10 Quick Ways to Drive Organic Growth

internal growth definition

This map allows the company to identify opportunities to increase market share as well as market development opportunities in sectors where the company already has knowledge and expertise. Alongside organic growth, IMI’s well targeted acquisitions strategy aids the achievement of its goal to be the market leader in the niche markets in which it operates.

These four strategies each leverage new or existing products or markets in order to help the company grow. In this case, they will need to determine if the new market fits their target market, or the population in which they want to sell their products and services. The product development option means that the company adds a new product into their current market. Otherwise, the company can diversify, which means entering a new market with a new product or service.

Another example of inorganic growth is IMI’s acquisition of InterAtiva in 2012, a Brazilian isolation valve business serving various end markets including oil and gas and water treatment. InterAtiva had strong customer relationships in Brazil so IMI has been able to increase its customer base and presence in this core emerging market. Inorganic, or external, growth is another method used to grow a business.

Explaining the Internal and External Growth of Businesses

The main sources of inorganic growth come from mergers and acquisitions with other businesses. An acquisition is where one company buys another company which it then controls.

If a company sells a business segment, the full duration of a comparison period must pass before organic sales are equal to total sales. Organic growth is more than just a concept or a goal for high-growth businesses – it’s a requirement. We strongly believe that as rates on P&C business continues to soften, and health insurance carriers continue to tweak broker compensation, agencies that have relied on market conditions to grow organically will be exposed. In any industry, it’s important that you’re growing organically, as mergers and acquisitions and cost-cutting can only help you grow to a certain extent.

internal growth definition

During a merger or acquisition, there’s typically restructuring of personnel and operations that occurs to manage the new volume of business. This can often mean layoffs, changes in the leadership team, and overall figuring out how to monitor more employees and assets. During organic growth, integration challenges or management/personnel changes are typically more gradual, which can feel more comfortable and natural for the internal culture. Since organic growth occurs in a relatively tighter-knit organization, management knows the company strategies and operations more intimately than an organization that has recently undergone a merger or acquisition. This means the company is typically able to adapt to changes in the marketplace more quickly.

For investors, it is important to be able to separate organic sales from sales that came from an external source. Organic sales figures will show how the company is faring with core operations from period to period. Portions of executive compensation may also be tied to organic sales performance. Management should not be rewarded for total sales growth if the company can merely ‘buy’ another company’s sales. One of the greatest benefits of a merger or acquisition is the increase in market share.

The strategy selected by the company will be determined by their goals and objectives, as well as the amount of money they have to invest. IMI seeks to maximise organic growth opportunities by focusing its innovative new products on the four growth drivers. IMI’s strategy for growth has seen increased investment in new product development, as well as sales, to increase exposure to the higher growth emerging markets. For example, IMI’s Severe Service division has experienced growth in emerging economies such as Argentina where its market-leading control valve technology gained new customers in the oil and gas industry. Using IMI’s technology, Pan American Energy eliminated high vibration and poor fluid control in its water injection control valves and pumps, avoiding expensive shutdowns and maintenance costs.

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What is internal and external growth?

Internal growth (or organic growth) is when a business expands its own operations by relying on developing its own internal resources and capabilities.

  • This map allows the company to identify opportunities to increase market share as well as market development opportunities in sectors where the company already has knowledge and expertise.
  • Alongside organic growth, IMI’s well targeted acquisitions strategy aids the achievement of its goal to be the market leader in the niche markets in which it operates.

These enabled IMI to become the leader in custom engineered valve and control solutions for critical in-plant processes. Both companies operated in power generation and oil and gas, industries in which IMI already had a wealth of expertise. They also gave IMI a strong presence in emerging markets, including South America and Asia, where Remosa, for example, was already highly active. Internal development refers to growth that happens when an organisation or company uses its own resources to grow the company. The main aim of internal development is to boost sales, increase efficiency, handle customers better and generally help in expanding the company.

External growth (or inorganic growth) strategies are about increasing output or business reach with the aid of resources and capabilities that are not internally developed by the company itself. Rather, these resources are obtained through the merger with/acquisition of or partnership with other companies. External growth strategies can therefore be divided between M&A (Mergers and Acquisitions) strategies and Strategic Alliance strategies (e.g. joint ventures).

Through inorganic growth, you are gaining the benefits of an entire company’s prior sales and relationships, which means you’re immediately gaining markets and clients that you otherwise may not have had access to. IMI focuses its acquisitions on companies that are complementary to its existing businesses and will help it achieve its mission and goal. This involves acquiring companies that are leaders in their respective fields to strengthen IMI’s market share. Two examples are IMI’s Severe Services platform acquisition of German industrial valve maker Zimmermann & Jansen in 2010 and the leading Italian engineering business Remosa in 2012.

Large companies in the consumer staples industry have matured to the point where growth through acquisition is an essential component of their business models. This “underlying sales growth” rate, as the company calls it, excluding the net effect of acquisitions and disposals. To further refine the organic sales number, the currency impact, which is applicable for firms selling in international markets, was stripped out to report in the home currency.

How Businesses Grow: Organic Growth

Carry out this strategy by lowering the price of a product or service, or by increasing marketing efforts to lure customers away from competitors. Organic growth is achieved by using your existing resources to expand your business. On the other hand, inorganic growth is done through mergers, acquisitions, and takeovers.

Organic sales are the product of the internal processes of a firm and are generated solely within the firm. Acquired sales, on the other hand, come from another business that a company has purchased. For the sake of simplicity, say a car parts manufacturer reports 4.5% sales growth for the year, 2.5% of which was contributed by a tuck-in acquisition that occurred in the reporting year. Once an acquisition is fully integrated into existing operations, sales from the acquired unit or business will then be counted as organic sales.

Mergers and Acquisitions

What is internal organic growth?

Internal growth or organic growth is when you use in-house operations to grow a firm. External or inorganic growth is when a firm engages in Mergers and acquisition to grow. This is often faster than building a product, technology, brand, considerable market-share or other competitive advantage from scratch.

Companies should use internal development strategies to develop sections like customer service, management, mentoring and assessment. Typically, the organic growth rate also excludes the impact of foreign exchange, and it can be negative. One common internal growth strategy is to increase the company’s market share for products the firm already sells, and there are several approaches to increase market share. If Acme can improve its marketing results, the company can sell more products without increasing expenses, and many firms build brand recognition to get better marketing outcomes. Growth through market penetration does not involve moving into new markets or creating new products; it’s an attempt to increase market share using your current products or services.