Business Organic Growth Strategy – Growth strategy or income growth case interviews are common case types that you will see in your first and second round consulting interviews. This type of case interview can look like this:
Your client, Coca-Cola, is looking for new growth opportunities after years of flat growth. They hired you to determine the best way to grow.
Business Organic Growth Strategy
In this article, we will cover a comprehensive framework that you can use to build different ways your company can grow. We’ll also show you the five steps you need to take to solve your growth strategy or revenue growth issue.
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The most common type of growth that companies strive for is organic growth, which is driven by developing production or engaging in internal activities. In other words, the company will grow through its own capabilities and efforts.
Growth through existing revenue sources is either driven by an increase in the number of units sold or by an increase in the average price per unit sold.
Remember that price changes will affect the number of units sold, so it is important to see the net effect of price changes on revenue.
The first way that a company can grow organically is by acquiring other companies. This gives the acquiring company all the revenue generated by the acquisition target. In addition, there may be revenue synergies that the acquired company can achieve.
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Acquiring a company gives the acquiring company access to the acquisition target’s distribution channels, customers, and products. Acquired companies can increase revenue by cross-selling, cross-selling or product bundling.
The advantage of making an acquisition is that the company immediately increases its income. They also have full control over how they want to manage and operate the acquired company.
The main disadvantage is that acquisitions are expensive and there may be difficulties in fully integrating the acquired company.
In a joint venture, two or more companies enter into a business arrangement where they pool resources and share risks in accomplishing a certain task. Each company in the business is responsible for the profits, losses, and costs associated with the project.
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Joint ventures benefit companies because they can share resources, expertise, and reduce costs due to scale. Additionally, joint ventures are cheaper than acquisitions.
A disadvantage of a business is that it will take time to generate income. Also, the company does not have complete control over the operations of its partners.
A partnership is an association between two or more companies that provide some type of benefit for each partner. This is quite different from a joint venture because in a partnership, the company does not necessarily have to combine resources or efforts. They just need to associate with each other.
One of the advantages of a partnership is that it is often cheaper than a joint venture because resources do not necessarily have to be contributed. Also, all partners benefit from the brand name and customer access to their partners.
Our Growth Strategy
As with joint ventures, one disadvantage of a partnership is that it takes time to generate income. Also, the company does not have full control over the operations of their partners.
Follow these five steps and you’ll be able to solve any growth strategy or revenue growth case you come across.
The first step in solving the problem of growth strategy is to identify what the company is trying to do. Are they trying to increase revenue, profit, number of customers, or something else?
Revenue growth versus profit growth can lead to very different strategies. Understanding what the company is trying to grow will help you determine which growth strategies are most effective.
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Interviewer: Your client, Coca-Cola, is looking for new growth opportunities after years of flat growth. They hired you to determine the best way to grow.
After that, you want to calculate the goals or targets that the company is aiming for. For example, if a company wants to increase revenue, how much revenue increase is expected? In what time frame are they trying to complete this?
You: How much Coca-Cola is looking to increase revenue? And in what timeframe are they looking to achieve this level of growth?
Once you have quantified the company’s goals or objectives, you can frame the interview as part of your growth strategy. You will most likely want to start by looking at organic growth opportunities first because this type of growth is more sustainable than inorganic growth.
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You: To determine the best opportunity to achieve a $1B increase in revenue over the next three years, I would like to use this framework.
First, I want to consider potential organic growth opportunities. This includes growth through existing revenue streams and growth through new revenue streams.
And I want to see potential inorganic growth opportunities. Are there specific acquisitions, joint ventures, or partnerships that would make sense for Coca-Cola to pursue?
You: Let’s first look at organic growth opportunities. Since Coca-Cola is a mature company that is seeing flat growth, I think that there will be no significant opportunity to increase revenue from existing revenue sources.
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You: Okay, so let’s look at potential new sources of income. Is there a niche beverage market that Coca-Cola has nothing to expand into?
Consider whether an acquisition, joint venture, or partnership would be a better fit given your company’s circumstances. Each of these inorganic growth methods has advantages and disadvantages.
You: After looking at organic growth opportunities, we decided that Coca-Cola could increase revenue by $600M by entering three niche beverage markets. However, we are still $400M in revenue short of our goal. I would like to see the next inorganic growth opportunity.
Interviewer: That makes sense. There are several Coca-Cola acquisition targets to consider. Let me share with you some more information…
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Once you have researched all the potential opportunities for growth, it is time to prioritize and recommend the best ones for the company.
You will likely need to develop some type of rubric to evaluate each growth opportunity. You can score each growth opportunity based on:
In step two, you calculate the specific target or goal that the company wants to achieve. Make sure your recommendation meets these goals.
You: To achieve its revenue growth goals, I recommend that Coca-Cola enter the three emerging soft drink markets and acquire Company X. There are two reasons that support this.
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One, Coca-Cola can leverage its existing production and distribution capabilities to quickly gain significant market share in the emerging soft drink market. It could increase revenue by $600M over three years easily.
Two, the acquisition of Company X will increase revenue by $500M, helping Coca-Cola achieve its revenue growth goals. Additionally, there are many revenue synergies that Coca-Cola can leverage to further increase revenue over the next few years.
For next steps, I would like to see Coca-Cola’s market entry strategy to enter these emerging markets. I also want to see if the acquisition price for Company X is fair and reasonable.
The most important part of solving the growth strategy case is being structured and methodical in considering all the different growth opportunities. If you set a thorough and organized foundation, the rest of the case should be a simple process of elimination.
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You should pay special attention to the context of the case and the circumstances of the company. The stage of the company, how much free cash is on hand, and the level of urgency the company faces will help you narrow down your options.
After implementing a few growth strategy cases, you will notice that these cases follow a predictable pattern and you will be able to solve future growth strategy cases.
If you found this article helpful, you’ll love our full case interview course. The course material has helped 6,000+ students in 13+ countries get offers at top consulting firms like McKinsey, BCG, and Bain. This does not include profits or growth caused by mergers and acquisitions but increases in sales and expansion through the company’s own resources. Organic growth is contrasted with inorganic growth, which is growth related to activities outside of the business operations themselves.
Organic growth strategies seek to maximize growth from within. There are many ways in which a company can increase internal sales within an organization. These strategies usually take the form of optimization, reallocation of resources, and new product offerings.
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Business optimization focuses on continuously improving business processes to reduce costs and set appropriate pricing strategies for products or services. Reallocation of resources involves the allocation of money and other materials for the production of better performance products, while offering new products to try to develop business by introducing new goods and services that will increase profits and overall growth.
Organic growth allows business owners to retain control of their company whereas a merger or acquisition would dilute or eliminate control. On the other hand, organic growth takes longer, because it is slower