APICS Pikes Peak Colorado Chapter

EDITORIAL

Promoting Prudent Corporate Growth

By Ira Smolowitz, Ph.D.

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In a provocative article published in the Conference Board Magazine - Larry Farrell has demarcated four ways to generate corporate growth. They consist of selling:

(a) Current products to current customers

(b) New products to current customers

(c) Current products to new customers

(d) New products to new customers.1

I have taken the liberty of creating a matrix that incorporates the above four growth paths. Each cell in the matrix will be labeled to facilitate additional commentary.

In my opinion, the above matrix and associated information must be brought to a higher, more meaningful management level. Management, it seems to me, must use the above matrix to ask/answer the following questions:

(a) What percent of current sales are taken down by cells A, B, C, D?

(b) Five years hence, what percent of sales will be taken down by cells A, B, C, D?

(c) How are cells A, B, C, D funded? Corporations should strive to have a balanced product portfolio. As a consequence, revenue generated in cell A should fund the development and marketing of products identified with cells C and D.

(d) Sales associated with cell B should be particularly monitored. Is cell B revenue growing because the corporation is worshiping market share? Nominally, it is imperative to explore the cause of the increase in market share. An increase in market shares is detrimental if new customers do not pay on a timely basis, if at all, for merchandise shipped to them on a 2/10 net 30 basis.

An increase in market share is also detrimental to the bottom line if new customers are high maintenance customers. These customers make inordinate demands on the vendor's sales staff, technical staff, etc.

An increase in cell B could initially emanate from an imprudent expansion in the number of retail sales establishments. This may ultimately result in cannibalization of sales from existing retail sales outlets.

I view the construction of the above matrix by corporations, and the analysis of the associated matrix cells generated, to be of vital importance. Prudent analysis requires:

(a) Anticipation (the 'what-if question')
(b) The integration of marketing, finance, production, etc.
(c) Departments will talk and communicate with each other. The so-called 'silo effect' is properly on the road to elimination.

Failure to employ the above analysis will generate corporate g r o w t h that is ultimately generating revenue on a weak threshold.

References
1) Farrell, Larry "Grow in the Old-Fashioned Way" Across the Board - Jan./Feb. 2005, p. 66.
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Articles printed with the permission of Dr. Ira Smolowitz, Professor of Finance and Dean, Bureau of Business Research and Program Development at American International College, Springfield, MA.
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Page updated:

May 21, 2007 8:36 AM

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