Importance of Growth Strategy to Thrive in the Corporate World
“Growth is never by mere chance; it is the result of forces working together”.
- James Cash Penney
To thrive in the market, a company must craft its growth strategy skillfully and chart the path with poise and focus. The growth strategy helps the management identify various possibilities and choose the avenues of growth that will elevate them to the next stage of the company’s evolution. It is a process that every company follows in order to grow their business stronger and bigger. The company has to increase its revenues and strengthen other financial metrics; become a well established firm in the market.
Corporate growth strategy can be broadly in two dimensions - internal and external.
are largely for the company to chart its growth from within itself. For instance,a company grows by launching new products, expanding into new geographical markets, exporting, new distribution channels and franchising. A known example for internal growth would be Domino's Pizza, franchising their brand helped them grow in the market.
are largely for the company to chart its growth from forces outside its own business. For instance, taking over a competitor, mergers, acquiring a new supplier or customer company and forming joint ventures. An example of external expansion is TATA Motors taking over Land Rover and Jaguar in 2008.
There are always pros and cons of every strategy that a company follows. Internal growth strategy involves less risk, it is typically slow and steady in delivering results. This helps the company’s brand building and innovation processes.
On the contrary, in an external growth strategy, the risks involved are higher, the growth is faster, it is transformational in nature, usually used in mature or declining markets and helps the company acquire new technology, brands and other assets.
What are the risk factors involved?
In the fast expanding economies of today, adoption of growth strategies by business enterprises is a must for survival in the long-run. As growth entails risk, a growth strategy is the safest way to maximise gains and minimise the risk of inertia or inaction.
When an organization's internal development potential seems limited, executives regularly start to disregard or overlook their job in driving the company's internal agendas of increasing efficiency. After all a company’s internal development strategy is designed for each of its operating segments. Without unified oversight, internal development techniques can get divided and imperfect. This can be avoided by following a systematic approach of Coordination among the Operating Units, Driving the Growth Efforts Consistently, Avoiding the Blame Games and Establishing a Top-Down Growth Culture.
Talking about the external development strategies, there are various things that could go wrong. Some of them are failure in realising the synergy which was envisaged at the time of merger or acquisition. There could be cultural conflicts when a new company is acquired, mismatch in values and problems in integrating the management teams of different entities. Overconfidence and lack of due diligence while acquiring a new company can burden the acquirer with an unimaginably higher price than a company's fair value. When there are synergy conflicts, there will be impact on the overall profit of the combined entity thus resulting in failure. After acquisition, the company becomes a monopoly in the market and now the new company has to stay vigilant for new threats in the market. External growth is expensive and this makes a company rely on external sources for funds. Last but not the least, it takes longer to reap the benefits and profits due to restructuring and making organisational change a critical success factor.
Which strategy will work best for a company?
It's important to underline the fact that growth can be a disruptive force. It can affect every single aspect of your business and put pressure on your staff, resources and finances. This is why you need to plan carefully and ask yourself the critical question - is my business ready to grow
For every company the answer is different. Some companies would require a high leaning towards internal growth policy in order to develop and sustain in the market. Whereas in some situations, it is better to follow the external growth strategy to develop and move onto the next level. One needs to carry out extensive market research, study internal strengths and work out the financial benefits or the required investments for the growth strategy. Most importantly, one has to take the judgement call!