3.2.3 organic growth

Question 1

organic growth definition

Answer 1

a business growth strategy that involves a business growing gradually using its own resources

Question 2

organic growth:

Answer 2

• Achieved naturally by selling more of its products and reinvesting the profit to expand into new areas.
• Takes time to develop and grow a business using own resources.
• Safe strategy, expanding the business by developing current expertise and ‘doing more of the same

Question 3

methods of growing organically:

Answer 3

• new customers: new customers may be found by exploring new distribution channels e.g. restaurants joining with uber-eats in order to deliver foods to different customers
• new research: a commitment to research and development and innovation may lead to the creation of new products. Businesses could also identify customers with slightly different needs and adapt existing products to meet those needs.
• new markets: Pursuing a new market, principally in a different location and possibly even overseas. This is known as geographic expansion.
• franchising: By becoming a franchisor, a business can sell the licensing rights to individuals or companies to
  trade under its brand using the goods or services it provides. This is an effective way to grow
  without having to necessarily increase the number of stores, locations or employees.
  -new business model: This might involve changing how a business sells its products (moving from being a retailer to an etailer and vice versa) or changing how customers access products or developing the brand image. Developments in technology may give rise to this change.

Question 4

advantages of organic growth

Answer 4

+ Can maintain current management style,
culture and ethics of the business.
+ The use of external sources of finance may not be required. Expansion is usually financed using retained profit.
+ Because external finance is not required, growing organically is cheaper than inorganic growth.
+ Greater chance of promotion for employees

Question 5

disadvantage of organic growth

Answer 5

• It can take a long time to grow a business organically and it can take a while for the business to adapt to big changes in the market.
• If the chance to maximise profit is just a small window in time, a business that takes too long to grow large enough to maximise sales in that
  time will miss out.
• Doing the same thing, or not changing direction radically, can lead to a lack of new challenges for staff.