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The Types of Business Growth

What are the types of business growth? Andrew Salmon, Associate Professor for Enterprise and Corporate Development in Birmingham City Business School explores three types – make, buy and ally.

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The Types of Business Growth

What are the types of business growth? Andrew Salmon, Associate Professor for Enterprise and Corporate Development in Birmingham City Business School explores three types – make, buy and ally.

Each approach has benefits and potential pitfalls and which is most appropriate would be dependent upon a number of factors so what may be the best approach on one occasion, may not be on another. Below is a summary of each type and the pros and cons of each strategic approach.

1.) Make

This is where, in response to an organisation identifying an opportunity for growth, the strategic decision is made to make whatever changes are required to systems and processes so that they can capitalise upon the opportunity.

An example could be a company that manufactures bicycles, identifying an opportunity in the e-bike space and deciding to invest in new machinery, processes and systems so that they can enter this new market.

Pros –

The company remains fully in control of operational matters

Potential for significant profits that do not have to be shared with another entity

All intellectual property remains in the company

Cons –

The company assumes all the cost

The company takes on all of the risk associated with the strategy

Often, making significant changes to processes, systems and tooling can be time consuming and there’s a risk that by the time the organisation has things in place, that the opportunity is missed.

2.) Buy

Using the example above, ‘buy’ would involve the bicycle manufacturer deciding that rather than invest in developing the capability to start producing e–bikes, that a better option would be to acquire a company already operating within this space.

Pros –

The company is able to jump onto the new opportunity quickly

Potential for increased overall company value

Potential to immediately increase the size and diversity of the customer base

Cons –

Valuing a business can be difficult and often businesses pay too much when acquiring another company

Often managers underestimate the difficulties encountered when integrating a company (different organisational cultures for example)

Often the synergies expected from the acquisition do not eventuate

3.) Ally:

Using the example above, the ‘ally’ strategy would be where the company would form a strategic partnership with a company already operating within the e- bike space. In this instance an agreement between the two entities would be formed and they would operate as an ‘alliance’.

Pros

Shared risk and resources

Ability to capitalise upon the opportunity quickly

The sum of the alliance is often greater than it’s individual parts, potentially leading to more opportunities

Cons

The alliance may have no clear lead

The organisations in the alliance may have different (and to some extent competing) priorities

Forming an alliance often means sharing some intellectual property which can be a potential risk (especially if the alliance were to break down)


Interested in finding more about business growth, and getting support to help you improve? Find out about our Help to Grow programme.

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