Organic and Inorganic Growth

Question 1

What is Organic Growth?

Answer 1

• Organic Growth involves expansion from within a business

Question 2

What are ways a business can expand Organically?

Answer 2

• Opening new outlets
• Overseas expansion
• Changing marketing mix
• Introducing new products
• Technology
• Franchising

Question 3

What are characteristics of businesses that grow successfully using Organic Growth?

Answer 3

• Distinctive brands
• Use Market + Product development
• Resources to support expansion
• Sustained investment
• Strong distribution channels

Question 4

What are the Benefits of Organic Growth?

Answer 4

• Less risk than Inorganic Growth
• Can be financed through internal funds
• Builds on a business’ strengths
• Allows businesses to grow at a steady pace

Question 5

What are the Drawbacks of Organic Growth?

Answer 5

• Growth may be dependent on growth of the market as a whole
• Hard to build market share
• Slow growth- shareholders may prefer rapid growth
• Franchises can be hard to manage effectively

Question 6

What is Inorganic Growth?

Answer 6

• Inorganic Growth involves expansion through Takeovers or Mergers

Question 7

What is a Takeover?

Answer 7

• Takeovers involve on business acquiring control over another

Question 8

What are the possible reasons for Takeovers?

Answer 8

• Increase market share
• Acquire new skills
• Access economies of scale
• Secure better distribution
• Spread risk by diversifying
• Acquire intangible assets
• Transfer of knowledge
• Eliminate competitors
• Enter new market segments

Question 9

Why might Takeovers be preferred?

Answer 9

• Existing products are at a later stage of life cycle
• Speed of growth is a high priority
• Business lacks knowledge or resources

Question 10

What are Drawbacks of Takeovers?

Answer 10

• High cost involved
• problems of validation
• Upset customers + suppliers
• Problems of integration
• Resistance from employees
• Non-existent cost saving
• Incompatibility of management culture and styles
• Questionable motives
• High failure rate

Question 11

What are the common reasons for Takeovers failing?

Answer 11

• Price paid for Takeovers was too high
• Lack of decisive change
• Takeover was mishandled
• Cultural incompatibility between the two businesses
• Poor communication, partially with management
• Loss of key personnel + customers post acquisition

Question 12

What is a Merger?

Answer 12

• A merger is a combination of two previously seperate firms
• This is achieved by forming a completely new firm