What Is a Mature Firm?
A mature firm is a company that is well-established in its industry, with a well-known product and loyal customer following. Mature firms are categorized by their business stage, in which they typically exhibit slow and steady growth.
Mature companies also tend to have several equally well-established competitors, making price competition a significant factor in their ability to increase profits.
Understanding Mature Firms
Mature firms have been around for many years and sell products that consumers and businesses use on a regular basis. However, mature companies usually face ongoing and significant competition.
A company's growth tends to go through phases that might include:
- Idea phase
- Start-up or emerging
- Growth or expansion
Companies in the start-up and expansion phases tend to experience significant growth that exceeds the growth rate in the economy. As a company ages and matures, its growth rate slows and trends with the growth in the overall economy. Companies in the decline phase tend to underperform the expansion rate in the economy.
Characteristics of Mature Firms
Although the characteristics for mature companies can vary, they typically exhibit certain traits that make them a well-established force in their industry.
Steady-to-Slow Revenue Growth
Mature firms often experience a leveling off in sales, since the revenue trajectory experienced during the high growth phase is often unsustainable. Mature companies are well-known and have expanded their client base over the years to the point that they're not likely to experience significant increases in new clients.
The slow growth in sales can be a source of consternation for the management teams of mature companies. Mature firms must transition away from rapid-growth strategies and adjust to strategies built around sustaining levels of reasonable growth and profitability.
Earnings Through Cost Effectiveness
Mature firms are usually larger companies and thus have a substantial operation in place, including manufacturing facilities and distribution channels that might include trucking and warehousing. As a result, during times of slow economic growth, mature firms can reduce their costs to boost earnings or profit and make up for the lack of, or slow revenue growth. The cost cuts, though small in percentage terms, have a significant impact on earnings because of the sheer size of the overall operation.
The ability to cut their spending on overhead and operating costs allows mature firms to improve their earnings or profit even while producing small percentage gains in revenue growth.
Cash and Dividends
Because of their ability to generate steady revenue and profit growth for many years, mature firms typically have a significant sum of accumulated profits called retained earnings. The retained earnings account, which is similar to a savings account, can be used to invest in new equipment, manufacturing facilities, or pay down debt.
However, the accumulated cash is also used to pay dividends, which are cash rewards given to shareholders. As a result, companies that tend to pay dividends consistently over many years are usually mature, well-established, and profitable companies.
Mature organizations have an effective planning, data management, and resourcing process. They also typically have the processes and technology in place to enable them to capture information consistently in a repeatable way. Data management and tracking that's performed on an enterprise-wide level can allow mature companies to improve efficiencies, manage costs, and boost sales organically. Since mature firms have large customer bases, new products and services can be offered through cross-selling techniques within the organization.
Also, by seeing the processes on a holistic level, project managers and resource managers of mature firms can report information such as consumer behavior or preferences, process inefficiencies, and report the progress to senior management.
Successful mature organizations have effective strategies for not only managing resources and data but also for developing strategies for what-if scenarios. For example, if a competitor introduces a new product to the market, and the company needs to respond, leaders can see through their data how any decisions might impact various products or projects.
- A mature firm is a company that is well-established in its industry, with a well-known product and loyal customer following.
- Mature firms typically face steady competition and exhibit slow and steady growth.
- Mature companies also tend to pay dividends and can boost profits through cost cuts and efficiency improvements.
Real-World Examples of Mature Firms
Apple Inc. (AAPL) is one of the most innovative technology companies in the world today. As a mature company, Apple has had to adjust to slow and steady revenue growth. However, the company tends to produce higher growth than most mature companies given its industry and loyal client base.
Revenue or sales for 2019 is expected to be $257 billion while for 2020, the company is expected to generate $269 billion. Those numbers would be approximately 4.6% growth in revenue from year-to-year.
Coca-Cola Company (KO) has one of the most recognized brands in the world. The company's sales in the quarter ending March of 2018 was $7.6 billion while a year later in March 2019, was $8 billion. The sales growth rate was 5% from 2018 to 2019.
However, the companies net income or profit was $1.3 billion in March 2018 and $1.6 billion in March of 2019, which is a 23% increase in year-to-year profits. Coca-Cola's ability to maintain costs and improve efficiencies as a mature company enabled it to increase its profits by 23% despite a 5% growth rate in sales in the same year.