Organizational Growth

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Identifying and Surviving the First Four Stages of Organizational Growth

11 organizations pass through various stages of development. These stages are, at least in part, determined by the organization's size, as measured by its annual revenues (or for nonprofits, in terms of annual budget). This chapter presents a framework for identifying and explaining the major stages through which all organizations grow and develop as they increase in size. It should be noted that this framework applies to a division of a large company, as well as to an independent organization. First, we identify the various stages of organizational growth and examine the first four stages from the inception of a new venture to organizational maturity. Next, we examine the emphasis on each level in the Pyramid of Organizational Development that is required at each growth stage and explain the nature of the transitions to different stages. Then we discuss the differences between an entrepreneurship and a professionally managed firm and what must be done to make the transition between these growth stages. Finally, we discuss some implications of this framework for the management of entrepreneurial organizations.

A

STAGES OF ORGANIZATIONAL GROWTH
Seven stages of growth of a company's life cycle can be identified: 1. New venture II. Expansion 26

IDENTIFYING AND SURVIVING THE FIRST FOUR STAGES OF ORGANIZATIONAL

GROWTH

27

III. Professionalization IV. Consolidation V. Diversification VI. Integration VII. Decline and revitalization The first four stages characterize the period from inception of a new venture to the attainment of organizational maturity. This period includes the development of an entrepreneurship through the stage when the firm becomes a professionally managed firm. Stages V through VII all deal with the period of a company's life cycle after the attainment of organizational maturity. Because the principal focus of this book is on the development of companies from entrepreneurship to the stage of becoming a professionally managed firm, this chapter focuses on the first four stages of organizational growth. We return to the last three stages in Chapter Fourteen, which presents a preview of the challenges posed to continued organizational development success after an organization has reached maturity. At each of these stages, one or more of the critical tasks of organizational development should receive special attention. The stages of organizational growth - the critical development areas for each stage and the approximate size (measured in millions of dollars of sales revenues for for-profit companies and in terms of annual operating budget for nonprofits) -at which an organization will typically pass through each stage are shown in Table 2.1.

Table 2.1. Stages of Organizational Growth
Approximate Organizational Size (millions of dollars in sales) Critical Development Areas Manufacturing Firms

Stage

Description

Service Firms

I.
II.

New venture Expansion Professionalization Consolidation

Markets and products Resources and operational systems Management systems Corporate culture

Less than $1 $1 to $10 $10 to $100 $100 to $500

Less than $0.3 $0.3 to $3.3 $3.3 to $33 $33 to $167

III. IV.

28 GROWING PAINS A key word in this statement is typically. What this means is that for approximately 90 percent of manufacturing firms that have revenues in the range of $10 million to $100 million, they will typically have to encounter the critical issues of Stage III. There are, however, certain firms that will have to face these problems at a smaller size in their development or much later in their development. For example, there may well be a $3 million manufacturing firm that is facing the need to professionalize its management systems. Or a few firms may well reach $1 billion in annual revenue without really having to face the need to professionalize their management systems. Accordingly, we need to...
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