7.5 Specific Benefits of Organic (Internal) Growth

Question 1

What is Organic (Internal) Growth?

Answer 1

Organic Growth is when a firm increases its own factors of production.

Question 2

What is Inorganic (External) Growth?

Answer 2

Inorganic Growth is when a firm engages in mergers and takeovers.

Question 3

Specific Benefits: Control of the company

Answer 3

Control of the company remains within the organisation. It is the same managers that will control business growth who know the production process and staff well. As a consequence there is unlikely to be disruption, inefficiency and non-cohesive decision making that could occur with inorganic growth.

Question 4

Specific Benefits: Debt will not increase

Answer 4

Debt will not increase. This is because organic growth is funded through the re-investment of business profit rather than through borrowing. Consequently growth is sustainable without excessive risk of insolvency, forced cost cutting or pricing decisions that could harm consumer loyalty in order to repay debt and debt interest.

Question 5

Specific Benefits: Jobs are more likely to be created rather than lost

Answer 5

Jobs are more likely to be created rather than lost. This is because external avenues of growth are avoided allowing the same company personnel to remain in their positions rather than being replaced due to rationalisation or duplication. As a consequence, it is unlikely for workers to lose their jobs but even greater is the likelihood and benefit of job creation, promotion potential and salary increases if business growth translates into greater profitability.

Question 6

Specific Problems: Organic Growth is slow

Answer 6

Organic growth is slow. This is because the business has to fund and manage the process completely on their own rather than acquiring or merging with another firm. Consequently, the benefits of growth may not occur in the short term rather the process will occur over time in various stages when finance is available and in that time competitors may have moved ahead using different growth strategies.

Question 7

Specific Problems: Organic Growth is Expensive

Answer 7

Organic growth is expensive. This is because the business has to fund and manage the process completely on their own rather than acquiring or merging with another firm which already has the capital, market access and economies of scale sought after. As a consequence the return from investment of organic growth may not be as large as pursuing inorganic growth strategies.

Question 8

Specific Problems: The size of the growth is limited

Answer 8

The size of growth is limited. This is because the funding of growth must take place through the reinvestment of retained profit, which immediately limits the level of investment, and expansion and business can partake in. As a consequence the large benefits of growth may not be seen and a firm may be better off instead waiting for greater growth potential if the benefits of remaining small outweigh the benefits of limited growth.