3.2.3 Organic Growth Flashcards
What is inorganic growth
A business growth strategy that involves two (or more) business joining together to form one much larger one
What is organic growth
A business growth strategy that involves a business growing gradually using its own resources
Key differences between organic and inorganic growth strategies?
- Inorganic growth is much faster.
- organic growth is a safer strategy because owners expand their businesses by developing their current expertise.
Methods or growing organically?
- New customers
- new products
- new markets
- new business model
- franchising
Advantages of organic growth
- Organic growth might be less risky than other growth strategies. It can prevent errors,as the culture, norms and practices of the business are already established and effective.
- can also avoid the complications that might arise when integrating with another organisation
- growing organically might be relatively cheaper than using other methods. Organic growth can be financed from retained profit, which is likely to be cheapest of all sources of finance. There will be an opportunity cost , but the financial cost can be zero.
- organic growth also avoids the premium prices that can be paid when buying other businesses.
Disadvantages of organic growth
- The pace of organic growth may be too slow for some stakeholders. If shareholders are unhappy with the current pace of growth they may sell their shares. As a result the share price can fall, possibly making the company vulnerable to a takeover.
- Growing slowly May mean that a business gets left behind in the market. May lose its ability to compete effectively.
New customers
The easiest approach is to rely on driving sales from existing activities for sample. A food processing company supplying local shops may gradually step up production supply more and more customers.
New products
Some businesses grow by developing new products. They may be very innovative and committed to research and development.
New markets
Some businesses grow originally by finding new markets for their products. For example, a hairdresser could open up another salon in a different location.
New business model
It is possible to grow organically by using a new business model. Developments in technology or switch to change may give rise to such a step.
Franchising
Do you speed up organic growth, a business might set up a franchising operation. This approach allows other entrepreneurs to trade under the name of the original business.
