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A business that is not growing after all, is dying."
- Shawn Casemore
We all know that businesses want to grow. But did you know that companies can grow in more ways than one? And that some ways are faster than the other? Read along to find out about the different business strategies and how they differ from each other.
Business growth is the process through which an organisation expands and makes profits.
Business growth can be organic or inorganic. It is one of the most common objectives in business, as it helps the business increase sales, widen the product offering, increase overall revenue, strengthen the market position and so on.
Business growth is brought about in a company by adopting different business strategies depending on the business’s aim.
The business growth strategies can be categorised as organic and inorganic growth.
When an expansion happens from within a business, it is called organic growth. It is the increase in the number of business units, expansion in the product range etc.
The organic growth strategy depends on the company’s resources and capabilities. The following are the most common organic business strategies:
New product offerings
Reallocation of resources
Investing in new technologies
Process optimization
Organic growth ensures owners of their company’s control. This is a much slower process compared to inorganic growth.
Advantages of organic growth:
Internally financed
Lower risks (as compared to inorganic growth)
Company growth at a reasonable rate
Build according to the company’s strengths
Disadvantages of organic growth:
Slow process
Growth depends on market growth
Difficult for companies with franchises to manage them.
Inorganic growth or external growth is a faster way for companies to grow and this happens mainly through mergers and acquisitions.
Acquisitions increase market share and boost a company’s earnings. Opening new stores and branches are also part of inorganic growth.
Advantages of inorganic growth:
Faster growth process
More market share and assets
More attractive for financial investors
More skilled management and their expertise
Disadvantages of inorganic growth:
Loss of control from owners
Need for more coordination and control
Corporate cultural changes
Large up-front costs
Examples of organic growth:
Poundland in the UK has adopted an organic business growth strategy. They focused on opening new stores in different locations to grow their business.
The popular toy brand LEGO has also grown organically through product innovation, which has helped them increase their revenue.
A1 Engineering solutions, Affiliate squared, and Alquity UK is a few companies in the UK that have grown organically.
Examples of inorganic growth:
The acquisition of Careem - a Dubai based vehicle for hire company - by the American mobility company Uber is an example of inorganic growth.
One of the most popular examples of inorganic growth is the acquisition of WhatsApp by Facebook.
A business growth goes through different stages and each stage has crises associated with it. Functions in a rapidly growing company may not be as smooth as it was before and managers may not be as efficient as they were before, as their span of control and responsibility increases. Greiner’s model helps in understanding the root cause of crises that an organisation may face during its growth phase. Understanding the model helps to foresee a problem before it occurs, helping organisations to take the required measures.
This model was proposed by Larry E. Greiner in 1972 with five phases of growth, which he then updated in 1998 with the sixth phase (see Figure 1 below). The six phases are:
Growth through creativity
Growth through direction
Growth through delegation
Growth through coordination
Growth through collaboration
Growth through alliances
Figure 1. Greiner's Growth Model, StudySmarter
In this phase, there aren’t many staff, and the founders are busy innovating new products and trying to enter new markets. Informal communication works just fine during this stage. As the company starts to grow, the number of staff increases, and the workload increases, there is a need for formal communication and a change in management style is required. This phase ends with a leadership crisis.
Now, there is more formal communication in the workplace. The activities become more intense and numerous, making it difficult for them to be managed by one person. This phase ends with an autonomy crisis, calling for new structures based on delegation.
The autonomy crisis is solved in this phase, and the company now has functional management. Having functional management means having the organisation grouped into areas of speciality to better manage each functional sector. This helps reduce chaos in the company, as each manager can take necessary and well-informed actions in their departments. The problem arises when the founder or the entrepreneur finds it hard to pass their control to the newly assigned managers. This leads to a control crisis.
Coordination is important for a company facing a control crisis. It helps bring together every functional area and ensures efficiency. This process adds many layers of hierarchy to the system, increasing bureaucracy and leading to a red-tape crisis.
Collaboration helps in simplifying and standardizing formal systems. Managers and employees are given more educational training programs. Collaboration helps with acquiring more resources such as different marketing channels, various products and services, etc. During the collaboration phase, companies experiment with new technologies and processes which cause changes within the company’s people and their practices. This phase results in an internal growth crisis.
This phase is the latest addition to Greiner’s growth model. This phase shows that companies facing an internal growth crisis can be saved by strong strategic alliances to form growth strategies. It also suggests the option of acquiring another company for expanding or growing the organisation. This is the last phase of the model.
There are many types of growth in a business and they include:
Vertical integration
Horizontal integration
Conglomerate integration
Vertical integration is when a company acquires ownership of another company in its production line.
This saves money and time and increases efficiency. Figure 2 shows how vertical integration can be forward or backwards.
Backwards vertical integration - acquisition of ownership of companies up the supply chain. When a company expands to perform tasks previously performed by companies that supplied raw materials for production is called backwards vertical integration. This occurs when the company realises that it is better off in terms of time and money to source raw materials themselves rather than outsourcing the job. Companies can either merge or acquire their suppliers, or have their own subsidiary for the task.
Forward vertical integration - company strategy wherein the company owns and acquires operations of businesses ahead in the supply chain. In a forward vertical integration, the company distributes and sells its products to customers directly, rather than having a third party do it. Forward integration can also be done either by merging, acquiring or by having a subsidiary for the task.
Figure 2. Vertical Integration, StudySmarter
Horizontal integration is the acquisition or merging of companies operating at the same level in the same industry.
It creates economies of scale, increases product differentiation, increases revenue, and helps companies enter into new markets. Companies in horizontal integration benefit from synergies.
Synergy occurs when the combined value of two companies becomes greater than the value of the two separate companies operating individually.
Although horizontal integration is beneficial for the company, it can lead to joblessness, and changes in the business can have a negative impact on customers. Another drawback is that purchasing another company can be expensive. Figure 3 outlines how horizontal integration works.
Figure 3. Horizontal Integration, StudySmarter
The process of companies from different market sectors merging together is known as conglomerate integration.
An investment banking company such as HSBC merged with Vodafone, a telecommunications brand.
This strategy helps spread the risk across several markets and helps target new markets. The newly acquired market brings in more customers and revenue. The acquiring company can learn the know-how of the acquired company, and also acquire its customers. Take a look at Figure 4 for a visual reference.
If the acquiring company does not have enough knowledge to run the newly acquired business, this could hurt both companies' business activities. Another drawback is having to share expertise and resources while entering into new markets, which could hurt the core activities of the acquiring company.
Figure 4. Conglomerate Integration, StudySmarter
These are the different ways in which companies grow. Next time you hear about a business expansion, it might be interesting to analyse and understand what type of growth strategy the company has adopted.
Vertical integration is when a company acquires ownership of another company in its production line.
Horizontal integration is the acquisition or merging of companies operating at the same level in the same industry.
The process of companies from different market sectors merging together are known as conglomerate integration.
Business growth is the process through which an organisation expands and makes profits. Business growth can be organic or inorganic.
The business growth strategies can be categorised as organic and inorganic growth. Organic growth is when an expansion happens from within a business. It is the increase in the number of business units, expansion in the product range etc. Inorganic growth or external growth is a faster way for companies to grow and this happens mainly through mergers and acquisitions.
Growth is important for a business to survive. Growth strategies are what help a business enter new markets, offer new products and services, invest in new technology, and so on. Business growth also facilitates more employment due to the need for more staff within a growing business.
The business growth model has six phases, and they are as follows:
1. Growth through creativity
informal communication
number of staff increases, and the workload increases
change in management style is required
phase ends with a Leadership Crisis
2. Growth through direction
formal communication in the workplace
phase ends with an Autonomy Crisis
3. Growth through delegation
functional management
leads to a Control Crisis
4. Growth through coordination
adds many layers of hierarchy to the system
increasing the bureaucracy
leads to a Red-tape Crisis
5. Growth through collaboration
simplifying and standardizing the formal systems
managers and employees are given more educational training programs
acquire more resources
companies experiment with new technologies and processes
results in an Internal Growth Crisis
6. Growth through alliances
strong strategic alliances to form growth strategies.
option of acquiring another company
The types of business growth include:
Vertical integration (forward and backwards)
Horizontal integration
Conglomerate integration.
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