Difference Between Vertical and Horizontal Growth?
In business, expansion of your firm is the objective of virtually every initiative you undertake. The thing is that ‘’ grow the business’’ collage is not the only option for subsequent growth and development. For instance, how is the business expansion accomplished? Does it grow mainly in the breadth or in the depth? Today part 3 of that series is to explain to you what those growth strategies mean for entrepreneurs, the similarities and differences and which one is better? Let’s get started!
What is Vertical Growth?
What you have in mind when you are contemplating an expansion strategy is more likely to be vertical expansion.
Vertical growth is therefore the process of expanding one branch of expertise from another branch of the same level within the organization. It IS simply growing what you already already have in your hand, combining related products or services, and moving from a certain specialty market to offering everything within that particular segment of the market.
For example, the auto manufacturer can have a niche of luxury sedans. They make excellent cars, and that is about all they do. Finally, they are to their high; the cars may not be sold any other time of the year because the demand for them has reached the roof. There are not much more entries into the market to incrementally capture in a year. To continue to grow as an auto-maker, it means they must diversify it. So, they might:
Develop a luxury SUV.
Develop a sports car.
Develop a budget offering.
Develop a utility truck.
And each is a way of stretching within the vertical vehicle sales niche market. We note that they are two related markets and the business already has some experience together and recognition that it can use in order to penetrate this new niche. At other times this works brilliantly. An automotive company wanting to diversify proceeds to partial luxury vehicles plays a role of introducing that luxury to people who may not fit the capacity of a luxury sedan. For instance, Cadillac mainly produced luxurious automobiles; however, it also came up with an SUV in the shape of the Escalade. This is one that has a different clientele niche but still has the feel and prestige of the Cadillac brand with it.
Now the waters get a bit murky since Cadillac is of course part of General Motors but let us just take Ford to be a generic car manufacturing company for simplicity’s sake.)
Vertical growth, touching up something like software, is a bit more complex. When used, it means increasing the current existing on the market products you have to sell to consumers. Look at Ahrefs, for example, which initially was a backlink checker tool before it developed rank checking, keyword (*), site, and other features.
Those are still in SEO/Marketing/Website, so they’re still in the same category. Still, vertical growth has a few realistic gains. Firstly, you are already knowledgeable about the market hence you do not have go further to research so as to expand. We already know the nature of your industry and the target audience and the inherent biases, strengths and weaknesses and the type of competition and the characteristic nature of tactics that one is likely to encounter.
You might even be able to read about similar companies like yours who made a similar jump. On the other hand, vertical growth is even more difficult to accomplish than the growth in the number of clients. You must understand how to grow it and should be in a position to invest on other product categories which are related to yours but valuable enough to the new audience. Introducing a new feature is not always vertical growth but takes up a higher level of your current framework. You may also suffer from workforce problems.
What is Horizontal Growth?
But horizontal growth is a little different.
As opposed to moving up and out through vertical growth where the business merely broadens in the same niches it already occupies, horizontal growth demands that you adopt your current product or service to new markets.
A few examples of horizontal integration might include:
Amazon began its operation as an online retailer that only sold books, but it than diversified into the selling of electronics and home products. Nowdays they have everywhere: you can buy groceries, get data-center services, order delivery, use smart home technology. Technically some of these additions are still under the ‘umbrella’ of ‘online commerce’, however, it is horizontal extension.
An example of a company using vertical growth as well is Uber; UberX is an alternate Uber for cheaper prices. Uber was initially an app that connected riders directly with drivers of black and yellow taxis and has since grown to become uber eats a food delivery service. Also, their try to expand in the production of self-driving cars is another good type of expansion, which is the horizontal one.
Just as with dialectics, where you stand is dependent on where you are looking from. Horizontal growth can resemble a vertical growth, which depends on the kinship level of a new market to the previous market. In fact, every new offering that Uber has could be deemed vertical growth if they are still dealing with cars for instance. Okay it would be vertical growth if they were selling eBikes or they were attempting to provide rides sharing in their Cessnas.
The most potential benefit goes with the horizontal growth. To venture into a new market new demographic and a new product all concurrently maybe out rightly be a grand success. Sometimes, this new market power can completely overshadow the original offering, from the perspective of the offering firm, that is. Let’s use the video game Fortnite as an example. It began as a way worse build-em-up and horde protection mode that players could not be bothered with. That is precisely what Redux did – it left defenders behind as quickly as Epic, the developers of Fortnite, shifted their focus towards battle royale. Then they included the PVP, 100 players fight to the death mode and the game we now know became the poster child of a whole new genre.
However, if attempted, horizontal growth can fail, and fail miserably. Think about how so many businesses attempt to enter foreign markets successfully or poorly executed products such as Crystal Pepsi or Amazon’s Fire Phone.
At other times, horizontal growth is limited not because of any wrong doing on your part but because of competition that overwhelms you. For instance, tonight there is the HD-DVD next to Blu-Ray and its becomes a race to accept one before the other takes over. BD is not worse than HD-DVD some even affirm that it was a better format but it was not backed by the public in the same way so it did not gain dominance. Likewise the battle between the Barnes and Noble Nook, the Amazon Kindle, or the Microsoft Zune over the Apple iPod.
Occasionally, horizontal growth is conducted at the wrong time. The Apple Newton PDA was a portable information system before the term portable was shortened to portable tablet. The technology of that product is now main stream, and Apple has a device for that now with the iPad.
Horizontal growth is the most promising way to achieve excellent results but needs far more preparation and work to accomplish successfully and is far more vulnerable to failure even if all the factors are defined, and all the processes are optimized and tightly controlled. You also get your company into a new vertical where you have more competitors and have to defend yourself on many fronts.
Horizontal vs. Vertical Growth: Which is Best?
Which is better: organizations: organic or inorganic growth; “horizontal integration ” or “vertical integration”?
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It should come as no wonder that, to this question, there is no right answer. The blunt truth is that it is both, depending on your time, available resources, and industry you are in.
Normally, companies endeavor to achieve as much vertical growth as possible since it is relatively easy. Horizontal growth is less likely to be attempted than vertical growth because it potentially has more to offer in the way of growth and increased success, but is likely to involve a much higher commitment of resources and is therefore likely to involve far more risk. There is yet another channel for horizontal expansion. You see it with Google; rather than invent a new product, sit idly and watch as someone else does it and then they start gaining traction. Google also launches its own mistakces and dead services. However, it can be better stated as integration than the growth of the knowledge economy, which I will address next. The fact was that many of the greatest, most sustainable products of Google were assets they bought.
- Before Google acquired it, YouTube was simply a video sharing site.
- DoubleClick is where Google’s then nascent ad networks directly competed with when it acquired the firm.
- Android was an independent operating system for mobile phones prior to the company known as Google acquiring it.
- It is noticeable that Google inherited link tracking UTM parameters from another firm they had bought before.
- Most of the essential features that Google Maps offer today were features trademarked by Waze.
Many of the basic touch points of Google’s search engine today are now from companies that they have acquired over the years including Outride, Plink, Like, Kaltix, and Orion. That is why there is more than one telecom company right now and it isn’t because they are too incline to be a monopoly. Of course, it is a vvture that requires a huge amount of resources to buy and then to incorporate another company into your own. There are also legal considerations: That is why as soon as enterprises reach a certain level of competition, governmental regulations and antitrust laws appear.
Tips for Growing Effectively
When you are thinking about horizontal and vertical integration, you have to create the preconditions for success before you sink a bunch of cash and time into it. 1. The first thing is to investigate the demand. The markets today are full of every conceivable product or service, so coming up with a new concept or innovation is nearly impossible. Let’s say there is one good out there, and everybody is happy with it, then it will be difficult to convince them to change. That’s alright, though sometimes, simply being an option is sufficient. Nevertheless, to make ‘being a viable alternative’ a selling proposition one has to have something unique that makes consumers crave for it, and that is where competition comes in.
On the other hand, if there’s demand for “X but cheaper” or “X but higher quality” or “X but with more integrations to other services” or even “X but with trusted brand prestige behind it,” that’s a market opportunity. 2.Unfortunately, there’s a pressure running counter to the look before you leap philosophy: competition. It is not a secret that you like to plan for its expansion for new markets and new customers and your competitors too are likely to eye the same market. If you are slow to market, you appear to be me-too and are riding on the coat tails of your competitors. Well yes, movies are definitely different from say typical durable goods and are themselves short-lived brands vis-ŕ-vis some longevity product lines but still…
Can the viewers recall the times of the 1990s and the 2000s when animators from Disney/Pixar and Dreamworks one after another presented us motion pictures that literally emerged from one device? Let us analyze such example of cinematic originality as Antz and A Bug’s Life. The verification of demand can be a very tricky proposition to do without alerting rivals while leaks are inevitable across industries.
Growth Versus Integration
When researching vertical versus horizontal growth, you’re likely to come across another related set of terms: The choice of strategic direction is between the horizontal and vertical model of integration. Integration is a little different and is more of the ‘buy what we need’ approach of Google. Integration involves assuming some aspect of your industry in an effort to buffer yourself from alterations or fluctuations in those aspects of business line.
Growth means service or product diversification, and introducing new services or products. Integration involves acquiring or assimilating the other channels of creating your products or delivering your services. For example, take Ikea. It is not only that organizations such as Ikea are famous for meatball café business, but they have secondary furniture business too. In order to maintain the quality and, thus, the uniformity of the product (the furniture and not the meatballs, remember?), they purchased a forest. Ikea has bought a rather large number of forests around the world both for practical reasons of ensuring it gets its wood, but also for the good of it.
IKEA is a company that owns the entire production line, supplying chain, and the retail marketplace.
Vertical integration (also known as forward integration) is the Ikea example: acquiring various segments or aspects of the supply chain or fulfillment chain from the starting to the end. Another aspect is when Amazon began to take over shipping and solutions for shipment. It is still one of Amazon’s best examples of every form of growth; in fact, they buy and grow in every way, both broadly and deeply. That’s how they have grown to become such a huge part and parcel of whole industries across the global markets.
Horizontal integration is more like the Google example: the acquisition of still other companies to do things on like value chain level which they currently sell. In its activities, the company either broadens its services and products, increases robustness, or eliminates competition.
Integration itself is an interesting discussion that I will not touch upon today so ENJOY this until the next post. Please, mention in the comments below if you’d like me to continue or if you have any questions to my answers.
