Organisational growth
Business objectives
Businesses have many and varied objectives, however,
they are often related to the following:
 Survival
 Profit
 Growth
 Providing a service
Reasons for growth
Benefits associated with growth include:
 Economies of scale (lower average unit costs)
 Increased sales and profits
 Greater power through increased market share
 Security from spreading financial risk
Measuring growth
The size of an organisation can be measured in many
ways. For example, through:
 Market share
 Volume of sales
 Profits made
 Company value
 Number of employees
Methods of growth
 Organic (internal growth)
 Increased sales from...
New customers in existing markets
 New markets
 New product lines

 Inorganic (external growth)
 Acquisitions
 Mergers
Organic growth
 Organic (internal) growth is when a firm grows from
within
 Profits may have been re-invested to increase
capacity e.g. the building of new stores
 Sales increase through:



Selling to more customers in existing markets
Finding new markets
Launching new products
Organic growth
Advantages of organic growth
Disadvantages of organic growth
•Less expensive than inorganic growth
•Can be very slow
•Less risky than inorganic growth
•Growth may be limited
•Can be better planned for
•Easier to control
•Maintains existing culture and
management styles
Inorganic growth
Inorganic growth occurs when firms join together,
either through:
 Merger – businesses agree to join together
 Takeover/acquisition – one firm takes control of
another by buying at least 51% of shares
Integration
Inorganic growth occurs through integration:
 Horizontal integration

Firms are in the same industry and the same stage of production e.g.
two car manufacturers join together
 Backwards vertical integration
 A firm takes over a supplier e.g. car manufacturer takes over a
windscreen supplier
 Forwards vertical integration
 A firm takes over a customer e.g. car manufacturer merges with a
sales dealership
 Conglomerate integration (diversification)
 Integration occurs between firms in unrelated industries e.g. car
manufacturer joins with a bakery
Inorganic growth
Advantages of inorganic growth
Disadvantages of inorganic growth
•Can occur more quickly than organic
growth
•More expensive than organic growth
•Firms can benefit from a greater pool of
skills and experience
•Customers, sales, assets and market
position are acquired immediately
•Difficult to combine different
organisational cultures and management
styles
•Possibility of diseconomies of scale
•Greater risk
•Reduces competition
•Difficult to control
Problems associated with growth
As firms grow they may experience diseconomies of
scale (increased average costs).
The reasons for this include:
 Lack of co-ordination
 Diminished motivation
 Ineffective communication
 Slow decision making
Scale of production
Firms cannot always produce at the most efficient level
of output. The scale of production will depend on:
 Level of demand for products/services offered
 The number of competitors in the market
 The aims and objectives of the organisation