Enterprise Growth Strategies
What the domain tests
Routes and types of growth, the Ansoff matrix, integration, external growth methods such as mergers, franchising and licensing, and the challenges of scaling.
Meaning and direction
Growth is an increase in scale, scope or reach. Organic (internal) growth comes from within - more customers, new products, new outlets. Inorganic (external) growth comes from combining with or acquiring other firms. Expansion broadens existing operations; diversification moves into new products and new markets.
Ansoff matrix
- Market penetration: existing product, existing market.
- Market development: existing product, new market.
- Product development: new product, existing market.
- Diversification: new product, new market - related or unrelated.
Integration
Horizontal (same stage, same industry, often a competitor), vertical (backward towards supply, forward towards distribution), conglomerate (unrelated businesses).
External routes
Merger (firms combine, often into a new entity), acquisition or takeover (one buys control of another), joint venture (shared new entity), strategic alliance (cooperation without equity), franchising (franchisor licenses brand and system for fee and royalty), licensing (rights to intellectual property), exporting.
Growth stages and limits
Start-up → growth → maturity → renewal or decline. Watch cash flow, quality control, culture dilution, managerial capacity and diseconomies of scale.
Worked example
A bakery with loyal local customers wants growth. A new outlet in a nearby city is existing product plus new market = market development. A gluten-free cake line for current customers is product development. Launching cafés selling meals in a new city would be diversification - new product and new market, and the riskiest option.
Traps
- Calling diversification product development - diversification needs a new market too.
- Confusing merger with acquisition; in a merger neither firm is simply absorbed.
- Confusing vertical with horizontal integration.
- Treating franchising as equity finance; it is a growth route that generates fees and royalties.
- Assuming growth is always good; diseconomies and cash strain can follow.