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Organic growth is the growth model generally used by many of companies,it is a kind of corporate business growing method which the firm utilizes and integrates the internal resources and capitals, businesses providing and improving the quality of products,sales,service standards, and to expand the marketing share and gain more clients, focus more on the innovation and production effectiveness and efficiency improvement. These practices are transferred back to the natural increase of sale revenue and profits to firm, without resorting to borrowing or acquisition of other firmsï¿½ï¿½because these transactions do not result in profits/sales generated within the companyï¿½ï¿½so that is not considered as the organic growth.
Organic growth commits to the improvement of customer satisfaction, employee participation, and the profit increasing ability of certain core business and activity, is the growth progressing through the innovation, introducing the new products and services and increasing new clients as expansion of core activities. In a word, the organic growth is the business increase by using the internal capital to set the internal investment stimulating the growth; it also includes setting the new business in other marketing segmentation to acquire the benefits.(Three growth models.2009)
It represents the true growth for the core of the company, based on the operating expertise of management rather than on the financial processes of the merger market. It indicates that how well managers have implemented their executive and managerial skills and integrated the organizational resources to expand profits, create the value for business and shareholders.
Organic growth is normally achieved through consistent growth of revenues, profits as the financial metrics, as well as customer satisfaction metrics, product quality metrics, logistics and supply chain metrics,assets,internal investment to develop a new product, entry new market or the development of a unique business model. Developing and implementing a new unique business model that are able to have a more effective or quick growth than competitors. It brings the significant advantages without the much over invested.(Enterprise Growth Strategy.2010)
The Boston Beer Company has organically grown over the past 5 years while it had a decline on sales in that time. This brewery focused on the developing the specialty beers. The company developed a new segmented approach as niche. The company launched the new beer collections:Brewmaster's Collection, and the Imperial Series and Barrel Room Collection, in order to save the situation of its core offering as Samuel Adams Lager & Sam Adams Light, which was declining in sales quarter after quarter, and also grabbing the light beer market segment as well. This business mode has brought the company achieved the strong growth in niche segments. This was aided by the implementation of 2 different organizational structures: they did the massive production run for the core offering and the limited-production run for the new collections as niche, at the industrial level. For advertising strategies, the traditional advertising approach practised for the core offering, and the segmented advertising for the collections for the new collections. Since 2001,the core offering has grown by 4% annually, and has contributed up to 25% of the entire growth of firm. While the new collections significantly contributed nearly 75% of the growth.(See Table 1 in Appendix)
Company also can expanding the range of product:while the company is mainly concentrating on the sale of a good product,whatever how much the profits the product has brought,it is still the opportunity to introduce the other products which relates to the main product.It may gain the more wild market or going more deeply,being popular.For example:the main product of Apple was the iMac computer with its related software products.Apple later started the business of the entertainment market,selling the iPod,based on the online music and application service of iTunes,Apple then has stimulated the business of iPhone and iPad,also has created the good and positive application developer and customer base,as the good ecologic society of business.
Organic growth tends to be slower in generating results directly but it could be more cheaper with less cost, more stable, the management more in control, reducing institutional risk. Itï¿½ï¿½s less cultural and adaptation problems and is usually less visible in the event of failure. It is a kind of self-development for organization, without any effects from outside such as acquisition or external investment. The organization has to utilize its own internal resources and abilities to perform its strength, and being fully responsible to its development. For company itself, it is normally doing the expansion of production, new services providing, new market entry, the completely unique research and development for the certain new product.etc.During these transitional processes, the company has to carefully and slowly adapt the any different problems and contradiction when the new field in company growing internally, to solve and eliminate that and having the progress in same time. The organic growth the company is doing internally is the core fact of growth of company, it is as the real and independent growth, without the restriction or controlling linked to external parties once they are existing with the negative situation in business, finally the organic growth is less risk to company, although it is growing slowly, but extremely steady and strongly. (Three growth models.2009)
Unlike the many of car markers which always purchase other smaller car markers and component markers to integrate the production,for example the Ford has acquired the Aston Martin,Jaguar,Land Rover,Lincoln,Mazda;or other incorporated car marker such as GM Auto,Volkswagen,FIAT.The car maker of Toyota and Honda is expanding and increasing business through consistently releasing the new model of car,with the new popular and advanced technologies applied.They don't much acquire and buy any related partner's share,that could be the completely organic growth.Although it is cost and time consuming,but it generates the core and typical model of products and own special technologies,as the their own competitiveness.With no potential liabilities or other crisis caused by purchase of other entities,such as the potential and endangered cash flow,the whole companies may have a significant loss even going to bankrupt during the coming financial and economic recession.In the financial crisis 2008,the 3 largest car makers,GM,Ford and Chrysler were applied the bankruptcy protection.How ever there was no any huge affects to some Japanese car makers except Mazda.Especially the Toyota has surpassed the GM then became the 1st car maker in world.
In contrast,the concept of the growth strategy opposite the organic growth is inorganic growth,is also known as the external growth,while a company is attending the merger,acquistion,takeover to other companies for eliminate the competitor or in order to enhance its competitive advantages and growth rate.Beside that,the other form of inorganic growth includs the joint venture,business alliance etc.Acquiring or merging a company that doesn't mean a definitely successful growth or expansion although it could be seen growing fast,but in fact this kind also growth is not so steady.Either the acquiring strategy of company or the acquired company could have the affect on the entire business operation and development,it's not so simple for those business conductors and with the high risks. Recent studies by McKinsey & Co showed that about 60% of all acquisitions failed to generate a return in excess of the costs of acquisition.About 17% covered costs and 23% were successful.In addition various studies have shown that 30-45% of companies acquired were later sold at a loss.(Enterprise Growth Strategy.2010)
It is expensive to have a purchase of other company,it may weaken the current cash flow of company,make the cash being unavailable during a period of time.Once the company is suddenly facing the financial crisis that will need the certain amount of cash to save the situation,the company will be easily broken down,because the shortage of available cash.If the company have the enough cash flow,but in order to prevent any negative situation of company resulted in the happening of sudden financial crisis,the cash has to be prepared that cannot be any move.So that the company is not able to join or invest any financial projects otherwise the financial situation of company is not being so stable,risk will be increased.Without the ability of doing other financial projects,it will significantly limited the space of potential development of business,is not good for the long term growing strategy of company.Once the company has to borrow external capital to purchase other businesses,it increases the total company's debt burden,that's the pressure added on the company finance.For example,when Dell Computers acquired Alienware in 2006,it created news,as it was a deviance from from Dell's historical organic growth strategy.In 2007 Dell acquired 5 companies in a span of 4 mounths.The chanaging market conditions and reduced PC sales made Dell rethink its ideas towards growth without sacrificing their strategy of customer-driven innovation.
There is also the issue about the retention of the employees.When the company has acquired another company,including the number of employees of the acquired company who is performing the similar work with the parent company.The parent company commonly fire the excess employees to reduce the operation cost if there is too many workers doing the similar tasks.It will make the employee of company more concern about their future layoff that is possible to be coming,they will not concentrate on the work,or many of them will start looking for other jobs or quit the company once the acquisition plan is announced.
If 2 companies are merged together which the 2 companies are totally different from the corporate culture or operating,working style,this leads the significant problem of the incompatible cultural integration,and the total productivity will be much decreased.For example:a company is the hierarchical and authoritarian style of operation,once it acquires a company which is more flexible in its structure,and workers are allowed to control over their tasks.The purchaser may redesign the working regulation to the acquired company,control the staffs more over them,tighten their activities,the workers feel uncomfortable and unhappy with the purchaser,later there will be the incompatibility appearing across the company.The 2 types of employees will not be well coordinated and cannot work toward to common direction,it directly negatively affects the productivity of company.Particularly those companies internationally acquiring businesses,the culture is more difficultly to mix and integrate.
Some of the sellers may have the hidden liabilities,and these results including the some certain facts of seller's financial or sales numbers or the profitability that are misrepresented to the purchaser because the seller's is hopping to be sold. It brings the potential terrible disaster to the purchaser. The purchase may cause the problem by the negative reputation the buyer or seller may have,such as the bad quality of product,or affected by the intangible assets like the brand awareness and strength,goodwill,that is added on the total price the purchaser has paid to seller.For example:If an oil firm have purchased the sustainable environment business company making the solar panel.The oil firm is responsible for a significant oil spill accident,the goodwill of the solar panel maker will be hugely and negatively decreased,as an important assets is indirectly destroyed.
Lenovo has been growing very rapidly since it merged the PC business of IBM,it seems as the very successful merger case within the 10 years of the new century.But now it is still the very debatable case because its acquisition strategy.On the strategy factor,initially Lenovo would achieve the profitability through saving the operating cost and expense of IBM which was originally extremely high.But the issue of IBM's PC is that the products and the business model are actually hardly to generate sale revenue.Because the rare of revenue,the high expense ratio has been caused,led to the loss of business,so that it doesn't relating the point of saving expense.With the wrong strategy,Lenovo was concentrating on the saving money,never thought to change the business mode to generate revenue.After merger,Lenovo was always laying off employees,still remaining the high expense ratio,and only little increase of revenue.Although Lenovo and McKinsey & Co,Goldman Sachs have set over 100 pre-arranged plans including almost every situation that may happen during or after merger,that are all tactical plans,good tactical results are not enable to save the strategic issues.
According to the advices from McKinsey & Co,Lenovo raised the salary for some of executives to international standards,but did do any change of salary to the middle level managers and most of staffs.In order to help the corporate integration after the merger,Lenovo sent some excellent managers to overseas,but their high salary was lower than the US standard of IBM,even lower than the IBM's room cleaner.These managers were not well coodrnated to perform the good missison.On the other hand,the IBM staffs are hostile to those Chinese represents and did the non-cooperation.However the IBM's staffs were lack of good support from China HQ,finally these highly skilled IBM's staffs all left the Lenovo.Lenovo has lost the precious human intelligent assets casued by the incompatibility and discrepancy across corporate and social cultures of staffs.And the leadership of Lenovo was also disturbed and had become mess while many of pre IBM's executives has joined the board of Lenovo,and appointed their own choices of managers,that led the discordant within the board,and part of important leadership such as HR,finance was over controlled by those foreign executives until the founder Liu's back.
Other external growth methods such as the partnership,joint venture and the business alliances,they are also not the ideal growing strategies,and partnering with other business partners could be challenging.It is the time consuming,much time and effort will be taken to build the right relationship.
The objectives of the venture are not totally clear and communicated to everyone involved.The common objectives may not be very clearly identified and recognized,lack of communication among the jointed business partners could finally in both of you focusing on different projects instead of one common goal.Mistrust when collaborating in competitively sensitive areas and the raise of coordination costs that will also be appeared.There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners.The workload canï¿½ï¿½t be evenly distributed if one person has too much expertise and others have very little. Besides, if something happens to the ï¿½ï¿½expertï¿½ï¿½ and no one else knows what is going on your project will come to a grinding halt.
Different cultures and management styles result in poor integration and cooperation.If the both corporate culture and the management style among partnering companies are totally different, it has a difficult time integrating the different parts of the project when theyï¿½ï¿½re completed.That's the language and cultural barriers.(Strategic Management.2009)
Partners may not provide enough leadership and support in the early stages.Usually one partner ends up depending on the other to provide leadership to the teams. This may lead to burnout if youï¿½ï¿½re the one stuck with all the work.
So that the joint venture and business alliances are usually ealing with diverse or conflicting operating practices,conflicting objectives, strategies, corporate values, and ethical standards,and
Dealing with conflicting objectives, strategies, corporate values, and ethical standards and long term depending on essential expertise of other partners.The company will lose its core competitiveness.Much being depended on the partners,loss the independency of business.(Strategic Management.2009)
Partnership that links many companies work together,commonly share their working efforts and results,there would be no such business secret of business competitiveness for one corporate.The entire work activities finally is easily to be dominated by the one core partner,is negative for all members of partnership,and cause the unfair facts.
For example:Google has given the licence of installing the Android OS to many of mobile phone and tablet makers such as Sansung,LG,HTC,MOTOROLA,and many middle and small makers.These makers all are willing to use Android to make phones selling to market.The Android having the same function,same screen and customer experiences,cannot be clearly differentiated except not using the Android OS. The price of phone components level is currently becoming more and more lower,then the unit price of phone is also declining,it will not bring the good revenue to those phone makers.So these phone makers is losing their core competitiveness and finally Google could become the only winner in the battle of smartphone market.Even the mobile phone sector of MOTOLORA has been fully merged by Google.
Nokia would rise second time through the partnership with Microsoft which Nokia is authorized to use the Windows Phone OS into their phone.When HTC got the authorization of using Window Phone OS from Microsoft in Sep.2012,it reveals that Nokia lost the privilege as the only phone maker using WP OS,so competitive factor of Nokia is rivaled by HTC.Even the situation of WP OS could be turned to be similar with Android.
Organic growth is pursuing the sustainable development of business,which is also should be concerned as the priority.Sustainable development once the company has achieved or followed,it will well influence the future growth of company,and help company to have the vast and diversified potential situations including the opportunities and challenges,or even to face crisis because the much enough business,sales,strong flow,0 liabilities,and lot of excellent employees that all formed during the business procedure of sustainable development,company could achieve the strong and healthy activities to adapt and catch any changes.It is the healthy model of business,growing steadily,slowly,looking forward growth in future but without the any risks commonly results in other external growth of business,that's safe,better than any other external growth presently,is the preferred growth strategy for company.