UNDERSTANDING ORGANIZATIONAL GROWTH

GET READY TO UNDERSTAND ORGANIZATIONAL GROWTH!

Understanding organizational growth is a key factor in profit maximization and organizational relevance. Growth means enlargement, increase and expansion. Organizational growth is something for which most companies, large or small, strive for. Small firms want to get big, big firms want to get bigger. Organizational growth, however, means different things to different organizations. 

Certainly, for an organization to grow the managers, CEO's and Managing directors must understand how growth is defined, how it is achieved, how to cope with the different challenges that comes with organizational growth, how to identify the factors that hinders growth, how to measure organizational growth, and also to comprehend the phases of organizational growth. In this article we shall begin by exploring concisely the phases of organizational growth and how to measure organizational growth. 

PHASES OF ORGANIZATIONAL GROWTH 

Understanding the various unique phases of organizational growth will not only enable you to evaluate your current position in the growth circle, but it will also enable you to effective and efficiently equip your self with the appropriate knowledge of how to explore your potentials for maximum utilization. A handful of scholars and management theorists have developed models of how organizations change and grow. In this article we are going to look at one such model. This model is referred to as the Larry E. Greiner’s model of organizational growth. You can click here to see more!

Larry E. Greiner is a management and organization professor at the University of Southern California. His contribution has really brought tremendous changes the field of management Science. In his 1998 Harvard Business Review article entitled "Evolution and Revolution as Organizations Grow," he outlined five phases of growth interrupted by what he termed "revolutions" that shook up the status quo and ushered in the successive stage. Based on observations of historical company patterns, he outlined the phases of organizationalgrowth as follows: 

1.     Creative phase: This is the first phase of organizational growth. This is the phase where the company or organization concentrates all their efforts in creating products and following it up with efforts to reach the targeted markets. 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: This is the second phase of organizational growth. As the company begins to develop more products and capture large portions of the targeted markets, she begins to formalize business management methods and "professionalize" its practices, and this usually include centralizing power in the organization. 

3.     Delegation phase: This is the third phase of organizational growth. This is evidenced when centralization begins to prove weighty. 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. Any company who fails to embrace the phase of delegation will never grow, and the longer they remain in this condition, the sooner their extinction will become inevitable.

4.     Coordination phase: This is the fourth phase of organizational growth. Coordination is needed when decentralization becomes excessive or inefficient. In this phase, 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: This is the fifth phase of organizational growth. This is introduced where there is too much evidence of bureaucratic and inflexible efforts. 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. 

6. Extra-Organizational Solutions Phase. Greiner's recently added sixth phase suggests that growth may continue through merger, outsourcing, networks and other solutions involving other companies. Growth rates will vary between and even within phases. The duration of each phase depends almost totally on the rate of growth of the market in which the organization operates. The longer a phase lasts, though, the harder it will be to implement a transition.

In view of the above, it is becomes pertinently clear that many organization refuse to grow because at certain stages management lacks the able-ness and or willingness to shift its organizational paradigm. When certain individuals at the top are reluctant to give up power once it's in their hands organizational inactivity and frustration is eventual manifested.

MEASURING ORGANIZATIONAL GROWTH 

There are various methods used to measure organizational 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 its stated goals.Number of employees: Some businesspeople boast of the number of employees in their companies or departments. However, the quantity of employees in the company does not produce a good yardstick to say the organization is growing. This is because quantity does not mean quality. It is the quantity of quality employee in an organization that determines the growth of that organization. This is because their contribution to growth of the organization is evidenced in their creative and innovative products. To hire quality employees, 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. 

Revenue: A company is described by its revenues as an "X million dollar company." Although this is probably the most commonly cited measure of corporate growth, it should not be tied to gross revenue or gross margin. It is an error to measure the growth of an organization based on its gross revenue or gross margins. The danger 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 twirl 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 profit margins should include calculating the return on investment (ROI), either for the company as a whole or for individual units or product lines. Return On Investment tells management whether the profits being generated are enough to compensate for the opportunity costs, the risks, and the time value of the money that the company has invested to produce those profits. A related metric is return on assets (ROA), which evaluates profits against the value of all the assets (capital, plant, equipment, etc.) the company has channeled into generating its income. 

For many companies, especially publicly held ones, the ultimate measure of growth is the creation of wealth for owners/investors. While net profits are an indication of wealth creation, companies (or their observers) may scrutinize their finances further to determine whether they are actually generating an economic profit, or a profit that exceeds the implicit cost of the capital invested in them. The company may be said to create new wealth after the cost of capital is met.

Market Value Added: The growth of an organization is measure by the degree of market value it has added. This is a more direct measure of shareholder wealth creation. In terms of other competitors position and influence, where a company stands, the market share it has play a pragmatic yardstick for measuring its growth.

In conclusion, I want to strongly stress that understanding organizational growth is a fundament requirement for organization relevance and profit maximization. When management is armed with this knowledge the sky becomes a starting point for the creation of profitable business empire.

For more related articles, click the links below:

1. http://wisemotivecom.blogspot.com/2010/09/how-to-achieve-organizatioanal-growth.html 
2. Get this right!

If this article has been a blessing to you, please feel free to pass it on to others. Also post a comment on this site to make your own contribution to this article. When you understand organizational growth you will be able to manage your company through the various stages or phases of organizational growth.

See you on top!