Strategy

Key Drivers of Organic Growth

Research and development, "innovation skills," and shorter product-development cycles all make a difference. But perhaps the most important factor,...
Stephen TaubNovember 17, 2004

Two-thirds of executives in a new survey agreed that “having the right information and insights to tell us what customers/consumers really want” is very important — yet just 16 percent said that their companies are doing a top-notch job of it.

As a result, many companies are having trouble generating organic growth (also called internal growth), compared with growth from mergers and acquisitions. The findings are based on a survey of 201 senior executives and managers conducted by the Economist Intelligence Unit (a sister organization of CFO.com) on behalf of management consulting firm Marakon Associates.

This disconnect is especially disquieting, given that companies worldwide spend nearly $20 billion each year on market research alone. “Clearly, these efforts have not paid off for many companies,” said David Meer, head of Marakon’s customer value group. “Either the research investments have not produced insights that lead to a meaningful advantage over competitors, or the companies are unable to act on the insights collected.”

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Larger companies, defined by the survey as those with at least $500 million in annual revenue, seem to have a tougher time achieving organic growth than their smaller counterparts:

• 28 percent of respondents from larger companies (compared with 12 percent of respondents at smaller companies) reported below-average organic growth

• 29 percent of respondents from larger companies (compared with 40 percent) said they were highly confident that they would achieve their growth targets

• 49 percent of respondents from larger companies (compared with 30 percent) said they felt pressure from the expectations of the financial community (though in this instance, one reason could be that smaller companies currently attract much less Wall Street coverage)

Companies that experienced superior organic growth were less likely to be plagued by organizational barriers than their less successful peers, according to the survey:

• 78 percent of respondents at these “superior” companies (compared with 45 percent at average and below-average companies) said that organic growth was at the top of their company’s agenda. (Organic-growth leaders were also much more likely to say that growth is “always on the agenda,” noted the survey.)

• 73 percent of organic-growth leaders (compared with 55 percent) are more likely to increase investment in research and development

• 75 percent of organic-growth leaders (compared with 60 percent) are more likely to invest in improving their innovation skills

• 69 percent of organic-growth leaders (compared with 55 percent) are working harder to shorten product-development-cycle time