CRITICAL LITERATURE REVIEW ASSIGNMENT HELP
Introduction
Understanding the growth patterns of organizations provides valuable insights into the stages or states through which they may pass to transition from a small hands-on startup to a multi-million dollar enterprise. Identifying the stages of growth can help in discerning the associated problems, requirements and strategies for further growth. Though all organizations have their idiosyncrasies, research has identified that there do exist broad categories of stages & states of growth. A few models are discussed below.
Literature Review
Stages of Growth- Life-Cycle Concept
Churchill & Lewis (1983) devised a five stages framework of development. Each stage is characterized by the index of size, diversity and complexity. It is described by five management factors, namely, managerial style, organizational structure, extent of formal systems, major strategy and owner’s involvement (Figure 1).
Figure 1: Source: Harvard Business Review
Stage I (Existence) is the hands-on stage for the owner, and there are hardly any formal systems in place to manage the business. The focus is on getting customers and delivering the contracted products and services. At Stage II (Survival), the organization has a few systems, and there is supervised supervision as the organization has a few employees. The key is being able to generate enough cash to break even, provide for repair and replacement of assets, stay in business and finance growth. In stage III (Success) the organization has reached a reasonable size, achieved reasonable success, and has good amount of cash. This stage has two sub-stages. The owners can either use the company as a platform for growth (sub-stage III-G–Success-Growth) or completely or partially disengage from the company (sub-stage III-D–Success-Disengagement). The organization is functional, and the systems are either basic or developing depending upon the sub-stage. The III-G organizations move to Stage IV (Take-off) where the key problem is how to achieve rapid growth and how to finance that growth. Delegation through proper systems, and sufficiency of cash are the two main issues. The management style is divisional, the systems are maturing, and the focus of strategy is growth. Competence of managers is especially critical, and the owner needs to gear up to the financial and managerial challenges. In Stage V (Resource Maturity), the management structure comprises of line and staff levels, there is extensive use of formal systems, and the return on investment is one of the key parameters of success. Separation of ownership and management is significant as there is sufficient decentralization. Importantly, there are exceptions, and some business models help companies avoid particular stages (e.g. franchisee avoids State I & II). Further, some organizations are at different stages of growth relative to the 5 management factors. Imbalance of these factors can lead to problems. A company’s development stage determines the important managerial factors that must be dealt with.
According to Greiner (1998), the model for organizational development (OD) has five key dimensions organization’s Age, size, stages of evolution, stage of revolution and growth rate. These elements interact to shape OD. To map the growth trajectory, the age is plotted on the X-axis and size on the Y-Axis (Figure 2). Each phase of OD begins with a period of evolution with steady growth and stability, and ends with a revolutionary period of substantial organizational turmoil and change. Successful resolution of revolutionary period crisis / problems is critical to move to the next stage of evolutionary growth. Managerial problems and principles are rooted in time (age), and the problems and solutions depend size of the organization as it grows.
Figure 2: Source: Harvard Business Review
Based on this framework, 5 phases (Figure 3) of growth, namely, Creativity, Direction, Delegation, Coordination and Collaboration are identified.
Figure 3: Source: Harvard Business Review
Each evolutionary stage is characterized by a dominant management style to achieve sustainable growth, and revolutionary stage is dominated by a key management problem which needs to be solved to continue the growth. Each phase is a result of previous phase, and tends to be the cause of the next. This model is similar in spirit to the Churchill & Lewis (1983) model, and the management style, organization structure, the level of systemization (formal processes) at different stages follow a similar pattern. Based on the characteristics of organizations at each stage, a crisis and its resolution leads to the next stage. A crisis of leadership (revolution) at the creativity stage leads to the Direction stage. A crisis of autonomy leads to the Delegation stage, and a crisis of control at the top leads to the Coordination stage. A crisis of red tape leads to the collaboration stage.
Hanks et.al (1993) proposed four stages of growth, namely, start-up, expansion, maturity and diversification. There are also two disengagement stages, the Life-Style stage (between the first and the second), and the Capped Growth stage (between the second and the third stage). These organizations are disengaged from the growth process after successfully expanding to modest size. These are akin to the stage III-D organizations in the Churchill & Lewis (1983) model.
According to Ernst & Young (2008) there are three distinct growth stages. The Emerging Enterprises Stage where organizations concentrate on identifying market opportunities, sources of funding, and recruiting the right people to kick-start the business, and the Rapid-Growth Stage when they focus on becoming a supplier of choice for their most valuable customers, managing expansion and securing additional capital. Third is the Next-Generation Market Leader Stage where the key is to work effectively across global networks, balance entrepreneurial spirit with corporate culture, and optimize the capital structure. The six key challenges required to be addressed include managing risk, managing transactions and alliances, operational effectiveness, finance, customer recruitment, and people recruitment. Each of these factors is important to various degrees at the three stages of growth.
‘States’ instead of ‘Stages’ – Other Models
McMohan (1998) argued for a reconsideration of the conceptual framework that represents SME growth as a series of stages of development (enterprise life-cycle approach). According to Phelps, Adams, and Bessant (2007) the organizational life-cycle models assume that organizations go through predictable stages, and there is little consistency either in the numbers of elements that define these models or in their constitutive components. They also state that these models suffer from being linear, unidirectional, sequenced and deterministic. They proposed a ‘States’ model of growth instead of the ‘Stages’ model of growth. In the model, the problems faced by organizations at transition points in their organization’s life are categorized into six major categories or ‘tipping points’. This model is consistent with the punctuated equilibrium (stability and crisis periods) concepts mentioned in Greiner (1998). There is no standard linear sequence of stages or problems, but there is a basic set of key factors that growing firms can expect to encounter at the tipping points. Absorption of knowledge, and solutions to navigate the tipping points successfully is the key to growth. The level of knowledge evolves from becoming aware to acquiring knowledge to implementing the solutions. The six tipping points are market entry, operational improvement, people management, obtaining finance, formal systems and strategy.
According to Levie and Lichtenstein (2009), the stages models and life-cycle theories of business and entrepreneurial growth are not representative of entrepreneurial firms. Instead, they proposed the ‘dynamic state’ approach. This is a network of beliefs, relationships, systems and structures that convert opportunity tension into tangible value for an organization’s customers/clients, generating new resources to maintain the dynamism.
According to Fadahunsi (2012), the factors influencing a firm’s growth are Entrepreneurial (Motivation, education, ownership / management experience, number of founders, ethnicity / race, age and gender), Organizational (Age, sector, location, size and ownership FORM), Strategic (workforce and management training, marketing strategy, internationalization, technical resources, planning, external advice and support and Financial resources), and Environmental (National / regional, Sectorial and local).
Themes and Uses
The stages / states of growth models mentioned above broadly indicate that organizations can be classified to be in at a particular stage or state. The classification helps identify the peculiar current needs of the organization for transition into the next stage. The evolution process has a pattern of increasing complexity of the organization coupled with detachment of management from ownership. As organizations grow, the systems become more formal and are critical for efficiency. At earlier stages, the entrepreneurial spirit is more important, and at higher levels managerial and other skills (Human Resource, Finance management, inter-personal skills etc.) are relatively more important. The stages or states have periods of intervening equilibrium, and a major decision (during a crisis) is required to move to the next level. According to Greiner (1998), management practices which may work in one phase may be detrimental in another. So it is important to select the appropriate strategy.
For example, the later stage organizations can use the approach proposed by Baghai, Smit, and Viguerie (2009). They should identify micro-segments of customers, geographic regions and products where performance is increasing. They should invest resources (R&D, advertising mix) in areas with the strongest growth momentum, and abandon the low-growth areas. The early stage companies can use the approach proposed by Krogh & Cusumano (2001, p.59-60). They state that companies must learn to scale up and extend its business, lengthen its expansion phase, and accumulate and apply new knowledge to new products and markets faster than competitors. They can use the scaling strategy (how to do more of what it already does), duplication strategy (new geographical markets), and granulation strategy (identifying new product and market opportunities). The SCARF Model proposed by Rock (2008), can be used to reduce conflicts that occur and increase the collaboration by finding personalized strategies.
References
Baghai, M, Smit, S and Viguerie P 2009, Is Your Growth Strategy Flying Blind?, Harvard Business Review, May 2009.
Churchill, NC & Lewis, VL 1983, The Five Stages of Small Business Growth, Harvard Business Review, Reprint 83301, May-June, 1983, viewed 8 October 2013, <http://hbr.org/1983/05/the-five-stages-of-small-business-growth/>.
Ernst & Young 2008, Strategic Growth Markets: Why are some companies luckier than others?, viewed 8 October 2013, <http://www.ey.com/Publication/vwLUAssets/Why_are_some_companies_luckier_than_others/$FILE/Why_are_some_companies_luckier_than_others.pdf>.
Fadahunsi, A 2012, The Growth of Small Businesses: Towards A Research Agenda, American Journal of Economics and Business Administration 4 (1): pp. 105-115, 2012, viewed 8 October 2013, <http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=26&cad=rja&ved=0CFIQFjAFOBQ&url=http%3A%2F%2Fthescipub.com%2Fpdf%2F10.3844%2Fajebasp.2012.105.115&ei=Z8lSUriJMMvnrAfImYCwCA&usg=AFQjCNG9HgYF4pNNknH9Cni_eb8AL-QwIA&sig2=jPX0apbxHjksoeuxZ6sFbg>.
Greiner, LE 1998, Evolution and Revolution as Organizations Grow, Harvard Business Review, May-June 1998, viewed 8 October 2013, <http://hbr.org/1998/05/evolution-and-revolution-as-organizations-grow/ar/1>.
Hanks, SH, Watson, CJ, Jansen, E and Chandler, GN 1993, Tightening the life-cycle construct: a taxonomic study of growth stage configurations in high-technology organizations, Entrepreneurship Theory and Practice, vol. 18, no. 2, pp. 5-29.
Krogh, GV and Cusumano, MA 2001, Three Strategies for Managing Fast Growth, MIT Sloan Management Review, Winter 2001 Vol.42 No.2, pp. 53-61.
Levie, J and Lichtenstein, BB 2009, A Final Assessment of Stages Theory: Introducing a Dynamic States Approach to Entrepreneurship. College of Management Working Papers and Reports. Paper 17, viewed 8 October 2013, <http://www.strath.ac.uk/media/departments/huntercentre/research/workingpapers/media_146530_en.pdf>.
McMohan, RGP 1998, Stage Models of SME Growth Reconsidered, School of Commerce, Research Paper Series: 98-5, ISSN: 1441-3906, viewed 8 October 2013, <http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=2&ved=0CDEQFjAB&url=http%3A%2F%2Fwww.flinders.edu.au%2Fsocsci%2Fbusiness%2Fresearch%2Fpapers%2F98-5.doc&ei=0LpSUq_tDMSIrQed_IH4Ag&usg=AFQjCNF6S9a3zFkCIqfDE39CCpEdu71CeA&sig2=WpUbwx5TKclv8SqlayXteQ&bvm=bv.53537100,d.bmk
Phelps, R, Adams, R and Bessant, J 2007, Life cycles of growing organizations: A review with implications for knowledge and learning, International Journal of Management Reviews (2007), doi: 10.1111/j.1468-2370.2007.00200.x, viewed 8 October 2013, <http://www.mendeley.com/profiles/richard-adams1/>.
Rock, D 2008, SCARF: Brain-Based Model for Collaborating With and Influencing Others, NeuroLeadership Journal, Issue One, 2008, viewed 8 October 2013, <http://www.scarf360.com/files/SCARF-NeuroleadershipArticle.pdf>.
