The role of purpose in business driving organic growth and inorganic growth

Growth in business is considered either organic or inorganic.

Yet, if purpose also drives growth, how does it factor into these two very different approaches to expansion?

First let’s define the difference between the two.

What is organic growth?

Put simply, organic growth is the growth a company achieves by increasing output and enhancing sales internally. It’s created by acquiring new clients or generating more business from existing clients.

Essentially, it’s expanding your business from within, using the resources you have (including your brand, knowledge, experience, skills, relationships and other tools).

Organic growth reflects a long-term, solid commitment to building a business.

However, it takes time and is usually gradual.

Inorganic growth defined

In contrast, inorganic growth, is generated more rapidly from activities outside a business's own operations, by mergers and acquisition (M&A) activity.

Mergers, acquisitions, and in their most extreme form, takeovers, can quickly increase a company’s size and revenue, but can often present complex branding challenges that require a methodical approach to integration.

They can also present significant challenges defining the value proposition to key stakeholders, especially employees.

How purpose in business accelerates organic growth

In the context of organic growth, companies with purpose outperform their peers - up to three times faster.

Driving this organic growth is purpose at the core of all strategy and engagement with key stakeholders including alignment with employees and building a trusted brand.

CAN Purpose SUPPORT AN inorganic growth strategy?

It’s well established that authentic purpose is a fundamental motivator for the productivity and overall happiness of a work culture.

Companies that score high on purpose also have clarity from senior management on the direction of the company. By clearly setting expectations and how this translates for employees roles and responsibilities, purpose is driven through the organisation by the perceptions of professionals and middle management.

However, this authentic purpose is tested during mergers and acquisitions activity - as it’s well documented that a significant proportion of M&A activity fails (in the recent past, 49% of acquirers under performed).

Further, it’s been reported that employees attention to their work drops by 60-70% during a bid process, as they are assailed by gossip and hearsay due to a lack of clarity on where things are headed, and how they will personally be affected.

The turbulent nature of the M&A process can create an environment of self-centred behaviours, mental and physical illness, and lack of motivation triggered by prolonged bid-related anxiety.

In short, M&A activity disrupts the flow of purpose in a business.

All of this can directly damage the brand, reputation and outcomes of the companies involved.

However, there are indications that purpose, when managed well, can improve acquisition activity.

THE LINK BETWEEN acquisition SUCCESS And purpose

A study released in February 2021, Harvard Business School demonstrated that successful acquisitions and purpose are linked - and that this link is an important, and often overlooked, factor in the process.

The study found that acquisitions that lead to a stronger sense of purpose are also those that outperform, and those that lead to a weaker sense of purpose do not.

This was mainly due to the fact that acquisitions alter the set of activities and employees within company boundaries, and the perception that the company purpose was maintained or improved - actually resulted in better outcomes.

Conclusion

Purpose is core to driving growth organically and can be a key determinant of success in inorganic growth strategy too.

Words by Katrina Savell

References:

https://www.investopedia.com/terms/i/internalgrowthrate.asp
https://www.ansarada.com/mergers-acquisitions
https://www.mckinsey.com/business-functions/m-and-a/our-insights/integrating-marketing-and-brand-in-ma-the-way-to-superior-growth
https://www.theworddepot.com.au/blog/purpose-driving-the-growth-agenda
https://www.theworddepot.com.au/blog/purpose-and-work-alignment-is-key
https://www.theworddepot.com.au/blog/purpose-brands-driving-change-are-trusted-more
https://www.theworddepot.com.au/blog/purpose-to-profit-harvard-weighs-in
https://www.linkedin.com/company/10611060
https://www.hbs.edu/faculty/Shared%20Documents/conferences/strategy-science-2021/150_Claudine%20Gartenberg_Corporate%20Purpose%20and%20Acquisitions.pdf

Organic vs. Inorganic Growth: A Purpose Snapshot