Difference Between Organic and Inorganic Business Growth (With Table)

Organic and inorganic business growths are the two types of growth rates expressed in the expansion of business. It could either be done within a company or by expanding the business wings outside to different markets.

In both cases the growth depends on the way it is carried out, hence depending on a great mind, which could be an individual or a team.

Organic vs Inorganic Business Growth

The difference between organic and inorganic business growths is that while organic growth stays within a company or business outlet where they grow the business through efforts such as increasing the investment to create a greater output, inorganic business growth is all about gathering other business units and merging or acquisition.

Organic business growth is self-made growth. In other words, it is the growth of the company on its capabilities and boundaries. The company sees no need in withdrawal of funds invested within it while a hike in the amount of money input is seen. This is done keeping in mind that a greater output would be produced, be it in the form of products or services.

Inorganic business growth is more like constructing an empire. Where a single company or a business unit expands its growth by buying up smaller companies or joining hands with other business units. This leads to a massive increment in the brick and mortar structures that the company owns.

Comparison Table Between Organic and Inorganic Business Growth

Parameters of ComparisonOrganic Business Growth  Inorganic Business Growth  
OwnershipIt allows the owners to keep complete control of their company.The ownership might be diluted owing to merging with other units.
Growth rateSlower due to self-investment.Faster as the business expands with acquisitions.
Risk factorsLessMore since investments outside can cause loss.
Market presenceLimited and stays within the company.Greater
ManpowerIt is only up to the company’s requirements.Increases as the company grow in a diversifying manner over regions.

What is Organic Business Growth?

Organic business growth indicates a system wherein the company utilizes its resources to the best of its capacity without facing a demand to burrow or accept money from an outside source.

This could be done in multiple forms such as increasing the sales to the clients who remain a company favorite. This might have a lesser monetary expense because a minimal increase in productivity is needed.

Another way of organic growth is by increasing the company’s reach. This means, using the existing social media to the company’s benefit. This requires the company to have more trained professionals in this field.

Investing in the company’s productivity can show a massive difference in the long run.

By investing in the output, the company needs to spend more on the types of equipment used and make an increase in the working personnel.

The company needs to prioritize its funds. By allocating the funds in the right way that is by managing and understanding the sectors.

These sectors are the ones that need more attention to detail thereby converging the monetary values of the lesser needed sectors towards the one that needs attention.

Though organic growth can take a long time to grow, in the long run, it would come out to be a boon, for the power of the company stays concentrated on the owner. It doesn’t dwindle.

What is Inorganic Business Growth?

Inorganic business growth leads to a massive expansion of the initial company. This includes more of playing out in the field, that is merging, acquisition or takeover.

These are the three main ways inorganic growth takes place.

When a company can’t grow on its own based on its capital, and then they partner up with another company, usually one which is in a similar situation.

Thus, these two companies now merge, pooling the resources and hence expanding growth.

But merging has its demerits. The ownership would be diluted, and they become equal partners sharing the gain.

Acquisition and take over are more or less the same. This occurs, when a company buys another one to expand their growth and in turn increase the profit with initial capital investment.

This take-over could happen keeping in mind many elements. One reason could be to diversify the company’s reigning regions.

Another could be an attempt at increasing the manpower under the company, to create job opportunities.

Major companies usually buy up small-scale units at a very low price value, owing to the livelihood difficulties faced by the small traders.

Inorganic growth includes investment in equipment, manpower, and buildings.

Main Differences Between Organic and Inorganic Business Growth

  1. While in organic business growth the company invests within itself, inorganic business growth has a more expanding nature where they buy up smaller ventures or merge themselves to increase their profits. 
  2. Organic business growth tends to be slower due to the self-investing nature, where they have to wait for the results to show. Whereas in inorganic business growth, the growth rate is comparatively faster as the companies look for instant growth by merging and takeovers. 
  3. Organic growth gives a major advantage over inorganic growth as there is no need in bringing the employees up to date with the running of the company and its procedures, while in inorganic, due to an inflow of new employees, they have to give training and directions to get them going with company’s regulations.
  4. Organic growth paves way for lower risk as the investments and money transfers occur within the company when compared to inorganic, possessing more risk including money laundering and cheating.
  5. Organic growth is cheaper when compared to inorganic business growth.

Conclusion

Both organic and inorganic business growths have their fair share of pros and cons. In the end, the result depends on the implementation of the growth rate.

Companies usually prefer a mixture of both organic and inorganic business growths, as depending on a single one might lead to unexpected loss and a financial burden on the company.

Sometimes organic growth is preferred by small scale units and inorganic by larger companies.

The strategies adopted by a company can weave itself to fit together and make sure that both the growth rates move side by side.

On a more precise note, organic growth is more preferable due to its safer nature, be it in the case of money or ownership. Having the company in one’s control may lead to a more clear view of business ideals.

References

  1. https://www.sciencedirect.com/science/article/pii/S0929119917302122
  2. https://www.emerald.com/insight/content/doi/10.1016/S1074-7540(06)09007-6/full/html
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