Section Twelve • Strategic Methods - Business Growth -- Organic Flashcards
What is organic growth?
Expansion from within a business is known as organic growth (or internal growth) - a business can come up with strategies to sell more products, make new products, increase market share, expand into new markets, etc. in order to grow
What are advantages of organic growth over external growth?
- Can maintain current management style, culture and ethics of the business.
- Less risk as it’s expanding what the business is good at and it’s usually financed using profits.
- It’s easy for the business to manage internal growth and control how much the business will grow.
- Less disruptive changes mean that workers’ efficiency, productivity and morale remain high.
4 bullets
What are disadvantages of Organic Growth compared to External Growth
- It can take a long time to grow a business internally and it can take a while for the business to adapt to big changes in the market.
- Market size isn’t affected by organic growth. If the market isn’t growing, the business is restricted to increasing its market share or finding a new market to sell products to.
- Businesses might miss out on opportunities for more ambitious growth if they only grow internally.
3 bullets
What is diseconomies of scale?
Any further growth will result in them losing money and the only solution may be retrenchment.
When a company grows in size it will often change from a private limited company (Ltd) to a public limited company (PLC). How can this make running a company more complicated?
3 bullets
- The original owners lose some control to new shareholders which can affect strategy.
- Becoming a PLC can make managers more ** short-termist** as shareholders seek a quick return on investment through dividend payments.
- Once a company becomes a PLC, it’s more open to being taken over.
Anyone with enough money could buy enough of its shares to take a controlling interest.
Why may business owners choose to retrench?
4 bullets
- They may want to maintain the culture of a small business.
- The business will become more complicated to manage as it gets bigger.
- Growth requires the business to secure additional financial resources, which can be complicated.
- They may not want to put too much strain on their cash flow position.
What did Greiner’s Model of Growth describe?
Different Phases of Growth over Time
What does Greiner’s Model of Growth look like?
Describe Phase 1 – Creativity -> Leadership Crisis
When a business is starting up it is often very creative and everyone in the business can share ideas easilv. Once the business gets to a certain size, there is a need for strong leadership to give the company direction and structure.
Describe Phase 2 – Direction -> Autonomy Crisis
Leaders set up a formal organisational structure with defined departments and roles.
As employees become more experienced they will want more say in decisions, and the business will be too big for senior managers to manage everything. So more autonomy through delegation is needed.
Describe Phase 3: Delegation -> Control Crisis
More power and responsibility is delegated down to middle-managers and the organisational structure may become decentralised. Leaders may try to regain some control in order to have a more coordinated business that is optimising its use of the resources available.
Phase 4: Coordination -> Red Tape Crisis
As control is regained by senior managers, certain decisions become more centralised and new procedures to coordinate different areas of the business are implemented. However, there can be too many procedures, which will decrease efficiency as people are constantly waiting for decisions to be made and approved.
To continue growing, some formal procedures are replaced by collaboration between departments and teams. More focus is put on communication and information management. At this point the company might struggle to grow internally and may have to consider external growth.
