Solving the growth puzzle: organic vs. inorganic growth

“There are only two ways to grow a business: by increasing the value from within, or by acquiring activities from without. Both require the same discipline of thinking through what the business is and what it should be.”

Peter Drucker, Innovation and Entrepreneurship

Sustainable growth requires choosing the right strategy. It's not just about ambition. This piece unpacks the realities and differences of organic growth and inorganic growth, and how to decide which approach best fits your business challenge.

Organic growth is the default option for all businesses. Build additional products, attract new customers or grow share of wallet with an existing customer base. Businesses will be pursuing organic growth as a matter of course, either through gradual evolution or step-change investments.

Inorganic growth results come from acquisitions of another business. This could be in part (book of customers, product IP, distribution rights), or a full acquisition. Either way, the acquiring business secures growth using an investment of capital.

Organic and Inorganic growth are execution options - but the real strategic thinking needs to start with the problem

For this paper, I’m assuming that the market opportunity has been identified, a suitable business case developed and sponsored by the management team. Focus then shifts to how the opportunity could be executed.

Whilst organic and inorganic growth are often weighed up against each other, they are very different tools that solve very different business problems. It isn’t a like for like comparison; the question of organic or inorganic growth needs to go deeper.

It’s critical to consider not just the nature of the solution but also how it contributes to increase in market share, business capital and shareholder value, while fully considering the specifics of the problem that needs to be solved.

Pursuing an Organic growth strategy

Organic growth refers to leveraging current, proven capabilities. Whilst the output might be new to the business, the tools needed to deliver it should be already present and an area of strength. Without having the required capabilities in place, the risk of implementing a steady organic growth strategy begins to increase significantly.

Not only is the new initiative at risk when launching in a competitive market, but delivery itself is uncertain. When building on existing strengths for business growth, the risk reduces and the chances of success and increase of the company's market share increase notably.

For example, entering a new motor insurance segment that requires a change in product structure but is still dependent on pricing and price comparison website (PCW) distribution capabilities that have already been proven in other adjacent segments.

Pursuing an Inorganic growth strategy

Inorganic growth can bring new capabilities into an organisation, so doesn’t have the same constraints as organic growth. The key here is finding suitable synergies that can justify the investment.

A robust acquisition case should have a clear 1 + 1 = 3 rationale. This will often come from a combination of strengths in one business addressing weaknesses in the other. Together, this should then create a winning proposition for business growth and an attractive market opportunity.

For example an MGA with deep underwriting skills in a market segment that’s struggling to find scale combining with a broker that has access to materially better distribution but lacks the necessary products.

Assessing build vs. buy requires a deep understanding of current capabilities

Whether considering organic growth that relies on existing capabilities or acquiring new capability through inorganic growth, having a strong understanding of the organisation’s ambitions and existing capabilities is crucial.

Where do the company’s true strengths lie? Which areas have fallen behind against the competitor peer group? Can current strengths be maintained or weaknesses remediated through internal development actions?

Organic and inorganic growth strategies both require and add to a business in different ways, making understanding of the organisation’s capability map a key component. Without this, failure of the initiative becomes more likely.

The ability to execute is critical

With capabilities understood, a picture comparing organic vs. inorganic growth options should begin to emerge. The next step is then taking a view on execution.

Can organic growth be delivered economically? Is the opportunity a priority versus an (inevitably) packed change agenda? Are delivery timescales suitable?

With inorganic growth, the considerations differ. Can a suitable target be identified with the right capabilities? Is the target accessible – who are the current owners?  If acquired, how difficult or disruptive would the integration be?

If both organic growth and inorganic growth are still an option at this stage, then these considerations become key in deciding which to pursue. It might even suggest that neither choice is appropriate, and the opportunity is not realistically accessible.

An alternative might be to outsource in the short-to-medium term. By partnering to access the required products, distribution or capabilities, the market opportunity can be tested at lower risk and a decision to bring in-house via build or acquire can be taken at a later date.

We can help you to assess your best business growth options and take the next steps

Camelot’s Strategy experts are experienced in both organic and inorganic growth strategies. We can help evaluate the potential market opportunity and put structures in place to assess delivery options, supported by insightful internal and external analysis.

Our accomplished experts use cross-sector insurance knowledge to offer a range of services to help you on this journey. Whether it's organic or inorganic growth strategies, we have the expertise to help. Such as:

• New opportunity business case building or review.

• Capability assessment to determine the current position and how well positioned you are for your selected business growth strategies.

• Development of market entry and implementation plans for organic growth initiatives.

• Market scanning and target assessment for inorganic growth options.

To discuss how we can work with you and take the next steps, contact us.

We pride ourselves on the flexibility of our model – we always look for a solution and a way of working that’s tailored to each client’s needs.

About the author

Chris Hazell has spent 20 years in the insurance industry advising business leaders, executives and Boards at major insurers. Chris has led internal strategy and corporate development teams in the insurance industry and as a seasoned consultant has worked on several organic growth and inorganic growth projects.