organic vs inorganic growth

7/30/2019 Organic vs Inorganic growth

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Globalisation Strategy and

Localisation


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Learning Outcome

Understand the concepts of organic and inorganic growth

Deliberate on the trends in organic and inorganic growth in recent past

Discuss how some companies have successful used sustainable business

strategies to pursue growth


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Top-line vs Bottom Line Growth

It is extremely essential for companies to maintain profitable growth to

increase or maintain shareholder value

To achieve this, a company must grow its top line (i.e.. revenue) and also grow

its bottom line

A company can grow its top line by buying other companies. A company can

also grow by increasing its sales on its own without buying other companies

This is called organic growth. Growing revenue by acquiring other

companies is sometimes called inorganic growth

Organic growth can be achieved by increasing the sales of existing products

and developing new products for both existing and new customers

Inorganic growth is achieved by adding the revenue of the acquiredcompanies

Companies usually employ a combination of organic and inorganic growth to

achieve their top line growth target


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Growth Strategies for Companies

Growth Strategy

InorganicOrganic

Asset Replication

New Market

New Technology

New Customers

Takeover/ Acquisition

Joint Venture

Strategic Alliance

Horizontal Vertical Conglomerate

Merger


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Terms And their Examples


Joint Venture

Strategic Alliance

Merger


Joint Venture

Strategic Alliance

Horizontal Vertical Conglomerate

Merger

Sony - Ericsson

Tata - Corus

Microsoft and Nokia

Glaxo and Smithkline


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Choosing Between Organic and Inorganic

Strategies

Developing new products

and customers can also belong and costly

A safer option as growth is

closely controlled by the

company

Acquisitions can be a costly

proposition, often leading tohigh debt

It may take a long time to

integrate the acquired

companies into existing

operations Much faster way of growing

business

Organic Inorganic


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The Agony and Ecstasy of Growth Strategies

Business acumen is critical in helping to weigh the advantages and

disadvantages of each approach. Here are some questions that must be

considered in deciding which approach to use:

Acquisitions of big companies can be costly and it may take a long time to

integrate the acquired companies into existing operations. HR practices, IT

systems, and corporate culture are key factors that must be taken intoaccount. But acquisitions lead to immediate increases in revenue

Organic growth avoids problems of integration and overpaying, but developing

new products and customers can also be long and costly. This will delay the

increase in revenue as well as profit.

Cisco, a leading provider of communications equipment and services, is aperfect example of a company that uses acquisitions as the mainstay of its

growth strategy. Over the years, it has acquired numerous companies, both

large and small

An example of failed acquisitions in recent years is Daimler-Benzs purchase

of Chrysler


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Good To Read.

The New M&A Playbook

Even though organizations spend trillions on mergers and acquisitions

each year, the failure rate is between 70% and 90%. Authors ClaytonM. Christensen, Richard Alton, argue that the chance for success with

a M&A strategy can be improved if target selection, how much to pay

for the target, and target integration are better understood

They discuss the reasons for mergers and acquisitions as well as how

to realize the benefits of each strategy


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Tata Group Case Study Learning Outcome

Examine Tata Group's organic growth strategies.

Understand how inorganic growth strategies played a crucial role in the success

of Tata Group

Analyze the issues and challenges faced by Tata Group while implementing

organic and inorganic growth strategies


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Situation

A Range of Recent Books Talk about how Sustainable Businesses are

Adding Value for both the Society and their Shareholders


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Situation

Sustainability is broadlydefined as meeting theneeds of the present

generation withoutcompromising the ability of

future generations to meettheir own needs

But what exactly is Sustainability? And what are Sustainable

Enterprises?

According to a research conducted by the University of Michigan in 2002, Sustainable enterprises

formulate new ways to create and capture environmental, social and financial value

There are plenty of examples of entrepreneurs that have demonstrated that sustainability reveals

opportunities to improve our natural environment, peoples quality of life, while at the same time

creating economic value
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organic vs inorganic growth

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