ORGANIZATIONAL GROWTH

Growth is something for which most companies, large or small, strive. Small firms want to get big, big firms want to get bigger. Indeed, companies have to grow, observed Philip B. Crosby, author of The Eternally Successful Organization, "if for no other reason than to accommodate the increased expenses that develop over the years. Inflation also raises the cost of everything, and retaliatory price increases are not always possible. Salaries rise as employees gain seniority. The costs of benefits rises because of their very structure, and it is difficult to take any back, particularly if the enterprise is profitable. Therefore cost eliminations and profit improvement must be conducted on a continuing basis, and the revenues of the organization must continue to increase in order to broaden the base."

Most firms, of course, desire growth in order to prosper, not just to survive. Organizational growth, however, means different things to different organizations. Indeed, there are many parameters a company can select to measure its growth. The most meaningful yardstick is one that shows progress with respect to an organization's stated goals. The ultimate goal of most companies is profit, so net profit, revenue, and other financial data are often utilized as "bottom-line" indications of growth. Other business owners, meanwhile, may use sales figures, number of employees, physical expansion, or other criteria to judge organizational growth.

WAYS IN WHICH ORGANIZATIONS ACHIEVE GROWTH

Many academic models have been created that depict possible growth stages/directions of a company, but management consultant Tom Peters suggested that there are several "real-world" ways in which both large and small companies may pursue a course of organizational growth.

* Joint Venture/Alliance—This strategy is particularly effective for smaller firms with limited resources. Such partnerships can help small business secure the resources they need to grapple with rapid changes in demand, supply, competition, and other factors. Forming joint ventures or alliances gives all companies involved the flexibility to move on to different projects upon completion of the first, or restructure agreements to continue working together. Subcontracting, which allows firms to concentrate on those aspects of their business that they do best, is sometimes defined as a type of alliance arrangement (albeit one in which the parties involved generally wield differing levels of power). Joint ventures and other business alliances can inject partners with new ideas, access to new technologies, new approaches, and new markets, all of which can help the involved businesses to grow. Indeed, establishing joint ventures with overseas firms has been hailed as one of the most potentially rewarding ways for companies to expand their operations. Finally, some firms realize growth by acquiring other companies.
* Licensing—"License your most advanced technology," advised Peters, who argued that truly proprietary technologies are quickly becoming extinct. Peters and other consultants contend that competitors will soon copy whatever a company develops in the realm of technology (and other areas), so it may make good sense for a company to turn to licensing. This creates cash flow for the company to fund future research and development.
* Sell Off Old Winners—Some organizations engaged in a concerted effort to grow divest themselves of mature "cash cow" operations to focus on new and innovative product or service lines. This option may sound contradictory, but analysts note that businesses can command top prices for such tried and true assets. An addendum to this line of thinking is the divestment of older technology or products. Emerging markets in Latin America and Eastern Europe, for instance, have been favorite places for companies to sell products or technology that no longer attract high levels of interest in the United States. These markets may not yet be able to afford large quantities of state-of-the-art goods, but they can still benefit from older models.
* New Markets—Some businesses are able to secure significant organizational growth by tapping into new markets. Creating additional demand for a firm's product or service, especially in a market where competition has yet to fully develop, can spur phenomenal growth for a small compan, although the competitive vacuum will generally close very quickly in these instances.
* New Product Development—Creation of new products or services is a primary method by which companies grow. Indeed, new product development is the linchpin of most organizations' growth strategies.
* Outside Financing—Many small companies turn to outside financing sources to fund their expansion. Smaller private firms search for capital from banks, private investors, government agencies, or venture capital firms.

PROBLEMS ENCOUNTERED WITH ORGANIZATIONAL GROWTH

Small business owners seeking to guide their organizations through periods of growth—whether that growth is dramatic or incremental—often encounter difficulties. After all, when a firm is small in size, the entrepreneur who founded it and usually serves as its primary strategic and operational leaders can often easily direct and monitor the various aspects of daily business. In such environments, added Theodore Caplow, author of Managing an Organization, the small business owner can also "understand a larger proportion of the relationships subordinates have with each other and with outsiders." Organizational growth, however, brings with it an inevitable dilution of that "hands-on" capability, while the complexity of various organizational tasks simultaneously increases. "As the organization grows," said Caplow, "control becomes more complex by the mere accretion of numbers. There are ways of reducing the complexity by delegating responsibility and installing better date systems but there is no way of avoiding it altogether."

According to Caplow, organizational growth also triggers an almost inevitable "diminution of consensus about organizational goals." He attributed this "in part to the inherent difficulty of getting a larger number of people who know each other less well to agree about anything, in part to the importation of new people and ideas, but mostly to the brute fact that as an organization grows, its relationships to its members and to the environment necessarily change." Oftentimes, organizational growth has a transformational effect on the business, especially if the growth has been realized via dramatic rather than incremental means (opening of a second store, a new promotional blitz for a popular product, major expansion of services, introduction of an online web site, etc.), and Caplow pointed out that such growth can be particularly disorienting for employee and owner alike: "often the people involved may not realize that anything significant has occurred until they discover by experience that their familiar procedures no longer work and that their familiar routines have been bizarrely transformed."

Small business owners, then, face a dizzying array of organizational elements that have to be revised in accordance with changing realities. Maintaining effective methods of communications with and between employees and departments, for example, become ever more important as the firm grows. Similarly, good human resource management practices—from hiring to training to empowerment—have to be implemented and maintained. Establishing and improving standard practices is often a key element of organizational growth as well. Indeed, a small business that undergoes a significant burst of growth will find its operations transformed in any number of ways. And often, it will be the owner's advance planning and management skills that will determine whether that growth is sustained, or whether internal constraints rein in that growth prematurely.

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