ISSUES IN MANAGING GROWTH OF SMEs

STRATEGIES

Q-1. Briefly discuss the following strategies with regards to a small scale enterprise :
(i) Harvesting strategy
(ii) Turnaround strategy
(iii)Exit strategy

Ans : (i) Harvesting strategy : To harvest means to reap the crop. Harvesting is a strategy
used by a small enterprise at the end of the life cycle of its product. It is a planned
discontinuation of a product, whereby the company tries to extract maximum profit from its
sales. Here, company stops spending expenses on marketing and allows the product to sell
on its goodwill until sales revenue falls below a cutoff point.

Harvesting is generally used for a slow-moving product line or business. Here, the company
cuts investments in assets, labour and other costs of a slow-moving product line or
business.

Companies usually go for harvesting when it needs money and when it can get the best price
for its product. Moreover, labour problems, regulatory changes, shifting consumer tastes,
higher interest rates, any major changes in company etc. are some other factors that may lead
a firm to go for harvesting. A product or service is ripest when its current sales are good but its
growth prospects are poor.

(ii) Turnaround strategy : Turnaround is a process that involves

establishing accountability,
conducting diagnostic analyses,
setting up an information system,
preparing action plans,
taking action and evaluating results.

Turnaround means shifting from negative direction to the positive one. Business turnaround
refers to reviving a business to its original healthy position after a tough time.

During the life cycle of s business, an entrepreneur may have to undergo tough times be it
downturn in economy, increased competition, changes in consumer needs/preferences,
overinvestment in technology or unpredictable events such as war, terrorism or natural
calamities. Such a situation calls for a need to refocus the business and strive for a turnaround.

There are three stages of a turnaround strategy :

1) Pre-turnaround
2) Period of Crisis
3) Period of Recovery.

1) Pre-turnaround stage : The first stage is the period just before the profitability begins to
decline. The company is still considered profitable at this point, but it is losing ground.

2) Crisis stage : The second stage is known as the period of crisis. At this point the company
needs to turnaround. This stage is marked by a decline in profits (even negatives), a fall in
market share and the company's poor cash situation.

3) Recovery stage : The third stage is the period of recovery or the turning point. This is the
stage where serious action is taken to turnaround the company. Important decisions are taken.
This is the longest period and may last for years.

(iii) Exit strategy : It is also known as succession strategy. It refers to passing the torch to
someone worthy of it. It means handing over the business to someone else.

Generally, there are three options for an entrepreneur, who wants to exit from his or her
business :
1) Family transfer : The business may be transferred to a family member. But, an entrepreneur
has to ensure that his/her family is fully aware that he/she is planning a succession and to give
them clear time limit and a chance to voice their concerns and interest in the business.

2) Selling to an outsider : Another option is selling the business outright to an outsider. In that
case, an entrepreneur has to decide who the new owner would be and how to maximize his/her
(entrepreneurs) return on the sale.

3) Winding down the business : If nothing is feasible, the final option is to close down the
business.