“The Value of Organic Growth”Review & Application

Presented By:Justin Gates, CM, MBASeptember 8, 2009

IntroductionWith the economy in its current state, interest rateand inflation concerns, ever fluctuating commodityprices, concerns over the war on terror, andmarket variability as prominent concerns for manyinvestors, venture capitalists, entrepreneurs, and small andmedium-sized business owners, addressing the concept ofcorporate growth is undoubtedly on the minds of manyindividuals. A highly recommended means of growing yoursmall to medium-sized business in such an uncertaineconomic and geopolitical environment is through “Organic Growth”.

The SMB OwnerIt is often thought by executives and other seniormanagement personnel that mergers and acquisitions are themain drivers of corporate growth. However, when examining thisroute, one should consider other aspects of the transaction asidefrom simply focusing on being larger or having an expandedproduct line and/or footprint. While such benefits as expandedproduct offerings, increased customer base, enriched client lists,greater geographic coverage, and the opportunity to earnadditional revenue for the firm are all potentially possible when itcomes to mergers and acquisitions, it should also be noted thatsuch detriments as poor financial performance, debt obligations,legal disputes, and investor/shareholder/stakeholderconcerns are also potential inheritance from a merger and/oracquisition.

Detriments & ObligationsSuch detriments have certainly turned out to be benefits in the long runfor some (particularly for those executives and senior managementmembers who are masters of the turn-around) and in some cases areviewed as benefits from the onset by some executives and members ofsenior management. However, such issues as the potential negativesassociated with mergers and acquisitions have led many small andmedium-sized business owners to focus on “Organic Growth” or growthfrom within the firm which does not rely on mergers and acquisitions asa means to expand the firm, but relies instead on internal resourcesand capital to expand, grow, and enrich the organization.

General Electric (GE) One firm where Organic Growth has become an initiative of choice isGeneral Electric (GE). After his succession to CEO (replacing Jack Welch), Jeff Immelt focused on and continues to promoteOrganic Growth at GE.

The Seven Step Process• Step 1: Assess the Current State of the Environment and the

Organization

• Step 2: Formulate and Design a Plan for Organic Growth

• Step 3: Implementation of the Plan Based on a Timeline

• Step 4: Execute the Plan through Instruction, Coaching, and Monitoring

• Step 5: Evaluate & Troubleshoot

• Step 6: Understand What Is Being Evaluated

• Step 7: Review & Re-Assess

Step 1: The ConceptPrior to assessing the organization to determine if it is a prime candidate for anOrganic Growth initiative, one should first examine, analyze, and assess theindustry and/or competitive environment in which one’s organizationparticipates. From a general perspective, one should ask “Is growth from withinthe organization a general trend for firms within this industry or is it common tobring in new resources?” and “How competitive is this industry or market andwill it be difficult to find outside talent and/or resources to bring into theorganization?”

Once the industrial and/or competitive environment has been assessed, then itis appropriate to move forward and assess the organization.

For many, the concept of Organic Growth is something that they are aware ofbut are puzzled as to how to go about conducting effectively. One of the bestways to begin the process of achieving Organic Growth or “Growth from Within”is to begin by assessing the current state of the organization.

Step 1: Application @ GEUnder Immelt, GE followed this tip. The firm beganby conducting a through examination andassessment of its strategies and its currentoperations structure. The reasoning for conductingsuch an internal examination is to ascertain as to the firm is able to foster such a growth strategy asOrganic Growth and to also determine if such agrowth strategy can be successfully implementedat such a large comprehensive firm.

Step 2: The ConceptOnce the initial assessments of theenvironment and organization have beencompleted and the fundamental questionsregarding Organic Growth have beenanswered, the next step in the process is toformulate and design a plan for OrganicGrowth. Also note that the approach taken in theformulation and design of the plan may differwidely.

Step 2: Application @ GEAt GE, rather than develop a plan for Organic Growth at the firm-widelevel, Immelt and other management personnel opted for aconcentrated series of plans that corresponded with specific corporateareas. Each plan maintained its own specific goals and objectives. Thesix distinct areas in which GE develop its Organic Growth planincluded: Technology, Customer Domain, Innovation, Globalization,Commercial Excellence, and Growth Leadership.

Again, GE focused on its particular business model when developing itsOrganic Growth plan. It is important to emphasize that a firm,regardless of size, should develop an Organic Growth plan based onthe firm’s business model and scope of operations, otherwise, theremay be significant challenges both during and following implementationof the plan.

Step 3: The ConceptAfter the need for Organic Growth has been identified and the plan forimplementation has been drafted, it is then necessary to implement the planbased on a timeline. Timelines fundamentally assist in moving theimplementation process forward and in allowing key parties involved withimplementation to increase buy-in to the concept in some cases. It is importantto recognize that the timeline should be realistic, achievable/attainable, andflexible.

Additionally, a system of reward may also be appropriate during theprogression through the timeline. By offering incentives and rewards forperformance, this may create an organization that is more willing to accept thechallenges that often accompany an Organic Growth initiative (such as resourceallocation and deployment challenges). It is important to also keep in mind thatpunishment may not always be the best compliment to the reward system, as many maybelieve. It is recommended that rather than punishing personnel for not meetingmilestones in the process, it is best to encourage personnel to reach milestonesirrespective of the degree of deviation from the timeline.

Step 3: Application @ GEAt GE, one of the keys to Immelt’s desire to moveforward with successful Organic Growth is toprolong the position placement at the firm. Immeltwanted to change the perception that buildingone’s career is through rapid advancementthrough timely promotions or through moreattractive offers. Immelt’s desire was to createposition placement that emphasized longevity inthe position and doing so, he thought, would create higherquality employees and job enrichment.

Step 4: The ProcessOnce the timeline has commenced in terms of movingforward with the Organic Growth initiative, it is important toprovide along with the plan’s milestones and events, ameans to instruct, coach, and monitor personnel whether itbe through leadership, suggestive actions, or information.By conducting this phase of the Organic Growth plan effectively, theoverall probability of success for the Organic Growth initiative maybecome clearer.

During implementation and execution of the Organic Growth plan, it isimportant to understand the concept of “people development” and toharness the benefits of such development during and after theimplementation and execution processes.

Step 4: Application @ GE

With Immelt and GE, adopted the concept of“people development” through a means ofgetting to know employees. This action wasbased on the idea that Immelt wanted tofoster a trusting relationship with employeesin order to better grow the business and todrive employees to challenge them and to becomebetter problem solvers and decision makers.

Step 5: The ProcessThere is a great deal of debate as to how to evaluate andtroubleshoot after the execution of the Organic Growthplan. In the end, it truly boils down to what theorganization’s executives and senior management want toachieve through the use of Organic Growth, which willdetermine the effectiveness of the plan. For example, if theexecutives and senior management desired to launch anew line of business through the use of Organic Growth,observing if and when a roll-out of the new business linetakes place is an indicator of the effectiveness of theOrganic Growth initiative.

Step 5: Application @ GEBy segmenting the firm’s Organic Growth initiative into theset of six sub-areas mentioned previously, Immelt and GE’sexecutive and senior management members had the abilityto more closely monitor and evaluate the success of theOrganic Growth initiative at GE. This ability to more closelymonitor and evaluate the initiative was achieved throughthe use of segmentation of the initiative in order to allowseparate evaluation criteria to be used for each segmentand to more closely track the progress and effectiveness ofthe initiative on a segment-by-segment basis rather than ageneral basis.

Step 6: The ConceptIt should be noted that while in the example involving thedevelopment of a new line of business the roll-out of the new businessline may be used as an evaluation and troubleshooting measureassociated with the Organic Growth initiative, the success of the firm inrelation to this new business line may not necessarily be related to thesuccess of the Organic Growth initiative as the initiative goals andobjectives may not necessarily associate the success level of the newline of business with the overall success of the Organic Growthinitiative, but instead focus on the launch of a new line of business. Assuch, it is recommended that the criteria used to evaluate andtroubleshoot be designed to address the true nature of the desiredeffects of the initiative and not necessarily the sub-effects.

Step 6: Application @ GEAgain, at GE, the use of segmentation of theOrganic Growth initiative allowed for a clearerperception of what and how to evaluate thesegment-by-segment performance of the initiativecomponents as well as the overall success of theinitiative. Furthermore, Six Sigma is a popularperformance evaluation method employed at GE(thanks to Jack Welch), however, this performanceevaluation method may not necessarily beappropriate for an Organic Growth initiative.

Step 7: The ConceptWhen it comes to pursuing Organic Growth, key decision makers withinthe organization must address how Organic Growth may affect theorganization and when pursuing such an initiative in relation to a smallor medium-sized business is appropriate. It is important to assess thecosts and benefits associated with Organic Growth (both financial andintrinsic) and to develop a comprehensive plan toward Organic Growthand to implement and execute the plan as effectively as possible. Oncethis is completed, executives and/or senior management should assessthe outcome by asking, “What did we truly wish to achieve through thisinitiative and have we achieved it?” while keeping in mind that theachievements associated with the Organic Growth initiative may notalways closely relate to the overall effect(s) of the initiative on theorganization.

Organic Growth & GEWhile a continual process, only time will tell how successful the

OrganicGrowth initiative will be at GE. However, it can be expected thatJeff Immelt will be keeping a close eye on progress and no doubt,implementing additional activities and actions into the initiative in orderto better equip GE to continue as an industry leader and one of themost successfully managed firms in the world.

As one can see, Organic Growth initiatives are undertaken by firms ofall sizes including a firm as large and comprehensive as GE. As such,

itis important to consider the tips given above when attempting to pursuean Organic Growth initiative at your small or medium-sized business.

More Information

For more information on Organic Growth:

Books:The Road To Organic Growth (2007)– Edward Hess

Organic Growth: Cost-Effective BusinessExpansion From Within (2003) – Jean Fredéric Mognetti

Example:HSBC Keeps To Organic Growth in Asia – WSJ.com

About the PresenterJustin Gates is serving as Director of PerformanceSolutions for United Information Technologies (UIT), a provider of Consulting, Staffing, and Training services. Heholds an MBA with a concentration in Administrative(Strategic) Management along with a BBA(Magna Cum Laude) with concentrations in bothInternational Business as well as Economics. Justin’sresearch interests include Broadband Telecommunicationsand Comparative Economic Systems and he is also amember of Omicron Delta Epsilon and a Certified Manager

(CM).