Business Growth: Meaning, Examples & Strategies | StudySmarter

Imagine a small bakery that sells homemade cupcakes. The owner of the bakery decides to expand the business by opening a second location in a nearby town. This new location attracts new customers and helps to increase the bakery’s overall revenue and profitability. As a result, the bakery is able to invest in new equipment, hire more employees, and expand its menu to include new items.

Business growth refers to the increase in a company’s size, revenue , market share, and profitability over time. This can be achieved through a variety of means, including expanding into new markets, developing new products or services, and increasing sales.

Business growth is the process of making a business bigger and more successful over time. This can be achieved in a number of ways, such as increasing sales, expanding into new markets, or developing new products or services.

We all know that businesses want to grow. But did you know that companies can grow in more ways than one? And that some ways are faster than the other? Read along to find out about the different business strategies and how they differ from each other.

These are the different ways in which companies grow. Next time you hear about a business expansion, it might be interesting to analyse and understand what type of growth strategy the company has adopted.

If the acquiring company does not have enough knowledge to run the newly acquired business, this could hurt both companies’ business activities. Another drawback is having to share expertise and resources while entering into new markets, which could hurt the core activities of the acquiring company.

This strategy helps spread the risk across several markets and helps target new markets. The newly acquired market brings in more customers and revenue. The acquiring company can learn the know-how of the acquired company, and also acquire its customers. Take a look at Figure 4 for a visual reference.

Although horizontal integration is beneficial for the company, it can lead to joblessness, and changes in the business can have a negative impact on customers. Another drawback is that purchasing another company can be expensive. Figure 3 outlines how horizontal integration works.

Synergy occurs when the combined value of two companies becomes greater than the value of the two separate companies operating individually.

Horizontal integration is the acquisition or merging of companies operating at the same level in the same industry.

Forward vertical integration – company strategy wherein the company owns and acquires operations of businesses ahead in the supply chain . In a forward vertical integration, the company distributes and sells its products to customers directly, rather than having a third party do it. Forward integration can also be done either by merging, acquiring or by having a subsidiary for the task.

Backwards vertical integration – acquisition of ownership of companies up the supply chain . When a company expands to perform tasks previously performed by companies that supplied raw materials for production is called backwards vertical integration. This occurs when the company realises that it is better off in terms of time and money to source raw materials themselves rather than outsourcing the job. Companies can either merge or acquire their suppliers, or have their own subsidiary for the task.

Inorganic growth or external growth happens mainly through mergers and acquisitions and is a faster way for companies to grow.

The organic growth strategy depends on the company’s resources and capabilities. The following are the most common organic business strategies:

Organic business growth happens when expansion happens from within the company. It is the increase in the number of business units, expansion in the product range etc.

There are several ways of classifying business growth. The two main types of business growth include organic and inorganic growth . The type of business growth chosen by the company will determine its business growth strategy.

Stages of Business Growth

A business growth goes through different stages and each stage has crises associated with it. Functions in a rapidly growing company may not be as smooth as it was before and managers may not be as efficient as they were before, as their span of control and responsibility increases. Greiner’s model helps in understanding the root cause of crises that an organisation may face during its growth phase. Understanding the model helps to foresee a problem before it occurs, helping organisations to take the required measures.

This model was proposed by Larry E. Greiner in 1972 with five phases of growth, which he then updated in 1998 with the sixth phase (see Figure 1 below). The six phases are:

• Growth through creativity

• Growth through direction

• Growth through delegation

• Growth through coordination

• Growth through collaboration

• Growth through alliances

Figure 1. Greiner’s Growth Model, StudySmarter

• Growth through creativity

In this phase, there aren’t many staff, and the founders are busy innovating new products and trying to enter new markets. Informal communication works just fine during this stage. As the company starts to grow, the number of staff increases, and the workload increases, there is a need for formal communication and a change in management style is required. This phase ends with a leadership crisis.

• Growth through direction

Now, there is more formal communication in the workplace. The activities become more intense and numerous, making it difficult for them to be managed by one person. This phase ends with an autonomy crisis, calling for new structures based on delegation.

• Growth through delegation

The autonomy crisis is solved in this phase, and the company now has functional management. Having functional management means having the organisation grouped into areas of speciality to better manage each functional sector. This helps reduce chaos in the company, as each manager can take necessary and well-informed actions in their departments. The problem arises when the founder or the entrepreneur finds it hard to pass their control to the newly assigned managers. This leads to a control crisis.

• Growth through coordination

Coordination is important for a company facing a control crisis. It helps bring together every functional area and ensures efficiency. This process adds many layers of hierarchy to the system, increasing bureaucracy and leading to a red-tape crisis.

• Growth through collaboration

Collaboration helps in simplifying and standardizing formal systems. Managers and employees are given more educational training programs. Collaboration helps with acquiring more resources such as different marketing channels, various products and services, etc. During the collaboration phase, companies experiment with new technologies and processes which cause changes within the company’s people and their practices. This phase results in an internal growth crisis.

• Growth through alliances