The Value of Organic Growth

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A review of Organic Growth and the value organizations may experience as a result of internal growth. The concepts presented are augmented with an example firm, General Electric.

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The Value of Organic Growth

  1. 1. “ The Value of Organic Growth” Review & Application Presented By: Justin Gates, CM, MBA September 8, 2009
  2. 2. Introduction <ul><li>With the economy in its current state, interest rate </li></ul><ul><li>and inflation concerns, ever fluctuating commodity </li></ul><ul><li>prices, concerns over the war on terror, and </li></ul><ul><li>market variability as prominent concerns for many </li></ul><ul><li>investors, venture capitalists, entrepreneurs, and small and </li></ul><ul><li>medium-sized business owners, addressing the concept of </li></ul><ul><li>corporate growth is undoubtedly on the minds of many </li></ul><ul><li>individuals. A highly recommended means of growing your </li></ul><ul><li>small to medium-sized business in such an uncertain </li></ul><ul><li>economic and geopolitical environment is through </li></ul><ul><li>“ Organic Growth”. </li></ul>
  3. 3. The SMB Owner <ul><li>It is often thought by executives and other senior </li></ul><ul><li>management personnel that mergers and acquisitions are the </li></ul><ul><li>main drivers of corporate growth. However, when examining this </li></ul><ul><li>route, one should consider other aspects of the transaction aside </li></ul><ul><li>from simply focusing on being larger or having an expanded </li></ul><ul><li>product line and/or footprint. While such benefits as expanded </li></ul><ul><li>product offerings, increased customer base, enriched client lists, </li></ul><ul><li>greater geographic coverage, and the opportunity to earn </li></ul><ul><li>additional revenue for the firm are all potentially possible when it </li></ul><ul><li>comes to mergers and acquisitions, it should also be noted that </li></ul><ul><li>such detriments as poor financial performance, debt obligations, </li></ul><ul><li>legal disputes, and investor/shareholder/stakeholder </li></ul><ul><li>concerns are also potential inheritance from a merger and/or </li></ul><ul><li>acquisition. </li></ul>
  4. 4. Detriments & Obligations <ul><li>Such detriments have certainly turned out to be benefits in the long run </li></ul><ul><li>for some (particularly for those executives and senior management </li></ul><ul><li>members who are masters of the turn-around) and in some cases are </li></ul><ul><li>viewed as benefits from the onset by some executives and members of </li></ul><ul><li>senior management. However, such issues as the potential negatives </li></ul><ul><li>associated with mergers and acquisitions have led many small and </li></ul><ul><li>medium-sized business owners to focus on “Organic Growth” or growth </li></ul><ul><li>from within the firm which does not rely on mergers and acquisitions as </li></ul><ul><li>a means to expand the firm, but relies instead on internal resources </li></ul><ul><li>and capital to expand, grow, and enrich the organization. </li></ul><ul><li>General Electric (GE) </li></ul><ul><li>One firm where Organic Growth has become an initiative of choice is </li></ul><ul><li>General Electric (GE). After his succession to CEO </li></ul><ul><li>(replacing Jack Welch), Jeff Immelt focused on and continues to promote </li></ul><ul><li>Organic Growth at GE. </li></ul>
  5. 5. The Seven Step Process <ul><li>Step 1: Assess the Current State of the Environment and the Organization </li></ul><ul><li>Step 2: Formulate and Design a Plan for Organic Growth </li></ul><ul><li>Step 3: Implementation of the Plan Based on a Timeline </li></ul><ul><li>Step 4: Execute the Plan through Instruction, Coaching, and Monitoring </li></ul><ul><li>Step 5: Evaluate & Troubleshoot </li></ul><ul><li>Step 6: Understand What Is Being Evaluated </li></ul><ul><li>Step 7: Review & Re-Assess </li></ul>
  6. 6. Step 1: The Concept <ul><li>Prior to assessing the organization to determine if it is a prime candidate for an </li></ul><ul><li>Organic Growth initiative, one should first examine, analyze, and assess the </li></ul><ul><li>industry and/or competitive environment in which one’s organization </li></ul><ul><li>participates. From a general perspective, one should ask “Is growth from within </li></ul><ul><li>the organization a general trend for firms within this industry or is it common to </li></ul><ul><li>bring in new resources?” and “How competitive is this industry or market and </li></ul><ul><li>will it be difficult to find outside talent and/or resources to bring into the </li></ul><ul><li>organization?” </li></ul><ul><li>Once the industrial and/or competitive environment has been assessed, then it </li></ul><ul><li>is appropriate to move forward and assess the organization. </li></ul><ul><li>For many, the concept of Organic Growth is something that they are aware of </li></ul><ul><li>but are puzzled as to how to go about conducting effectively. One of the best </li></ul><ul><li>ways to begin the process of achieving Organic Growth or “Growth from Within” </li></ul><ul><li>is to begin by assessing the current state of the organization. </li></ul>
  7. 7. Step 1: Application @ GE <ul><li>Under Immelt, GE followed this tip. The firm began </li></ul><ul><li>by conducting a through examination and </li></ul><ul><li>assessment of its strategies and its current </li></ul><ul><li>operations structure. The reasoning for conducting </li></ul><ul><li>such an internal examination is to ascertain as to </li></ul><ul><li>the firm is able to foster such a growth strategy as </li></ul><ul><li>Organic Growth and to also determine if such a </li></ul><ul><li>growth strategy can be successfully implemented </li></ul><ul><li>at such a large comprehensive firm. </li></ul>
  8. 8. Step 2: The Concept <ul><li>Once the initial assessments of the </li></ul><ul><li>environment and organization have been </li></ul><ul><li>completed and the fundamental questions </li></ul><ul><li>regarding Organic Growth have been </li></ul><ul><li>answered, the next step in the process is to </li></ul><ul><li>formulate and design a plan for Organic </li></ul><ul><li>Growth. Also note that the approach taken in the </li></ul><ul><li>formulation and design of the plan may differ </li></ul><ul><li>widely. </li></ul>
  9. 9. Step 2: Application @ GE <ul><li>At GE, rather than develop a plan for Organic Growth at the firm-wide </li></ul><ul><li>level, Immelt and other management personnel opted for a </li></ul><ul><li>concentrated series of plans that corresponded with specific corporate </li></ul><ul><li>areas. Each plan maintained its own specific goals and objectives. The </li></ul><ul><li>six distinct areas in which GE develop its Organic Growth plan </li></ul><ul><li>included: Technology, Customer Domain, Innovation, Globalization, </li></ul><ul><li>Commercial Excellence, and Growth Leadership. </li></ul><ul><li>Again, GE focused on its particular business model when developing its </li></ul><ul><li>Organic Growth plan. It is important to emphasize that a firm, </li></ul><ul><li>regardless of size, should develop an Organic Growth plan based on </li></ul><ul><li>the firm’s business model and scope of operations, otherwise, there </li></ul><ul><li>may be significant challenges both during and following implementation </li></ul><ul><li>of the plan. </li></ul>
  10. 10. Step 3: The Concept <ul><li>After the need for Organic Growth has been identified and the plan for </li></ul><ul><li>implementation has been drafted, it is then necessary to implement the plan </li></ul><ul><li>based on a timeline. Timelines fundamentally assist in moving the </li></ul><ul><li>implementation process forward and in allowing key parties involved with </li></ul><ul><li>implementation to increase buy-in to the concept in some cases. It is important </li></ul><ul><li>to recognize that the timeline should be realistic, achievable/attainable, and </li></ul><ul><li>flexible. </li></ul><ul><li>Additionally, a system of reward may also be appropriate during the </li></ul><ul><li>progression through the timeline. By offering incentives and rewards for </li></ul><ul><li>performance, this may create an organization that is more willing to accept the </li></ul><ul><li>challenges that often accompany an Organic Growth initiative (such as resource </li></ul><ul><li>allocation and deployment challenges). It is important to also keep in mind that </li></ul><ul><li>punishment may not always be the best compliment to the reward system, as many may </li></ul><ul><li>believe. It is recommended that rather than punishing personnel for not meeting </li></ul><ul><li>milestones in the process, it is best to encourage personnel to reach milestones </li></ul><ul><li>irrespective of the degree of deviation from the timeline. </li></ul>
  11. 11. Step 3: Application @ GE <ul><li>At GE, one of the keys to Immelt’s desire to move </li></ul><ul><li>forward with successful Organic Growth is to </li></ul><ul><li>prolong the position placement at the firm. Immelt </li></ul><ul><li>wanted to change the perception that building </li></ul><ul><li>one’s career is through rapid advancement </li></ul><ul><li>through timely promotions or through more </li></ul><ul><li>attractive offers. Immelt’s desire was to create </li></ul><ul><li>position placement that emphasized longevity in </li></ul><ul><li>the position and doing so, he thought, would create higher </li></ul><ul><li>quality employees and job enrichment. </li></ul>
  12. 12. Step 4: The Process <ul><li>Once the timeline has commenced in terms of moving </li></ul><ul><li>forward with the Organic Growth initiative, it is important to </li></ul><ul><li>provide along with the plan’s milestones and events, a </li></ul><ul><li>means to instruct, coach, and monitor personnel whether it </li></ul><ul><li>be through leadership, suggestive actions, or information. </li></ul><ul><li>By conducting this phase of the Organic Growth plan effectively, the </li></ul><ul><li>overall probability of success for the Organic Growth initiative may </li></ul><ul><li>become clearer. </li></ul><ul><li>During implementation and execution of the Organic Growth plan, it is </li></ul><ul><li>important to understand the concept of “people development” and to </li></ul><ul><li>harness the benefits of such development during and after the </li></ul><ul><li>implementation and execution processes. </li></ul>
  13. 13. Step 4: Application @ GE <ul><li>With Immelt and GE, adopted the concept of </li></ul><ul><li>“ people development” through a means of </li></ul><ul><li>getting to know employees. This action was </li></ul><ul><li>based on the idea that Immelt wanted to </li></ul><ul><li>foster a trusting relationship with employees </li></ul><ul><li>in order to better grow the business and to </li></ul><ul><li>drive employees to challenge them and to become </li></ul><ul><li>better problem solvers and decision makers. </li></ul>
  14. 14. Step 5: The Process <ul><li>There is a great deal of debate as to how to evaluate and </li></ul><ul><li>troubleshoot after the execution of the Organic Growth </li></ul><ul><li>plan. In the end, it truly boils down to what the </li></ul><ul><li>organization’s executives and senior management want to </li></ul><ul><li>achieve through the use of Organic Growth, which will </li></ul><ul><li>determine the effectiveness of the plan. For example, if the </li></ul><ul><li>executives and senior management desired to launch a </li></ul><ul><li>new line of business through the use of Organic Growth, </li></ul><ul><li>observing if and when a roll-out of the new business line </li></ul><ul><li>takes place is an indicator of the effectiveness of the </li></ul><ul><li>Organic Growth initiative. </li></ul>
  15. 15. Step 5: Application @ GE <ul><li>By segmenting the firm’s Organic Growth initiative into the </li></ul><ul><li>set of six sub-areas mentioned previously, Immelt and GE’s </li></ul><ul><li>executive and senior management members had the ability </li></ul><ul><li>to more closely monitor and evaluate the success of the </li></ul><ul><li>Organic Growth initiative at GE. This ability to more closely </li></ul><ul><li>monitor and evaluate the initiative was achieved through </li></ul><ul><li>the use of segmentation of the initiative in order to allow </li></ul><ul><li>separate evaluation criteria to be used for each segment </li></ul><ul><li>and to more closely track the progress and effectiveness of </li></ul><ul><li>the initiative on a segment-by-segment basis rather than a </li></ul><ul><li>general basis. </li></ul>
  16. 16. Step 6: The Concept <ul><li>It should be noted that while in the example involving the </li></ul><ul><li>development of a new line of business the roll-out of the new business </li></ul><ul><li>line may be used as an evaluation and troubleshooting measure </li></ul><ul><li>associated with the Organic Growth initiative, the success of the firm in </li></ul><ul><li>relation to this new business line may not necessarily be related to the </li></ul><ul><li>success of the Organic Growth initiative as the initiative goals and </li></ul><ul><li>objectives may not necessarily associate the success level of the new </li></ul><ul><li>line of business with the overall success of the Organic Growth </li></ul><ul><li>initiative, but instead focus on the launch of a new line of business. As </li></ul><ul><li>such, it is recommended that the criteria used to evaluate and </li></ul><ul><li>troubleshoot be designed to address the true nature of the desired </li></ul><ul><li>effects of the initiative and not necessarily the sub-effects. </li></ul>
  17. 17. Step 6: Application @ GE <ul><li>Again, at GE, the use of segmentation of the </li></ul><ul><li>Organic Growth initiative allowed for a clearer </li></ul><ul><li>perception of what and how to evaluate the </li></ul><ul><li>segment-by-segment performance of the initiative </li></ul><ul><li>components as well as the overall success of the </li></ul><ul><li>initiative. Furthermore, Six Sigma is a popular </li></ul><ul><li>performance evaluation method employed at GE </li></ul><ul><li>(thanks to Jack Welch), however, this performance </li></ul><ul><li>evaluation method may not necessarily be </li></ul><ul><li>appropriate for an Organic Growth initiative. </li></ul>
  18. 18. Step 7: The Concept <ul><li>When it comes to pursuing Organic Growth, key decision makers within </li></ul><ul><li>the organization must address how Organic Growth may affect the </li></ul><ul><li>organization and when pursuing such an initiative in relation to a small </li></ul><ul><li>or medium-sized business is appropriate. It is important to assess the </li></ul><ul><li>costs and benefits associated with Organic Growth (both financial and </li></ul><ul><li>intrinsic) and to develop a comprehensive plan toward Organic Growth </li></ul><ul><li>and to implement and execute the plan as effectively as possible. Once </li></ul><ul><li>this is completed, executives and/or senior management should assess </li></ul><ul><li>the outcome by asking, “What did we truly wish to achieve through this </li></ul><ul><li>initiative and have we achieved it?” while keeping in mind that the </li></ul><ul><li>achievements associated with the Organic Growth initiative may not </li></ul><ul><li>always closely relate to the overall effect(s) of the initiative on the </li></ul><ul><li>organization. </li></ul>
  19. 19. Organic Growth & GE <ul><li>While a continual process, only time will tell how successful the Organic </li></ul><ul><li>Growth initiative will be at GE. However, it can be expected that </li></ul><ul><li>Jeff Immelt will be keeping a close eye on progress and no doubt, </li></ul><ul><li>implementing additional activities and actions into the initiative in order </li></ul><ul><li>to better equip GE to continue as an industry leader and one of the </li></ul><ul><li>most successfully managed firms in the world. </li></ul><ul><li>As one can see, Organic Growth initiatives are undertaken by firms of </li></ul><ul><li>all sizes including a firm as large and comprehensive as GE. As such, it </li></ul><ul><li>is important to consider the tips given above when attempting to pursue </li></ul><ul><li>an Organic Growth initiative at your small or medium-sized business. </li></ul>
  20. 20. More Information <ul><li>For more information on Organic Growth: </li></ul><ul><li>Books: </li></ul><ul><li>The Road To Organic Growth (2007)– Edward Hess </li></ul><ul><li>Organic Growth: Cost-Effective Business </li></ul><ul><li>Expansion From Within (2003) – Jean Fredéric Mognetti </li></ul><ul><li>Example: </li></ul><ul><li>HSBC Keeps To Organic Growth in Asia – WSJ.com </li></ul>
  21. 21. About the Presenter <ul><li>Justin Gates is serving as Director of Performance </li></ul><ul><li>Solutions for United Information Technologies (UIT), a </li></ul><ul><li>provider of Consulting, Staffing, and Training services. He </li></ul><ul><li>holds an MBA with a concentration in Administrative </li></ul><ul><li>(Strategic) Management along with a BBA </li></ul><ul><li>(Magna Cum Laude) with concentrations in both </li></ul><ul><li>International Business as well as Economics. Justin’s </li></ul><ul><li>research interests include Broadband Telecommunications </li></ul><ul><li>and Comparative Economic Systems and he is also a </li></ul><ul><li>member of Omicron Delta Epsilon and a Certified Manager (CM). </li></ul>

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