The Consequences of Growth: How Success Can Limit Your Progress
In the world of today, maintaining constant growth is something which is almost expected from the stock market and venture capitalists. An example that illustrates the attention for rapid growth, is the Fortune 100 Fastest growing companies. However, rapid growth has it consequences and it can even destroy the company. Davidson, Steffens and Fitzsimmons (2008) prove in their study that growing without securing a decent level of profitability can create poor performance in a later stage of development. The effects of high growth influence the challenges of organizational development, and even without rapid growth, growth causes difficulties within many organizations. This article focusses on the challenges that occur when a firm develops.
In my thesis I have applied the model of the organizational life cycle to investigate organizational growth. Despite the fact that this model has received substantial criticism, it still provides a simple and understandable visualization of a firm’s life course. I will not go into detail about the life cycle, but in my opinion the key message is that the state of the firm is accompanied by a variety of challenges. For example, a start-up faces financial challenges to capture the needed resources to stay alive whereas a mature organization faces difficulties in responsiveness, bureaucracy and resource maturity. I would like to focus on the growth stage of the firm, because the desired high growth mainly takes place in this stage.
Flamholtz and Randle (2007) wrote an interesting book about growth pains that quite accurately points out some growth challenges of a firm. They state several growth pains in their book, I have selected five of those as an illustration:
- People feel that there are not enough hours in the day
- People spend too much time “putting out fires”
- Many people are not aware of what others are doing
- People lack an understanding of the company’s ultimate goals
- Plans are not often made and even more seldom followed upon, so that things do not get done
Despite the fact that their suggestions are not widely adopted in the existing literature, it provides a reasonable and admirable basis to deal with growth challenges. If you are able to understand the common problems of growth, it will allow you to anticipate beforehand.
I cannot provide you with solutions for all problems and I do not want to rewrite the book of Flamholtz, instead I will give a brief description of my point of view and recommendable actions to deal with these challenges. These actions are based on my findings in my thesis about the relationship between organizational growth and coordination.
Control and predictability
People feel that they have to deal with a lot of problems while they lack time and resources to deal with them. The following actions should be undertaken to deal with these challenges.
First of all, the company’s goals should be clear to all employees, because they are coordinated in order to achieve these goals. Therefore, the goals should lay the foundation for the formulation of the process. For instance, (1) the expansion of the production of a high quality product or (2) creating a high level of process flexibility. Both goals require a different approach. In this case, I describe a situation of a general production firm.
A firm has achieved market acceptance and has become a functional structure firm to deal with the increase in business. During the growth stage of a firm, functional departments arise to deal with the special tasks of the business (e.g. marketing and production). When these departments are established it is important to make a clear role structure (i.e. who is responsible for which actions) Through establishing such a structure, people are aware of the division of labour and associated responsibilities. This structure creates clarity in who to approach for a specific problem, thereby increasing the responsiveness of problem solving. Subsequently, procedures and plans can be aligned to the role structure to indicate how work should be executed and in accordance to the time frame. The creation of such an environment has several advantages:
- People are aware of one others actions and can act upon (common understanding)
- People have to take responsibility for their actions, which stimulates a proper execution.
- Pointing fingers is unnecessary because the workflow is clear and mistakes can be solved more easily.
- The three advantages above will create more efficiency and effectiveness in the value chain.
In summary, the above actions can establish a higher degree of predictability, accountability and common understanding within the processes of a growing firm. It is crucial to let the people formulate, communicate and decide about their process. If these mechanisms are implemented by the management, it will create a sense of bureaucracy. However, through letting people decide how their work should be designed, they can create a best practice approach which is carried throughout the firm.
In the aforementioned situation coordination mechanisms including procedures, plans and role structure are applied to deal with the growth pains of a common firm. The actions I have described sound simple and obvious. Nevertheless, many firms neglect to properly develop their process and associated mechanisms during the moment of market expansion. As a result, similar growth pains can arise as I have described earlier. It is reasonable to mention that time is limited and the expansion should not be hampered. However, the negligence of these actions can become very costly in the future. Therefore, I recommend you (future) managers to maintain a balance and obtaining that additional customer now can be valuable, but preventing the loss of five customers in the future is way more valuable. Thus, do not rush for growth at the expense of internal development and be aware of possible growth pains.