Difference Between Organic and Inorganic Business Growth

Edited by Diffzy | Updated on: September 12, 2023

       

Difference Between Organic and Inorganic Business Growth

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Introduction

Be it a living organism or a thriving business - growth is vital for survival. For a business, growth is important for increased revenue, profits, and sales. In business, growth can be achieved by employing different ways. Depending upon the means and strategies exercised by the company, business growth can be Organic or Inorganic.

However, the sustainability and longevity of a thriving business are determined by the approach used for obtaining the goals. Thereby, a business can boom by utilizing its internal resources or by expanding its horizon by shaking hands with other businesses.

Organic vs. Inorganic Business Growth

Organic Business Growth refers to the growth of a business achieved by focusing on its internal resources. The company relies on the power and value of its own to generate maximum output. However, organic business growth does not happen as quickly. Although growth occurs gradually, it is impactful and sustainable in the long run.

Inorganic Business Growth refers to the growth of a business by employing mergers or acquisitions. Eventually, it leads to the expansion of the company by taking new resources into account. Although Inorganic Business Growth is quicker in effect, it is not as sustainable as Organic Business Growth. 

Difference Between Organic and Inorganic Business Growth in Tabular Form

ParametersOrganic Business GrowthInorganic Business Growth
DefinitionOrganic Business Growth is the growth achieved using internal resources.Inorganic Business Growth is an expansion of business achieved using mergers and acquisitions.
EffectMore effectiveLess effective
SustainabilityMore sustainableLess sustainable
TimeLong term processShort term process
CostCheapExpensive
Output rateA slow increase in output rateThe swift increase in output rate
RiskLess riskMore risk
FocusFocuses on existing productsFocuses on new products obtained through the acquisition
Financial StabilityLess cashMore cash
ImportanceNecessary for primary growthNecessary for steady growth
Diversification of MarketComparatively difficultComparatively easier
Management issuesLesser management issuesGreater management issues
Profit sharingThe owner receives the whole profitProfit is divided among shareholders

What is Organic Business Growth?

The term “organic” stands for something that comes from within, naturally. Organic Business Growth is more fixated on increasing sales, efficiency, and profit margins by utilizing internal resources. The company emphasizes improving internal Research and Development (R&D) to increase revenue.

Further, the strategies exercised by the company primarily rely on internal resources. The company does not borrow to increase its revenue. The growth here mainly depends on the existing resources and products of the company.

In addition, the already tight-knit relationships among members of the company pose a low risk of cultural differences. Also, the environment, along with the existing employees of the company, is already established. Hence, the primary and sole focus of Organic Business Growth is to maximize revenue and profits by making the most of existing resources.

For a company to become alluring enough in the market, sustainability is the key. If a company can withstand the business market tornadoes, it will always be tempting for interested businesses. Although the step-by-step growth of a business is a slow and tedious process, the benefits prevail for a longer period. 

Besides, a solid business plan is a prerequisite for the company to endure unpredictable changes in the market. The company must have a business model pushing the employees towards one direction - to achieve a common goal.

Types of Organic Business Growth

Since Organic business growth depends primarily on internal resources, there are many methods by which the efficiency of the business can be improved. The company has to offer strategies that will help reduce costs along with maximizing revenue.

Some of the methods adopted in Organic Business Growth are:

Increasing Sales Revenue

A sale at a greater level cannot be achieved without effective marketing strategies at a greater level. In organic business growth, a company encourages its employees to come up with new methods of marketing and sales.

A company can generate a non-existing market segment in its line of work. Simply speaking, the company creates a need for a product and then works on selling that product. Subsequently, the sales of a product increase.

Further, a company can explore the areas that are not covered by it at that time. The employees make a conscious effort to investigate new geographical areas. Along with an effective marketing strategy and a good product, a new market can be generated. Thereafter, the revenue increases.

Cost-cutting

Another method commonly utilized by companies is to reduce ongoing costs to achieve profit. For example, working from home allows employees to work from the comfort of their homes. At the same time, remote working proves to be a reduction in cost for the company since the office expenditure is significantly lower. Thus, the employee can work efficiently in their comfort without posing additional costs to the company. Also, the current trend of shared office space helps in cost-cutting.

Additionally, the location of the company also helps in cost-cutting. For instance, transportation costs can be decreased if the company or plant is closer to its area of delivery.

Improving Operational Efficiency

A company will be able to survive using Organic business growth if it succeeds in maintaining the positive operational efficiency of its resources. The employees can be trained periodically to keep them in touch with the goals and objectives of the company.

Besides, training also helps in refreshing and providing new ideas about the ongoing project. Therefore, to increase the profit margins, a company needs to keep on par with the operations to tackle the competition.

What is Inorganic Business Growth?

Inorganic business Growth is the kind of growth in which the business grows by merging and acquisition. A company can acquire new locations, new products, or new business strategies for moving further. New strategic alliances are formed for all the companies involved to generate revenue.

For example, a company already selling one product can form a merger with another and launch new products. Furthermore, a company operating at one location can open new outlets or stores in another location. As a result, there is an increase in the total profits generated.

Following, the profits are divided among the shareholders. The success achieved through inorganic business growth is fast as takes place through transactions. Inevitably, the spending capacity of the company increases. Plus, there is an increase in cash flow acquired through acquisition. A company can merge with or acquire an already established business, thereby increasing the profit.

Additionally, an influx of fresh resources, personnel, and expertise results in bringing a new perspective to the company in a merger. Hence, novel business models and strategies are employed by the involved companies. The company further heads in a new direction, achieving new accomplishments.

However, in Inorganic Business Growth, the company has to be careful in maintaining and working with the newly acquired resources. As the atmosphere changes, there is always a chance for the development of cultural differences. Therefore, proper management is a must for the business to achieve optimistic growth.

Types of Inorganic Business Growth

 Inorganic Business Growth is a fast method of increasing the sales revenue and profits of a company. The company works on acquiring new resources and products rather than working on existing resources. Just like organic business growth, it also applies different ways to help the business achieve maximum potential.

Some of the methods adopted in Organic Business Growth are:

Mergers

One of the most effective strategies in Inorganic Business Growth is - Mergers. Here, different companies merge to establish their products in the market. For example, the ketchup company H.J. Heinz Co and Kraft Food Group came together in the market to establish Kraft Heinz Company. Subsequently, they emerged as global leaders in the food and beverage industry.

Although both the brands had an established market, to accomplish greater revenue and profits. Therefore, a merger can save a brand from reaching a stage of saturation. The profit is divided among the stakeholders accordingly.

Acquisitions

Basically, acquisition is a process where one company purchases another, thereby taking complete control over the business. Following this, the market shares of the company experience a push. Eventually, an increase in revenue and profit is observed.

For example, the market share of Facebook increased upon acquiring Instagram. The acquisition led to Facebook accessing new technology and bases. As a result, both Instagram and Facebook experienced further increases in popularity. Subsequently, the profit and revenue grew manifold, pushing both businesses to a new zenith.

Strategic alliances

In this type of Inorganic Business Growth, an alliance is formed between two or more companies. However, the term of this alliance is decided upon by the involved parties. The term can be short or long-term, depending upon the need. Both small and big businesses can benefit from forming strategic alliances.

One of the outstanding examples of strategic alliances is - Starbucks and Target. It was formed in 1999 and is still in existence. As per the alliance, the Target stores serve the famous Starbucks coffee to customers while they are shopping. Subsequently, both Starbucks and Target can generate high revenues.

Joint Ventures

In this Inorganic Business Growth, different companies emerge together as an enterprise or organization. The profits earned and losses incurred are divided among the participating entities according to the shareholding ratio.

For example, in 2001, Sony and Ericson formed a Joint Venture by the name Sony Ericson. As a result, Sony Ericson went on to emerge as one of the leading producers of mobile phones. However, in 2012, Sony acquired the shares of Ericson, thus establishing Sony Mobile Communications.

Main Differences Between Organic and Inorganic Business Growth (in Points)

  • Organic business growth fixates on utilizing the maximum potential of internal resources, whereas inorganic business growth involves acquiring and merging with other companies.
  • The cash influx is greater in inorganic business growth than organic business growth since it involves multiple transactions.
  • The output achieved in Organic business growth takes more time to reach its utmost potential. Conversely, inorganic business growth generates revenue and profits at a faster rate. The primary reason is the merging of two or more companies that already have an established brand image in the market.
  • Organic business growth involves lesser risk of management issues since the company is already acquainted with the working procedures. However, in Inorganic business growth, the addition of new employees and strategies runs a risk of cultural differences. Therefore, management at a critical level is necessary.
  • Organic business growth is usually fruitful at a primary level to establish the brand in the market. On the other hand, inorganic business growth is crucial to saving a product from saturation.
  • The inorganic business growth mainly strives towards an increase in output along with cost reductions. Opposite to it, organic business growth pursues improving the R&D of the company.
  • Since R&D involves high investment, the cost is higher in Organic business growth as compared to Inorganic business growth.
  • The management of organic business growth has complete control over the team. However, since mergers occur in inorganic business growth, different owners have to work cordially in order to achieve growth.
  • The profit is not shared in Organic business growth as there is only one owner of the single company. On the other hand, inorganic business growth involves several shareholders. Therefore, the profit is distributed depending on the shares.

Conclusion

The growth and maintenance of business require constant strategies and work. For a business to stay afloat, new methods are utilized by companies accordingly. Organic business growth is employed for businesses like start-ups since the product image needs to be set. Therefore, the company focuses on creating a brand image and works effectively on making it a household name. 

However, once the brand image is established, steady growth is required. Usually, after a while, the product saturation occurs. To avoid this, mergers and acquisitions take place. The brand re-establishes itself along with the new products it has to offer.

In concussion, both organic and inorganic business growth is vital to a company. The requirement, however, depends on different factors. Besides, both types of growth have their pros and cons. After careful consideration, the companies adopt methods that work best for the business.


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"Difference Between Organic and Inorganic Business Growth." Diffzy.com, 2024. Mon. 10 Jun. 2024. <https://www.diffzy.com/article/difference-between-organic-and-inorganic-business-growth>.



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