Organizational Growth

Topics: Venture capital, Profit, Management Pages: 5 (1607 words) Published: July 9, 2010
Growth is something for which most companies, large or small, strive. Small firms want to get big, big firms want to get bigger. Organizational growth, however, means different things to different organizations. How, then, is growth defined? How is it achieved? How does a company survive it? PHASES OF GROWTH

A number of scholars and management theorists have developed models of how organizations change and grow. One such model is that of Larry E. Greiner, a management and organization professor at the University of Southern California. In his 1998 Harvard Business Review article entitled "Evolution and Revolution as Organizations Grow," Greiner outlined five phases of growth punctuated by what he termed "revolutions" that shook up the status quo and ushered in the successive stage. Based on observations of historical company patterns, his phases were as follows: 1.Creative phase—when a company or subunit of a company is first formed, most attention and activity is focused on developing a product and reaching its market. 2.Direction phase—when the company begins to formalize business management methods and "professionalize" its practices, usually including centralizing power in the organization. 3.Delegation phase—when centralization proves too cumbersome for a large organization, it begins to delegate power and decision-making in various ways, such as by creating semi-autonomous business units/divisions and moving the reward/risk paradigm down to lower level managers and employees in general. 4.Coordination phase—when decentralization becomes seen as excessive or inefficient, management attempts to rein in the organization by merging or coordinating the activities of various fragmented parts of the company, demanding more accountability and creating unifying incentives such as profit sharing. 5.Collaboration phase—when central coordination efforts prove bureaucratic and inflexible, management adopts a team-based, cross-functional structure and more fluid policies that empower workers and promote dialog, experimentation, and negotiation. Greiner believed that many organizations stall at certain stages because management is unable or unwilling to shift its organizational paradigm, or especially, because individuals at the top are reluctant to give up power once it's in their hands. MEASURING GROWTH

In addition to such qualitative notions of organizational growth, there are many more tangible 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 as in the following examples. NUMBER OF EMPLOYEES.

Some businesspeople boast of the number of employees in their companies or departments. Employees in and of themselves, however, cost money. A better employee-based measure of growth is change in company or departmental revenue or profit generated per employee. This becomes a valuable measure of increasing (or decreasing) productivity, rather than a measure of labor and salary expense. REVENUES.

Every business magazine or newspaper describes a company by its revenues as an "X million dollar company." Although this is probably the most commonly cited measure of corporate growth, the pitfall of relying on gross revenue or gross margin as a measure of growth for an organization is that it completely ignores the expenses associated with generating those revenues. Greater revenues do not necessarily mean greater profitability. In periods of very quick "growth," expenses can spiral upward and out of control leaving a company strapped for cash and facing an uncertain future, at best. More useful, revenue-based measures of growth are increases (or decreases) in net profit or net margins. These methods account for the expenses incurred in generating revenues for the firm and identify the portion that is truly added to the bottom line. Special analyses of...
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