Strategic Management: Formulation and Implementation

Internal Growth

When a firm expands its current market share, its markets, or its products through the use of internal resources, internal growth takes place. Internal growth is achieved through increasing a firm's sales, production capacity, and work force. However, internal growth not only includes of the same business, but in can also include the creation of new business, either in a horizontal or vertical direction. Horizontal internal growth involves creating new companies that operate in the same business as the original firm, in related businesses, or in unrelated businesses. Vertical internal growth refers to creating businesses within the firm's vertical channel of distribution and takes the form of supplier-customer relationships.

Some firms prefer to growth internally, because they control it most effectively and because, is successful, it can yield high rewards. Their belief is that internal growth better preserves their organizational culture, efficiency, quality, and image. However, the internal growth has some limitations. The chief disadvantage to internal growth is the rising bureaucratic costs the generally accompany internal growth. Moreover, it is contingent on strong markets, good profit margins, and the ability to hire, train, organize, and control a continually expanding sphere human recours. It also runs the risk of becoming inbred, and therefore inflexible or blind to important changes in the competitive environment. Therefore, creating new businesses should only be undertaken when their benefits will exceed their costs.