A LevelBusinessEdexcelRevision Notes3. Business Decisions & Strategy3.2 Business Growth3.2.3 Organic Growth

Organic Growth (Edexcel A Level Business)

Revision Note

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Steve Vorster

Expertise

Economics & Business Subject Lead

Organic Business Growth

  • Organic growth is growth that is driven by internal expansion using reinvested profits or loans
     
  • Organic growth (internal) is usually generated by
    • gaining greater market share
    • product diversification
    • opening a new store
    • International expansion
    • investing in new technology/production machinery

  • Firms will often grow organically to the point where they are in a financial position to integrate with others
    • Integration speeds up growth but also creates new challenges
       

An Explanation of the Advantages & Disadvantages of Organic Growth


Advantages
Disadvantages

  • The pace of growth is manageable
  • Less risky as growth is financed by profits and there is expertise in the industry
  • Avoids diseconomies of scale
  • The management knows & understands every part of the business

  • The pace of growth can be slow and frustrating
  • Not necessarily able to benefit from economies of scale
  • Access to finance may be limited

 

  • Ansoff's Matrix (see sub-topic 3.1.2) is a strategic planning tool that helps businesses identify potential organic growth opportunities by analysing their product and market strategies
      

3-1-2-ansoffs-strategic-matrix

The Ansoff Matrix considers the firm's product and market strategy

 

  • The matrix consists of four growth strategies - market penetration, market development, product development, and diversification
     

Examples of Organic Growth Using Ansoff's Matrix


Business
Example

Apple

  • Market Development
    Apple expanded into new markets by opening its stores in new countries, such as China and India, and by partnering with telecom providers to sell its products. This helped them to organically increase their market share, sales revenue and profitability

Google

  • Product Development
    Google introduced new products such as Google Drive and Google Maps to complement its search engine and advertising businesses. This helped them to organically increase their market penetration, sales revenue and profitability

Disney

  • Diversification
    Disney has diversified into several areas such as theme parks, cruise lines, television networks, and movie studios. The brand strength has helped them to organically increase market penetration in each of these markets resulting in higher sales revenue and profitability

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    Steve Vorster

    Author: Steve Vorster

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.