It’s important to note, however, that organic growth is not without its challenges. When devising an organic growth strategy, businesses must weigh the advantages and disadvantages to determine the best approach for their specific situation. By focusing on internal growth and leveraging existing resources effectively, companies can drive organic growth and achieve long-term success. Organic business growth is growth that comes from a company’s existing businesses, as opposed to growth that comes from buying new businesses. In addition, organic business growth can be achieved utilizing content marketing efforts, which drive organic search traffic. Organic growth allows for business owners to maintain control of their company whereas a merger or acquisition would dilute or strip away their control.
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- An organic method would be to purchase a fruit tree sapling, grow it, and then harvest the fruit when it ripens.
- They want to see growth in sales and revenue, growth in profits, growth in market share, and as a result, growth in share price.
- Organic business growth, as opposed to inorganic growth, offers a more sustainable and cost-effective approach to expanding a company’s market share, customer base, and revenue.
In fact, M&A can easily backfire, as improper integration can be very costly and disruptive to the core operations of all participants. Access and download collection of free Templates to help power your productivity and performance.
Companies like Coca-Cola have harnessed the power of targeting by identifying health-conscious individuals as a target market for Diet Coke, enabling them to expand their market share and achieve organic growth. In contrast, the sales and revenue generated (excluding internal profits) accounts for inorganic or external growth. Acquisitions can infer quicker cash inflow, faster sales generation, and easy-to-penetrate new technologies and markets, yet the effect could be unpredictably profitable or strenuous—it depends on multiple criteria. That’s why it’s crucial to have a balanced strategy that navigates your business with the proper amalgamation of organic and inorganic growth. Such a growth agenda is inherently integrative, crossing multiple functions and involving the entire management team. It often requires alignment and integration of disparate views of the top management team.
Is M&A Inorganic Growth?
It also breeds confidence that the company is capable of using its resources responsibly and effectively. This would imply that the company will continue to see a return on any investments within the foreseeable future. In addition, businesses can focus on product development and innovation to promote organic growth. It can include investing in research and development to create new products and services that meet evolving customer needs. This way, businesses can stay ahead of the competition and maintain their position as industry leaders.
- Organic growth can be achieved through various strategies, including expanding into new markets, refining existing products or services, optimizing sales and marketing strategies, and introducing new products.
- Your business can go from awesome to troublesome and vice-versa overnight, even if you have rooted a solid business.
- “Core growth” is the term that is used to refer to growth that includes foreign exchange, but excludes divestitures and acquisitions.
On the other hand, organic growth takes longer, as it is a slower process to acquire new customers and expand business with existing customers. A combination of both organic and inorganic growth is ideal for a company, as it diversifies the revenue base without relying solely on current operations to grow market share. Organic growth is the growth a company achieves by increasing output and enhancing sales internally. This does not include profits or growth attributable to mergers and acquisitions but rather an increase in sales and expansion through the company’s own resources. Organic growth stands in contrast to inorganic growth, which is growth related to activities outside a business’s own operations.
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However, it is often hard for a company to achieve rapid overall growth through internal operations alone. It’s also difficult for companies to quickly respond to changes in market conditions and consumer preferences. Organic growth means that companies are using their resources efficiently to generate profit. Many companies have historically approached the task of achieving organic growth in two ways—financial target-setting and growth opportunity identification.
For example, in growth scanning, we asked respondents about the dimensions and time frames in which they scan for growth opportunities. In alignment, we asked how strongly the top management team felt shared accountability toward organic growth. In addition to providing guidelines for diagnosis and improvement, we wanted to understand how companies can optimize growth readiness by prioritizing the 10 activity/capability using xero files to manage your documents areas. In the process, we discovered two growth archetypes—the see and select archetype and the seize archetype—prevalent among growth overperformers. They represent two distinct ways of winning at organic growth by building strength in different combinations of activities and capabilities across the 10 areas. It is the percentage of customers who continue to do business with your company over a specific period.
Beware of the senior management bias
Organic growth offers several advantages over inorganic growth, such as increased control over business decisions, the potential to attract new customers, improved financial health, and the ability to create sustainable growth. Since organic growth relies on a company’s existing resources, expertise, and recognizable brand, it’s considered a cost-efficient and sustainable approach. One of the most effective organic growth strategies is to focus on customer acquisition and retention. It involves identifying the needs and wants of customers and developing products and services that meet those needs. Additionally, businesses can analyze customer feedback and use it to improve their products and services, thus increasing customer satisfaction and loyalty.
The startup phase is the part of a company’s life cycle that is perhaps most interesting but is also most difficult in many ways. This is the time when you’re figuring out how to do what you do and how to get customers to respond to it. The organic growth that takes place during a company’s startup phase may come in fits and starts as you make rookie mistakes and also discover untapped potential.
Organic growth is often achieved through a combination of factors, such as product development, market penetration, and customer retention. Ultimately, tracking organic growth metrics critical for any business to identify areas of improvement and growth opportunities. For management teams seeking to achieve higher organic growth, the framework can provide the basis to diagnose where weaknesses in selected activities and capabilities may be holding the company back from its full growth potential. The findings on distinctive growth practices of overperformers suggest how these activities and capabilities can be improved. The two growth archetypes and other insights can provide guidance on how management teams should set priorities across activity and capability categories and shape them into a growth readiness optimization plan. According to the survey results, there are some core skills that the most successful companies seem to have mastered, regardless of the growth strategy they are pursuing.
Looking ahead, though, the results suggest that companies must evolve how they grow. Of the three strategies, respondents say the largest share of their past growth came from investing in existing activities that are proven winners. Even at companies using multiple strategies, respondents say they have relied most on investing in recent years. In both developed and emerging markets, respondents are most likely to say that creating new products, services, or business models is where their companies will focus (Exhibit 2).
“We have monthly calls with customers to share sales lead data and discuss what we’ve learned about who is buying their products, and why,” he says. By creating detailed customer profiles, businesses can gain insight into their target clients’ needs, wants, and preferences. This information can be used to craft marketing messages that are tailored to the target audience. Generally, most strategies that fall under this category are oriented around the maximization of a company’s current revenue trajectory, cost structure optimization, and operational improvements to increase profit margins. “Business is a race and growth is the fuel point” should be the new integrated metaphor of every organization. Ideally, growth acts as the fuel or driving force that propels you toward your business goals.
Sell more to the most profitable customers
How might a management team improve its own company’s performance across the 10 activity and capability areas? Drawing on the 1,200-respondent survey, supplemented by our executive interviews, we distilled a set of insights around the practices that correlate with organic growth overperformance in each of the activity/capability areas. From our experience working with many companies on organic growth, we know that organizations frequently struggle across these dimensions. They often have blind spots in how they scan for growth opportunities and may have biases in which opportunities they choose to pursue and which they reject. They may lack the discipline or agility to move resources at speed and scale from the core business to support these opportunities.
We then stress tested and refined the framework through 25 executive interviews, including those of chief marketing officers (CMOs), chief strategy officers, business division presidents, and other C-level titles. According to respondents, most companies pursue just one of these strategies as their primary source of organic growth. But the executives reporting above-market growth at their companies—our “top-growth” firms—are more likely than others to say they are pursuing a diversified approach to growth. Compared with the others, respondents at the top-growth companies also report much stronger capabilities in several areas, such as analytics and product development. To sum it up, organic growth with no or little shareholder value and acquisition with no healthy growth rate would be at stake. So, it’s good to have a balanced and optimal ratio of internal and external growth at your company.