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Currently, every company is faced with strategic growth needs, in the fast moving business world, each organization must be flexible, each organization must adapt to a changing environment. There are two methods for organization growth, one is internal method -organic growth, and the other is external method which includes Merger, Acquisition, Joint venture strategy and franchise and so on. External method also means inorganic growth.
Organic growth represent real growth as the core company ", it is to use its internal resources of organization to increase profit. Use the efficiency of internal resources mainly depends on the manager's skills and knowledge.
Inorganic growth is not natural, this is not the company internal development, but from a merger or acquisition. It is fast ways to develop organization.
Each method has its advantage and disadvantage, the objective of this paper is to discuss why organic development might be the preferred strategic method for organizational growth
2. The definition of organic development
Organic growth is a straightforward mechanism for achieving business growth. The essential feature of organic growth is the reinvestment of the previous years' profit in the existing business, together with finance provided by shareholders(Thompson and Martin, 2005:242),
Organic growth mainly refers to the company through the increase production capacity and output of more products or service, so as to achieve growth. Traditionally, it is relative with mergers and acquisitions from output growth, nor accounting and exchange of income. In short, internal growth enterprise itself accumulated funds for internal investment for growth; it is also including the establishment of the department to explore new market benefit (O Reilly, Chatman, 1991:487).
John and James (1992:158) thought Organic Growth is the rate of a business expansion through a company's own business activity, while Inorganic Growth means that the company has grown by merger, acquisitions or takeovers. When a company with help of its efficient management enhances its growth rate it is referred to as organic growth which is also known as Internal Growth whereas inorganic
Organic growth is a business expansion speed through a company's business activities, When a company and help its efficient management improve its growth rate is called organic growth, also called internal growth.
For the organic development, the enterprise does not rely on mergers and acquisitions, but their own business growth and expand and obtain development
Terrence E. Deal and Allan A Kennedy (1982:248) argued the organic growth model is a quantitative view of expansion. In the simplest terms, it is the physical expansion of the plant, buildings and land. More assets are bought and utilized and inventory increases. This is what the average person thinks of when "economic growth" is mentioned - the actual, physical expansion of markets and capital. It is only one kind of growth, but it is the basis of strategic, or targeted, growth.
MechanisticÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Vs.Â Â Â Â Â Â Â Â Â Â Â Â Â Â Organic
Â Â Â Â Â Â (Bureaucracy)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (Similar to boundaryless)
Â - Extensive departmentalizationÂ Â Â Â Â Â Â Â - x-functional/x-hierarchical teams
- High formalization Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â -Â Low formalization
- Limited info network (>downward)Â - comprehensive info network (360)
- Centralized decision makingÂ Â Â Â Â Â Â Â Â Â Â Â Â - participativeÂ decision-making
Â Â Â Â Â Â Â (Efficient & stable)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (Flexible/change adaptable)
Innovation, single product line
Mass production, routine tasks, well-defined problems
Unit production, intensive technology (combining services tailored to customer), nonroutine tasks, ill-defined problems
Disturbed-reactive, turbulent field
3. The benefit of organic development
William Ouchi(1985:492) thought Organic growth result in the creation of sustainable competitive advantages since the firm's value-creating process and positions are less likely to be duplicated or imitated by other firms, it also provides managers with a better understanding of their own firm and assets, and internal investment is likely to be better planned and efficient.
For example: In the general conditions, the common towel factory of normal growth process like production technology curve, and the S curve shape. The growth of towel factory and has the competitive advantage, and a kind of new technology to introduce, mature to the other higher performance of the new technology substitution, followed by the ogee varicose law of development, have in the life cycle of similarity. Through the improvement of operations and management, improve the internal allocation of resources to enhance the effectiveness of towel factory in the towel in the market competition ability;
Organic growth through the internal potential, control costs, towel production equipment renewal and reconstruction, development of new towel products, develop new towel market, readjust the capital structure, raise the level of management, and other strategic and methods, which makes the towel factory economic benefits to sustained growth, make towel factory before entered into the mature period or recession obtain new vitality and avoid potential decline rapidly, prolong the life cycle of the towel factory.
In fact, if further control cost, raise the level of management, development of new towel products, readjusts the internal organizational structure can improve efficiency, in order to prolong the life of the towel factory. But, towel factory specific product towel market capacity is limited, specific product technology life is limited, specific towel factory capital structure will also achieve optimal pole, explain the internal expansion means effect is limited, the method is to fully excavate and make use of, can only make towel factory production and scale in certain capital structure and technical areas within the scope of specific to expansion. In other words, i Organic growth use again and again, can delay the arrival of a recession, essentially just from transverse (S shape curve of the time axis) extended towel factory life cycle,
4. The main pillars of organic growth
Organic growth strategies are built on four main pillars: revenue, headcount, PR, and quality (Hofstede, Neuijen, Ohayy, 1990:286)
Revenue is the lifeblood of any business. Without dollars flowing in, it is impossible to pay employees, suppliers and vendors.
As revenue grows, companies can afford to hire more employees. Headcount is critical for any growing business.
Public relations and advertising allow companies to get the word out about their products and services.
To successfully grow any enterprise, there needs to be a quality product. Organic growth relies on repeat business from satisfied customers.
5. Why organic development might be the preferred strategic method for organizational growth
5.1 Internal method
Organic development can take one or more of forms as the following:
Product development strategy
Product development strategy is to consider the improvement of existing products or develop new products in the existing market to expand sales strategy. For example, originally only produce cosmetics, now increases production washing supplies. Product development strategy is a kind of strategy, based on market ideas and social ideas, on the basis of existing market enterprises to provide new products to meet customer needs, increase sales (Denison, Mishra, 1995:204).
That is to say, the enterprise through the in the new region or foreign add new commercial network or using new distribution channel, strengthen advertising promotion and other measures, will existing products to expand, the promotion of the new market. For example, a product only in the city market sales, now decided to expand to the rural market (Byars, L. L. 1991:313)
Organic development has the more advantage as the following:
The enterprise can through their own values to expand the development, it reflects the after expanded the company's market share and absolute increase of wealth. This value lead enterprise staff's become an honor, and can become enterprise further development power.
The enterprise can through continuous change to create higher production and operation efficiency and benefit. Due to the growth development, the enterprise can obtain the past cannot obtain the new opportunity, avoid enterprise organization of aging, make the enterprise is full of vitality and vigor.
Growth-type strategy can keep the competitive power of enterprises, realize the specific competitive advantage. If rivals have take growth-type strategy, if enterprise is still in take stabilizing strategy, then it is likely to achieve competitive advantage in the future.
5.2 External method
Martin (2005:152) argued Merger refers to company transfer the ownership, one or more of the company's total assets and responsibility are all converted to another public company all. Asset and liability shall transfer and do not need to pass the liquidation, and accept the company's total assets and liability of another company still completely to the another company's name to continue running
Quickly into the host country of market and gain market share
Effective use of the merged enterprise related management resources
Fully enjoy the foreign direct investment financing convenience
Cheap to buy assets
Avoid political risk because of mergers means has "fast" characteristics, some multinational companies use mergers as capital flight to avoid political risk means.
Value evaluation difficulty, business enterprise assets often includes intangible assets such as goodwill, which endow the enterprise with higher than its material asset value. However, the intangible assets value but not as material asset value that can be more easily the use of digits to represent.
Enterprise scale and location problem, which is difficult to find a scale and location completely accords with the will of their target enterprise, especially in the enterprise market which is in the developing countries, this problem is especially prominent.
The original contract or traditional relationship bound, the existing enterprise often with its customer, supplier and worker have some existing contract relations or traditional relationship. after the merger, if end these relationships may be in public relations on a price
After the merger, integration work is difficult
Failure rate is higher; the original management system is not suitable for mergers and acquisitions request. Lack of experience
Martin (2005:152) argued Acquisition refers to investors buy another company part or all of the equity, to get this enterprise control behavior
1. the existing enterprise has already been established for time, may inform the customer the company qualifications is quite deep, relatively speaking to his credibility increase a point. Especially for financing loans and bidding enterprise, it is more shows its importance and necessity.
2, time for quick, 10-15 working days namely when all formalities, cost is relatively low, than bid for the new company to save a two layer.
3, according to purchase the meaning of the square, change company name, scope of business and other relevant matters.
Worry about former shareholders has debt problem left future trouble
3) Joint venture strategy
Martin (2005:152) argued Joint venture strategy refers to two or more than two independent business entity transverse joint to set up a business entity or enterprise group development strategy, it is the social economy develops to a certain stage of the inevitable form. The implementation of this strategy which is helpful to realize the enterprise resources effective combination and reasonable allocate, increase business capital scale, achieve complementary advantages, strengthen the collection competitiveness, accelerate the speed of development, and promote the economic development of the scale.
To improve enterprise and the external exchanges and expand business network
Which is helpful to realize the globalization management?
To reduce the management risk
Lack of control over technology, Inability to engage in global strategy, co-ordination, ability to realize location and curve economies, High costs and risks
Franchising is a business model, including a business owner licensed trademarks and methods for an independent entrepreneurs. Sometimes, a franchise is called chain
Help with site selection
Brand name and recognition in the marketplace
Training and support
Customized accounting system
Access to markets and suppliers
Up-front fees (substantial initial investment required)
Ongoing fees (usually royalty payment is a percentage of revenues)
Fees for marketing and related services
Restrictions on activities (you can only offer approved franchise products and services)
Monitoring (the franchisor monitors your books, bank accounts and operations)
Renewal requirements and fees
5.3 Compare organic growth with external method
The rapid success of Organic growth can save test management ability to sharing a common vision and delivery vision. The company continually emerged not only on financial indicators to measure success alone, but also must pay attention to other indicators such as customer satisfaction index, the product quality index, logistics and supply chain index, etc.
Martin (2005:152) argued Some typical features of enterprise believe organic growth advantage is:
Delivery ability, unique value proposition
Building brand and marketing channels, serve customers better
Discipline and attention growth strategy. Management is willing to take risks for they prepare and plan
Organizational efficiency part of the business
To conclude, both Organic and In -Organic Growth options offer intrinsic value in their own way and the choice is dependant on the market and industry scenario as well as the strategic vision of the business. In fact, a good management principle would be to use a combination of both methods to gain a steady growth pattern in the business. Using Organic Growth options for things which one does best, and using In-Organic growth measures for expanding the business potential is a potent mix when it comes to gearing up for growth.
Finally, organic and in organic growth options provide intrinsic value in their own way and choice depends on the market and industry scene as well as strategic business. In fact, a good management principle is to use the combination of two methods to get a stable growth pattern in the business. Using organic growth choose the most good at things, and used in organic growth measures to expand commercial potential is a kind of effective mixing about ready to growth.
For example: Sun Executive Vice President of Corporate Development and Alliances, Brian Sutphin, is of the opinion that In-Organic Growth is not necessarily in conflict with the organic growth. And he said, acquisition is to add organic growth, not as an alternative. They introduce talents and technology, is the "other place" and now can be integrated to enhance company performance.
Therefore, small company with lower risk ability should set up their presence in the market through organic growth way, finally should speed up their growth rate from strategic acquisitions once they have enough economic ability take risks, along with mergers and acquisitions.
Big companies on the other hand should allocate their investment ability in competitiveness between the inner investment and acquisition using faster growth option in the industry through the mergers, acquisitions in other markets and introducing new technology and talent, complement and strengthen their competitive position.
The enterprise must analysis the strategic planning period of the boom of macro economy and industrial economy. This is an enterprise growth-type strategy development the company decided to - enterprise should implement growth-type strategy, it is necessary to obtain them from the environment more resources. If the future stage macro environment and industry microscopic environment is good, the enterprise are more likely to win these resources, so reduce the implementation of the strategy cost. On the other hand, from the perspective of demand, if the macro and pointed environmental movements are more optimistic words, consumer goods demanders and investment demanders will have rational expectations; it believe that the future of income will be improved, so the demand amplitude will have corresponding growth to ensure that the enterprise growth development strategy needs enough. From the above analysis, we can see that in the choice before growth-type strategy must be to do more detailed analysis economic trends, the good economic situation is often one of the conditions of success in growth-type strategy.