Organic Growth vs Inorganic Growth: Understanding Pros & Cons

This is in contrast to organic growth, which is growth through normal business operations or marketing. The inorganic growth rate also factors in the impact of foreign exchange movements or performance of other economies. Consider that Company A is looking to leverage an inorganic growth strategy.

The resources that the firm has at its disposal will influence whether the firm chooses organic growth or inorganic growth. If the firm has enough human, financial and physical resources then it would make sense to embark on organic growth. These two firms have embarked on organic growth due to the fact that they have the necessary resources to go it alone. In 2019, Trade Kings introduced a new brand of bottled mineral water called Vatra and it so successfully. Similarly, Zambeef grew organically by starting from the scratch a subsidiary called Novatek which produces stock feeds.

Which strategy will work best for your company?

There are plenty of operational aspects that an organization can fumble through inorganic growth. Since finances support all company actions and is a key for all future growth, not having systems in place that can sustain the new growth is a huge (and unfortunately common) mistake. Measuring organic growth is straightforward; you draw the figures by comparing successive financial years’ revenue and sales reports. Besides hiring additional team members, improving infrastructure and customer experience also echo your organic output. When people refer to organic growth, they are essentially referring to growth stemming from a company’s operations. For example, if a company is in the business of making and selling soft drinks and sees sales of those beverages grow by 10%, that’s considered organic growth.

• Read along to find out about the different business strategies and how they differ from each other.
• When making a choice between organic growth and inorganic growth, managers must also consider speed.
• Bringing in consistent or growing revenues is a sign that things are working within an organization and is an important step in business success.
• As opposed to the organic growth, this kind of growth is affected to a great extent by exogenous factors.

In fact, our groundbreaking Visible Firm® program combines strategy, implementation, training and more. This is why organic growth should be at the center of b2b and professional services marketing plans. So which strategies can leaders and marketers at your business implement to drive organic growth?

Related to Inorganic growth

If the organisations’ cultures and management styles are compatible, then inorganic growth would be a suitable strategy. It isn’t true that once your business is coined as a brand, nobody can stop you. Your business can go from awesome to troublesome and vice-versa overnight, even if you have rooted a solid business. It is a complex task to maintain or achieve rapid, intensive development only via internal processes or organically alone, and the evolving digital space or the inflation rate can bleed your business. Under such circumstances, you can use mergers and acquisitions as a fallback plan to address the downfall of organic growth. Inorganic growth of a company is growth realized as a result of mergers and acquisitions.

• Companies like Trade Kings and National Milling are more inclined towards organic growth than inorganic growth.
• In fact, our studies show that high-growth firms are 75 percent more likely to have a highly-focused niche.
• However, the benefits and growth opportunities of strategic alliances may be limited, as compared to the opportunities that an acquisition may offer.
• Moreover, this increases the delivery time due to traffic, leading to more costs, as costs increase as the delivery time increases.
• Organic growth is a much faster process compared to inorganic growth.
• Vertical integration is when a company acquires ownership of another company in its production line.

M&A activity is like dominoes—once companies in an industry begin merging, it puts the heat on all the other companies to grow more quickly than is organically possible, or they may be left behind. Competitor’s influx of resources and business may allow them to lower prices or employ other tactics to steal market share, making it more difficult for smaller companies in the industry to grow. Businesses that rely on organic growth often find that they lack the resources to continue to grow in a way that allows them to achieve their goals.

Integrations

M&A is also disruptive to the core operations of all the companies involved, particularly in the early phases of integration right after the transaction has closed. The best differentiators address the needs and concerns of the prospective client. These include provable claims about how your unique services or expertise can specifically benefit the client.

A further option is to expand the number of distribution channels, for example by selling through retailers, an online store, and a catalog. Business growth refers to the increase in a company’s size, revenue, market share, and profitability over time. This can be achieved through a variety of means, including expanding into new markets, developing new products or services, and increasing sales. Firms can choose to grow inorganically in several ways including mergers, acquisitions, and in the case of retail or branch organizations, new store/branch openings. Acquisitions can be accretive to earnings, but the implementation of the technology or knowledge acquired can take time. In other words, pulling the value out of mergers and acquisitions is harder than taking credit for sales.

Organic vs Inorganic Growth – And Becoming the Acquisition Target

Like virtually every other type of business dealing, there are multiple flavors of M&As, and rarely are two cases exactly alike. Understand that “mergers” and “acquisitions” have different meanings, but these two terms are grouped together as an umbrella for any number of business transactions. When making a choice between organic growth and inorganic growth, inorganic growth meaning managers must also consider speed. Therefore if a firm wants to enter a market segment faster then it must pursue inorganic growth. This should have been one of the reasons why Zambeef acquired Master Pork as it was a faster way of entering the pork segment of the food industry. Organic growth is the increase in internally-generated sales of a business.