Investing in Scalable and Sustainable Business Growth
Published by HRCap, Inc. on July 24, 2024
Every business, whether big or small, progresses through a series of stages known as the business life cycle: startup, growth, maturity, and decline or renewal. As companies reach the maturity stage, the focus shifts from rapid expansion to sustaining growth and enhancing stability. At this point, companies can consider either organic or inorganic growth strategies.
Organic growth is a type of growth that a company can achieve by increasing and enhancing sales through the utilization of its own resources. This is different from inorganic growth from mergers or acquisitions. Organic growth strategies are often decisions made by a company’s management team, which may include cost-cutting measures, internal research and development of new products and services, investing in existing products or service offerings, or operational improvements via organizational restructuring.
3 Key Organic Growth Strategies
The three key strategies of organic growth are process optimization, resource reallocation, and new product offerings. Companies often use one or more of these strategies to sustain business growth.
1. Process Optimization
Process optimization aims to improve a business’ processes by systematically enhancing a business’ internal workflows and operations to maximize efficiency and reduce costs. This strategy encompasses various actions, including streamlining production methods, implementing advanced technologies, and refining supply chain management. By cutting unnecessary costs and adjusting the pricing of both existing and newly introduced products or services, businesses can increase their profitability.
2. Reallocation of Resources
Reallocation of resources is a strategic approach that focuses on redistributing funds and other resources from less productive and efficient sectors to better-performing and productive products. This involves conducting a thorough analysis of all business units to identify which ones are not meeting performance expectations and which have the potential for higher returns. By channeling resources into areas that demonstrate higher productivity and efficiency, companies can maximize their overall performance and growth. The goal of this strategy is to ensure that every resource is utilized in the most effective way to drive growth and profitability
3. New Product Offerings
New product offerings direct a business’ organic growth by introducing new goods and services that will generate new profit and overall organic growth. This involves developing and launching new goods and services that meet emerging customer needs or capitalize on market trends. By expanding their product portfolio, companies can attract new customers, retain existing ones, and create additional revenue streams. Successful implementation of this strategy requires thorough market research to identify gaps and opportunities, as well as investment in research and development to innovate and bring new products to market.
Case Studies: Organic Growth in the U.S. Market
Among the numerous companies pursuing organic growth strategies, two international and two domestic companies have invested in the U.S. market. These cases reveal mixed results, highlighting both successes and challenges faced while implementing these organic growth strategies.
1. Case Study A - Tesla (United States HQ)
Headquartered in Texas, U.S., Tesla, Inc. is an American multinational automotive and clean energy company that designs, manufactures, and sells electric vehicles. In 2010, Tesla bought the former NUMMI Factory in Fremont, California, where they would build the Model S sedan and future Tesla vehicles. After acquiring the Fremont factory, Tesla faced difficulties in maintaining production to meet the demand for its electric vehicles.
To meet the demand, Tesla leveraged the organic strategy of process optimization by upgrading its assembly line and Fremont factory in 2014. Using robots for tasks such as welding, painting, and material handling, Tesla improved the manufacturing process, allowing them to create nearly 1,000 vehicles per week. As a result of the facility and process improvements, Tesla produced 86,555 vehicles (8% more than their all-time high in Q3) in 2018 Q4. Due to their successful revamp and continuous improvement, the Tesla Model 3 became the best-selling electric car in the world in 2018.
Key Takeaway: Process optimization requires companies to carefully evaluate their workflow and operations to identify inefficiencies. Tesla’s approach illustrates how integrating automation can effectively streamline processes, reducing task completion times and enhancing overall productivity for optimized growth.
2. Case Study B - Netflix (United States HQ)
Headquartered in California, U.S., Netflix is an American subscription video-on-demand Internet streaming service. The business originally started off as a DVD rental service by mail. However, as internet technology progressed, the company recognized the importance of transforming and expanding their services online.
Realizing the growth potential of streaming services, Netflix reallocated their resources from DVDs to streaming. As a result, Netflix increased its investments in streaming from $31 million in 2009 to $117 million in the first six months of 2010. As streaming grew more profitable and Netflix lost DVD subscribers, Netflix began to sell fewer DVDs, which also reduced the operating costs of DVD.com. In 2017, Netflix reduced their investment in DVDs from $77 million the previous year to $54 million. By reallocating their resources, Netflix increased their total revenue from $2.1 billion in 2010 to $33.7 billion in 2023. Additionally, by transitioning to streaming services, Netflix expanded its international presence to 50 countries by 2015 and to over 190 countries by 2017.
Key Takeaway: Reallocating resources can help companies reduce their resources in low-performing business units and channel them to higher-performing units with more potential. Netflix’s approach exhibits how observing and investing more in technological trends can lead to unimaginable growth.
3. Case Study C – Nongshim (South Korea HQ)
Headquartered in Seoul, Korea, Nongshim Co., Ltd. is a South Korean multinational food and beverage company known for being the largest instant noodles and snack company in the country. After successfully expanding into neighboring Asian countries, the food giant established Nongshim America, Inc. in 1994 to initiate its global expansion plan to tap into Western consumer markets.
Its two major strategies for organic growth were global sales expansion and business portfolio diversification. Through their global expansion and service diversification, Nongshim unlocked expansion opportunities and unique markets across countries outside of Asia. While maintaining their signature brand and core competitiveness, Nongshim was able to glocalize its current product portfolio towards local market preferences by focusing on four core product strategies, (1) challenging design, taste, and packaging, (2) flexible pricing scheme, (3) systematic and wide-range distribution network, and (4) maintaining its brand reputation. In just 2022, the U.S. affiliate saw sales increase 24% on-year, reaching $490 million in revenue. This contributed to a 9% increase in Nongshim’s entire global revenue. Their overseas success has allowed them to set their goal of tripling their annual sales and posting $1.5 billion in global sales by 2030, which they will achieve through investing more in scaling up their presence in the U.S. market.
Key Takeaway: New product offerings can help companies diversify their business portfolio and reach new markets and consumers. Nongshim’s approach demonstrates that researching and personalizing based on the local market preference to successfully launch a new product.
4. Case Study D – Tesco Group (United Kingdom HQ)
Headquartered in the United Kingdom, Tesco Group is a multinational retail company that currently operates 4,673 stores worldwide. As the UK’s leading supermarket brand, it has consistently ranked highest in terms of grocery market share and operates in many European and Asian markets. In 2007, Tesco entered the U.S. Market with the Fresh & Easy brand.
Originally Tesco planned on opening up 200 stores by the end of 2009 and projected to open up 400 locations by early 2013. However, the company eventually failed and exited the market in 2013 because of skewed customer research and poor store locations. Additionally, the company faced HR difficulties as it tried to adapt its policies and principles, which took on an anti-union approach. Tesco gave out relatively low pay and expensive health insurance that had lower benefits and not everyone qualified for. As a result, Tesco suffered losses of $1.6 billion USD due to its failed attempt to expand organically into the U.S. market.
Key Takeaway: Opening new stores to reach a new market can be a great way for companies to expand their businesses. However, Tesco’s approach shows that not having adequate research on customer preferences, locations, and HR policies can be detrimental to the business.
Conclusion
Organic growth is an effective strategy for companies aiming to enhance their inherent potential. By optimizing processes, reallocating resources, and introducing new products, businesses can achieve sustainable growth.
While organic growth is a promising strategy for companies planning to enhance their business’ inherent potential, businesses must carefully review both the potential upsides and downsides that may arise during the process. As such, it is crucial to conduct thorough evaluations and remain adaptable to navigate the challenges that may arise. By focusing on these organic growth strategies, companies can build a strong foundation for long-term success and resilience in the marketplace.
Investing in organic growth strategies will allow companies to build a stronger foundation for long-term success and resilience in the marketplace.
Sources: Investopedia, Nongshim USA, EnvZone, The Korea Economic Daily, The Korea Herald, Canva, TIME, CASTUS Consulting, Lubbock Avalance-Journal, Variety, Statista, Harvard Business Review
========
Want marketing-leading updates on HR Trends, Recruiting Tips, and Career Advice?
Comments