Let’s start by defining inorganic growth. I’m defining it as increasing an organization’s revenues, and ultimately profits, by change. This last word–change–is the key, as we are trying to achieve growth by doing business differently, by shaking things up, by thinking outside the box of our current models and processes, by growing revenues through means other than what the organization is currently employing. We VPs of Corporate Development are, by nature, disruptive.
In my reading and thinking I’ve come up with four principle categories of inorganic growth:
Product change; inorganic growth may come from creating new products or from adding new capabilities and features which allow us to charge more money for the products we have. In this case the words product and service can be used interchangeably. While coming up with new products and features in radical new directions isn’t off the table, we most likely would attempt to leverage a current position or advantage we hold already, e.g. an accounting software company rolling out a new cash management module, or a computer hardware manufacturer introducing a new line of peripherals.
Market change; inorganic growth might also come from entering markets that we’ve not played in before, either industry-wise or geographically. Again, the preferred move into new markets would likely leverage current positioning. A software company selling to the manufacturing industry might start looking at the supply chain and logistics markets. Why make a sudden bold (read: risky) move to Asia when a growing segment of your client base has offices or subsidiaries in Canada and South America?
Process change; inorganic growth can possibly be found in changing the current business processes. A company that’s still selling on the old models of cold calling and direct mail (if any still survive, that is) might experience dramatic business growth by changing their marketing investments to SEO and social marketing. A logistics company could see dramatic improvements in efficiencies and profits by upgrading their supply chain management system or implementing RFID.
Business acquisition, i.e. combining companies through mergers and acquisitions (good ole M&A); perhaps the most common way those of us working in corporate development are tasked with inorganic growth is to grow the business by buying other businesses or driving strategic alliances in the form of either mergers or partnerships. This makes most sense (in the context of inorganic growth) when the costs of client acquisition given current processes exceed the costs of client acquisition by M&A.
For the next few blogs I’ll dig into some details on each of these, hopefully hiliting some relevant examples along the way.
If you have some other perspectives on achieving inorganic growth, let me know…and Happy Friday the 13th!