purchase
all the stakes of another company. In this acquirer company get all the control over another
company. One of the biggest advantage of acquisition for acquired company is that it is a
profitable deal for the company being purchased. Acquired company receive good amount of
money. Acquisition helps smaller companies in escaping from tough competition. Disadvantage
of acquisition Is that it is difficult to integrate two different work culture and management
practices. It is also a costly affair company is required to spend huge money to purchase the
company especially in aggressive take over. Return on investment may be very low (Peng,
2017).
Out of the two above mentioned exit strategies, acquisition is appropriate for Airdri
because it will give high price to Airdri' s owner.
CONCLUSION
From the above report the conclusions drives are that there is immense growth
opportunities in the marketplace of UK for Airdri. Macro environment are somewhat favourable
for the growth of the company. By evaluating all the marketing strategies of Ansoff matrix,
product development strategy in which company launches new product for existing market is
best suitable for Airdri. From the assessment of potential source of funding venture capital seems
to be perfect for raising fund for expansion of business. The new business plan suggested for
Airdri are new product launch for existing consumer base. Steam bath generator is the new
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product with high growth potential in future. By evaluating the exit strategies like flotation of
business and acquisition it has been concluded that acquisition is the best exit strategy because it
will good value to the seller.
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