The External Growth Strategy Ikea Marketing Essay

Any given organization may comprise a number of different business, each operating in distinct markets and serving different customers. In today’s highly interdependent and competitive global economy, most companies have to face the challenge of growth. There are generally two main goals that a company anywhere in the world is driven for, to sustain its business. Firstly, it wants to be profitable, to record a return on invested capital that exceeds the cost of capital. Secondly, it wants to grow revenue (Chakravarthy and Lorange 2007). Most business organizations are constantly coping with the challenge of prospering and growing their businesses. Nevertheless, being a successful business enterpriser is when he/she can strategically sustain the smooth operation and drive significant growth of the company at the same time. Achievement of a long-term profitability implies market growth as an enterprise goal, because in order to increase profit, an enterprise must either grow market share or must improve its products and services in terms of quality, timeliness, or cost so as to derive more profits from the same market share. According by Giachett (2010), generally growth is measured in terms of increased revenue, profits or assets. Businesses can choose to build from their internal competencies, invest to create competitive advantages, differentiate and innovate in the product or service line or leverage upon the market, products and revenues of other companies through external competencies. Moreover, the company can also choose to grow externally, like merger and acquisition or alliances and so on. In numerous recent researches has shown that the organic is more preferred growth strategy. Therefore, the purpose of this essay is to critically discuss the above situation, or particularly to identify the advantages of organic over the external growth methods.

In the view of Griffin (2008), once the business strategy has been settled, next question for an organization is to find the way to achieve it. If projected growth rates are achievable within existing resources limitations, then internally achieved growth should a key area to build competences to way forward. Internal development sometimes referred as organic growth, this involves the organization builds on the business’s own resources and developing the capabilities it believes will be necessary to compete in a future (Henry 2008). It is an expansion from within a business by expanding the range of products and/or locations. With organic growth, the entrepreneur brings new resources together in an innovative combination to create new value. The success of an organic growth is measured through the revenue, profit, assets – how much the company has earned. The number of employees working, participating for an organization’s goals and an expansion of a business has achieved.

Organic growth present in different areas. First, the fundamental approach involves designing and developing new product ranges. People retire and product mature, so the company has to find a way to innovate itself, by launching new and an extensions of products (Kourdi 2009). Apple Inc. seems to be a good example of an excellent applied organic growth strategy. Over its 30 year existence, Apple Inc. is one of the world’s most successful and most recognizable companies. Growth at Apple is driven by a trend setting in innovation, focusing on the development and launch of new products like the iPad and iPhone. Success for its products has been shown which is most sought-after, and its retail stores are often crowded with customers (Malhotra 2007). Recently, the company has released their new range of products, including the latest trend for smartphone, iPhone 5. According by Forbes (2012), upon releasing the new iPhone 5, it helped for the company to rise in market share to more than $620 billion, becoming the most valuable company in a history. The customers are ready to queue up long lines in front of the Apple store waiting to become one of the first to try the phone. A unique confluence of leadership, talent, strategy, and technology has brought Apple extraordinary success and raises the question of how relevant a model the company can be for others as they chart their own innovation course. In result, by capitalizing on new and emerging trends, Apple has managed to maintain its competitive advantage among the competitors.

Secondly, the other approach of organic growth involves implementing marketing plans to launch existing or new products/service line directly into new markets. It is to target the product or service to various types of market sectors. This is similarly how Singapore Airline Group has applied for itself, by obtaining high class and budget airline services. For the passengers who wants to have an extra personalized service and for the business class a 5-star Singapore Airlines are being offered. Meanwhile, for the passengers who just want to get to destination with an affordable amount to their pocket, they can choose a newly established low-cost subsidiary carrier for medium and long-haul routes – Scoot Airline. According to Nieman and Pretoruis (2004), existing product ranges are priced or differentiated in ways designed to appeal to different niches. In a highly competitive sector the requirement is to broaden the appeal of the offering in question in relation to those of the other players. Therefore, upon introducing of the new budget airline, Singapore Airlines has promised to keep their price range to be competitive. By offering the price lower than 40 percent to compare with the price of regular airlines (CNN 2011).

Furthermore, the new market also includes entering into a new geographical area. To illustrate, IKEA is a Swedish highly successful organically grown business. Established since 1940s, until today it become a global business with stores can be found worldwide. Building upon success in its home market in earlier years of establishment, IKEA expanded rapidly to the other continentals later on. It is done by the direct establishment of their new outlets, on the new business locations domestically and overseas. By 2009, there are more than 300 stores in 38 countries owned IKEA (Kourdi 2009). Consequently, it has implied the growth by expansion of the organization’s activities (organically) from its home base.

Thirdly, all the organically high-growth companies are focused on high employee engagement with high employee loyalty, and high productivity (Hess 2007). The opportunities are given, allow the employees to promote primary from within. For instances, seventy-six percent of Wal-Mart store managers started from their part-time positions. For employees are also give the power of ownership on the job, to allow for autonomy on their decision making. With that, the company is able to retain their employee’s commitment to their jobs and build a better culture on the work. Wal-Mart also has aggressive diversity program and a world class diversity training program, employees are being paid will above minimum wage (Hess 2007). Its culture is to treat employee with respect and dignity, which reflected in their very diverse team. By understanding the value of their employees, the company has created a positive entrepreneurial environment that meets employees’ basic needs, and as result, high employee’s engagement and consistent high performance. The company has implied the social contract – you take care of the company and the company will take care of you. As a result of successfully promoted culture and employee management, Wal-Mart, to day, can still remain to be as a family owned company and the largest private employer with commitment of over two million employees.

Lastly, another approach in organic growth strategy is to prevent the failure when the company is struggling (Nieman and Pretorius 2004). Turnaround is difficult to achieve and even more so in case of micro and very small businesses. The smaller the business, the more involved is the owner or shareholder of the business and often it is found that the entrepreneur is part of the problems responsible for the slip along the failure side. Turnaround requires that strategies must be developed for re-engineering or downsizing.

In the view of Kourdi (2009), growing organically may be slow process. It requires a patience, application and strong, focused leadership to keep the strategy on course and maintain a support for it. He also added it may take a time to develop the new product to gain a competitive advantage to be distinctive from the rivals and a time to gain profit from it to expand the business. Overall, it may be a slow process, but in generally it being considered as a lower risk than the alternative strategies like acquisition or joint-venture.

Regarding to studies by Hess (2007), the growth generated internally frequently results in better returns on investment, stock value improvement, lower employee turnover and other numerous benefits to compare with the externally growth strategies give those companies a corporate macro stability.

The external growth strategy is defined as the company relies on establishing relationships with third parties, with other businesses (Campbell, Stronehouse and Houston 2002). It includes merger and acquisitions, joint-ventures and alliances, franchising and licensing. The companies that implied the external growth strategy are more likely have a clash in a corporate culture. Many employees have the same need for the autonomy, respect, and control over their work lives as entrepreneurs. Unfortunately, the reason for them to leave their jobs from those companies is commonly from lack of autonomy are given when comes to decision making (Hess and Kazanjian 2006). Those companies with the high employee turnover are usually costly, time consuming to hire and train their new employees continuously. When a long-time employee leaves a company, he or she takes long valuable knowledge about the job and company that has accumulated over time. It is also the reason of making the deep employee-customer relationship more difficult. To a service-oriented business, it is especially poisonous because it highly depends on retaining customers and attracting new ones.

Viewing external growth methods, many companies may consider merger and acquisition for a variety of possible reasons, but the most underlying reason in the majority of cases it is probably that of gaining time. The study of Kourdi (2009) has stated that it is one of the fastest routes to growth, but also one of the hardest and riskiest. According by Young (2003), through merger and acquisition, the company may be able to obtain recourses; it will be either facilities or people with unique skills and knowledge which could not be duplicated. An acquisition can enable the company to reach its objectives economically. The acquired company may have developed a product line or manufacturing facility in the past at far lower presently prevail, or more recently costs than y costly trial-and-error. However, when a company wants to consider the growth through merger and acquisition, the disadvantages they may obtain should be seriously observed. Besides, many merger companies may have possibility of serious personal frictions, and purchase of a bad reputation, and introduction of an undesirable union (Young 2003). The newly created company goes bankrupt, executives are fired, and in some cases, the merged companies disband in a sort of corporate divorce.

A bad example has shown in merger failure is what occurred between Sprint and Nextel Communications. These two companies believed that merging opposite ends of a market’s spectrum – personal cell phones and home service from Sprint, and business, infrastructure and transportation market from Nextel – would create one big happy communication family, for only $35 billion (Cummings and Worley 2009). Besides, in the time of merger announcement, Sprint and Nextel were the third and fifth leading providers in the United States mobile phone industry, respectively. But soon after the merger, the family did not stay together long. Claiming that the two cultures could not get along, Nextel executives and managers left the new company in droves. At the same time, the economy started to take a turn for the worse, and customers (private and business alike) expected more and more from their providers. Competition from AT&T, Verizon, and the iPhone drove down sales, and Sprint/Nextel began lay-offs. Its stocks plummeted, and for all those involved, the merger clearly failed (Ireland, Hoskisson and Hitt 2008). Learning from failure, Sprint was unable to achieve an effective integration of Nextel into its operation after the acquisition. The approach used by Sprint’s management to implement the acquisition caused by many problems and led to a major decline in customer service. As a result, the company lost many customers and began to experience the financial losses. The firm has lost almost all of the value obtained in the acquisition. Thus, the poor integration has resulted in a substantial challenge for the managers as well as for the whole unit corporation.

Turning to another method, strategic alliances and joint-ventures are when two or more companies collaborate together, working toward some common purposes (Goldman and Neuwenhuizen 2006). These two strategies have a both advantages and disadvantages. For example, they can quickly entry to the market by taking advantage of existing market strengths of the participant. It also can be an effective way to access to technology or raw materials. Meanwhile, considering their disadvantages, there is likelihood that a company might lose the proprietary of information, partial loss of decision autonomy and obtaining the risk of being dependent on its partner. The relationship may not be win-win between partners, one member of the alliance may benefit substantially more than the other. More importantly, a member of the alliance may “steal” partner’s customers, especially if the company is a direct competitor (Griffin 2008). For instance, in 2001 as the Internet exploded, Borders decided to form a strategic alliance with Amazon.com, rather than operate its own web site. Any consumer who typed in the Borders.com URL was re-directed to a site containing Amazon’s logo and book selection. As a result of entering into the alliance with Amazon, Borders completely relinquished its own online branding by losing the customers to Amazon (……..). This proved to have fatal consequences.

The disadvantages that have been stated from the above external methods seem not to be reflected in the companies that developing organically. According to Kourdi (2009), growth can be achieved quickly and unexpectedly, but in order to be sustained, a co-ordinated plan of action is needed among business functions such as marketing, production, finance and human resources. Implying the growth organically is preferred because it also less risky, than taking over other businesses for a company, alliances or other external methods. Organic growth gives an organization total control over the process of development and relies on the experience and expertise within the firm, which allows the business to grow at a more sensible rate. The operation of an organization can be financed through internal funds of a company. As well, it builds on a business’ strength through the effective marketing efforts of a brand, as well as efforts to enhance reputation in the marketplace in terms of value proposition to the customers to gain their loyalty commitment.

In the view of Roll (2006), the organic growth choice of strategy allows the companies to grow their brand portfolios without leveraging the equity of any other brands. They own full management control over their brands. To illustrate, SYSCO has grown organically since its year of its formation, 1969. The management control over the brand has been strong through the entire life cycle of a brand, leading to lucrative balance between brand promise and brand delivery. The company is well known for the largest wholesaler in marketing and distributing food products to restaurants, healthcare and educational facilities, hotels and inns, and other foodservice and hospitality businesses. SYSCO sells annually over $30 billion of food, related products, and services to over 400,000 customers through 157 separate profit centers which employ in total 46,000 employees (Hess 2007).

In regards of Hess and Kazanjian (2006) research, SYSCO salespersons are also taking pride of playing an important role in the company’s success. Three times a week, every one of them visits his or her customer while developing the friendships with their customers, who are usually food establishment owners or chefs. And they feel a sense of responsibility to help them succeed. They go so far as to bus tables or wait on customers if the need arises. Considering the case of SYSCO and other high-performing organic growth companies, the critical lesson they have learned to do is to create a positive entrepreneurial environment that meets employees’ basic needs. As a result, they have high employee engagement and consistent high performance. High employee satisfaction leads to high customer satisfaction, which leads to profit.

Organic development is a basic growth and it is a foundation of any other businesses. A newly established company has to develop their product or service line to gain their uniqueness and to survive in a battle among the numerous rival companies. And the more importance is to grow their revenue. Without dollars flowing in, the company will not able to buy over other businesses or step into alliances, if they are deciding to grow their business externally. A new established company is not popular enough attract for franchising or licensing. Growing revenue allows for the effective functioning of the other three pillars. Without cash coming into a business, employees cannot be hired and advertising budgets become strapped.

As revenue grows, a company can afford to hire more employees and a bigger budget for an advertisement to promote the brand to attract the skillful employees to work with and gain more customers. Organic growth is highly recommended for an uncertain and geopolitical environment that is happening nowadays. Even the big companies which gave gone through the variety of acquisition, franchising or joint-ventures have experienced an organic growth and still remain to use it as irreplaceable in their strategic development.

To sum up, the organic growth is the growth achieved through a commitment to customer satisfaction, employee engagement, and core profitability of a company’s success. It is a smart long-term strategy for any company and represents the underlying strength and vitality of the core business. Effective marketing can contribute to a firm’s organic growth through better anticipation of market opportunities and calibration of risks, a tighter linkage of technological possibilities with market concepts, faster adjustments to shifting market needs and competitive moves, and winning and retaining customers. Other than that, all the high-growth companies have a high management and employee retention, high employee loyalty, and high employee productivity as compared with their competition. Being successful its mean, how to keep and continue to develop the distinctiveness among the rivals.