We're now going to learn about the nature of organic growth and we'll
take a look at four different ways in which you can achieve it.
Okay so let's now have a look at organic growth: when
it's most likely, what it is, and how it basically happens.
Achieving organic growth means that you are going to have to
look for the instances under which organic growth is most likely.
It's especially likely, it's especially prevalent, it's the
chosen mode of growth during the early stages of
a firm when you are still trying to
build new markets and new products are being developed.
It's also often safer than in-organic, meaning
it's externally generating growth, because it might
be more difficult to acquire and to
integrate other existing businesses into an existing company.
It's also slower typically than in-organic growth, right?
So you can't just double the size of your company just by
buying another firm, so organic growth simply takes a lot of time
to achieve.
Organic growth can be achieved by either acquiring
new customers, so you simply grow your consumer base,
you increase the sales of existing products and services.
You introduce new products and services.
And you move into new geographic markets and you diversify.
So these are basically four different modes of organic growth.
Right?
So either grow your existing consumer
base, you introduce new products and services.
You move into new markets.
Or you diversify into completely different businesses.
So to classify this we are going to have
a look at Igor Ansoff's matrix of markets and products.
So Strategy A in this case, Strategy A of
organic growth, would be to protect and to build.
This is looking at an existing market
and selling existing products.
So you consolidate and you stabilize your position.
You leverage existing resources and capabilities.
So whatever you can do well you're going to do more
of and you penetrate the market that you're already active in.
So that would be the protect strategy or the building strategy.
Strategy B which is looking at existing markets
but introducing new products is simply product development.
So, again, you're using existing competences and markets.
You introduce new competencies, i.e.
introduce new products.
And this is going to mean it's
automatically a higher risk, than in Strategy A.
So in Strategy A you are relying on what you already can do.
In strategy B, product development, you have to introduce
something new, which might work or it might not work.
Market development is looking at new markets, but with existing products.
This is looking at new segments of the market, looking at new territories, i.e.
you have to try to internationalize or geographically diversify.
And you're trying to achieve new uses for your existing products.
This is of course a good strategy if the core competencies are product related.
So if you are very good at producing particular
kind of product or you're very good at delivering one
special kind of service, then this strategy works very well
because you're simply leveraging the existing competencies into new markets.
Of course again it's a higher risk strategy
than strategy A, the protect or build strategy.
Now finally lets look at the last strategy, diversification.
This of course means that you going into new markets with new products.
This looks beyond current expectations, beyond of what you can currently expect.
It basically means that both your product and the market development, the market
that you want to be active in, lie outside the firm's core competencies.
So you're really going out on the limb here.
It's definitely going to be riskier than all the existing strategies.
And however, it may reduce overall business portfolio risk,
if you are successful in the new market
with a new product because
the fluctuations are going to be less
linked to the existing success of your other products.
So let's just look at a couple of examples here.
Diversification would be product-related horizontal diversification.
The strategy is going to be based on brand loyalty.
So for example, Montblanc pens and sunglasses.
So you're looking into new markets and a new product but at the
same time the existing brand is going to be leveraged to a large extent.
You could also diversify in terms of process or technology related activities.
So the strategy here is based on product categorization.
For example Bosch and it's selection of household appliances, they repeatedly
entered new markets with new products but at the same time they used technology
related and process diversification.
Another strategy is simply an unrelated or conglomerate diversification.
So this strategy is based on having
a product portfolio that's as broad as possible.
Examples would be the Tata Group of
India, the Virgin Group founded by Richard Branson.
These basically are active in businesses that
have very little to do with each other.
Great, so what's keeping us from implementing our expansion program?
Well there are a couple of limitations.
And find out what they are and how you can overcome them in the next video.