Organic growth is the process of business expansion by increased output, customer base expansion, or new product development, as opposed to mergers and acquisitions, which is inorganic growth.
Organic growth typically excludes the impact of foreign exchange. “Core growth” is the term that is used to refer to growth that includes foreign exchange, but excludes divestitures and acquisitions.
Organic growth is growth that comes from a company’s existing businesses, as opposed to growth that comes from buying new businesses. It may be negative. Through Growth planning, businesses are able to achieve organic growth by selecting the best strategies available to them. For example, by examining Ansoff’s matrix, businesses can select from market penetration, market development, product development and diversification to grow their revenue organically.
Organic growth does include growth over a period that results from investment in businesses the company owned at the beginning of the period. What it excludes is the boost to growth from acquisitions, and the decline in sales and closures of whole businesses.
When a company does not disclose organic growth numbers, it is usually possible to estimate them by estimating the numbers for acquisitions made in the period being looked at and in the previous year. It is useful to break down organic sales growth into that coming from market growth and that coming from gains in market share: this makes it easier to see how sustainable growth is.
Relating to organic input in an organization, it can also relate to the act of closing down cost centers through established organic methods instead of waiting for a Finance list.
The mechanisms and rate of growth of firms experiencing organic growth were extensively studied by Edith Penrose in her 1958 book The Theory of the Growth of the Firm.
An early reference to “organic growth” appeared in Inazo Nitobe’s 1899 book The Soul of Japan.