Organizational Growth Law and Legal Definition
Growth is something for which most companies strive, regardless of their size. Small firms want to get big, big firms want to get bigger. Indeed, companies have to grow at least a bit every year in order to accommodate the increased expenses that develop over time. With the passage of time, salaries increase and the costs of employment benefits rise as well. Even if no other company expenses rise, these two cost areas almost always increase over time. It is not always possible to pass along these increased costs to customers and clients in the form of higher prices. Consequently, growth must occur if the business wishes to keep up.
Organizational growth has the potential to provide small businesses with a myriad of benefits, including things like greater efficiencies from economies of scale, increased power, a greater ability to withstand market fluctuations, an increased survival rate, greater profits, and increased prestige for organizational members. Many small firms desire growth because it is seen generally as a sign of success, progress. Organizational growth is, in fact, used as one indicator of effectiveness for small businesses and is a fundamental concern of many practicing managers.
Organizational growth, however, means different things to different organizations. There are many parameters a company may use to measure its growth. Since the ultimate goal of most companies is profitability, most companies will measure their growth in terms of net profit, revenue, and other financial data. Other business owners may use one of the following criteria for assessing their growth: sales, number of employees, physical expansion, success of a product line, or increased market share. Ultimately, success and growth will be gauged by how well a firm does relative to the goals it has set for itself.
WAYS IN WHICH ORGANIZATIONS ACHIEVE GROWTH
Many academic models have been created that depict possible growth stages/directions of a company. Six of the most commonly used methods for creating organizational growth within a small business are discussed below.
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—A firm may wish to expand and grow by licensing its most advanced technology. This course of action is often recommended to firms with their own proprietary technologies because competitors will likely copy whatever a company develops at some point. Licensing is one method that can be used to maximize the benefit that a firm can gain from its technology. It is also a way to gain the resource to fund future research and development efforts.
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 lines of products or services. 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 company, although the competitive vacuum will generally close very quickly in these instances. In the last ten years, many small firms have turned to an online marketing presence as a tool for reaching beyond their traditional markets. For those who do not yet market and sell online, this is one area that may be explored.
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
Organizational growth has obvious upsides. It spurs job creation. It creates a stimulating and exciting environment within a firm. It creates opportunities for the business founder and others in the company to become wealthy. Organizational growth also has downsides. When growth is too rapid, chaos can prevail. In such a situation a company may see increased sales but a drop in profits. A business may outgrow the skills of its leader, its employees, and its advisers. All those involved are likely to become stressed out trying to keep up with the demands of expansion.
Small business owners seeking to guide their organizations through periods of growth—whether that growth is dramatic or incremental—must plan to deal with both the upsides and downsides of growth. 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 an environment, the business owner and founder understands the personalities within the firm, the relationships that each has with others in the company, as well as with suppliers and customers. Organizational growth, however, brings with it an inevitable dilution of that "hands-on" capability, while the complexity of various organizational tasks simultaneously increases. As small organizations grow, so to do the complexities of managing the organization. There are ways of reducing the complexity by delegating responsibility and installing better date systems but there is no way of avoiding it altogether.
Most entrepreneurs who are fortunate enough to experience growth soon discover that success as a business owner doesn't mean you have arrived and can now sleep at night. Expanding a company doesn't just mean grappling with the same problems on a larger scale. It means understanding, adjusting to, and managing a whole new set of challenges. It often means building and managing a very different sort of business. Organizational growth almost always produces a company that's much more complex—one that needs a much more sophisticated management team, and one that may well need a new infrastructure.
Organizational growth, then, may well require as much planning, effort, and work as did starting a company in the first place. Small business owners face a dizzying array of organizational elements that have to be revised during a period of growth. 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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Hillstrom, Northern Lights
updated by Magee, ECDI