Phases of the SMEs Growth – Term Paper

If a firm makes it through the first phase, it transits to a growth evolutionary period that is direction oriented since it has acquired a capable managerial body. Specialization and segmentation of the managerial body: marketing, manufacturing and human resource segments. More complex and efficient accounting techniques are adopted where Standard Operational procedures (SOPs) are adopted in the day to day activities including use of budgets and incentives (Roberts and Hirsch, 2005). Responsibilities are more defined for the manager and all the supervisors in the firm following a specific hierarchy and a more impersonal and formal communication observed by all in the firm (Greiner, 1997).

A revolution stage follows which can be attributed to the autonomy of the firm. The firm has become more complex and diverse in composition and coverage and therefore crucial market information is known more to the lower-ranked employees than it is by the higher-ranked personnel (managers and supervisors). A crisis thus arises from the initial decision makers who find it hard to delegate decision making responsibilities and from the lower-ranked employees who see it pointless to consult the higher-ranked but less informed ‘authorities’. Reassignment of responsibilities is therefore impeccable for the growth of the firm to persist and progress to another level (Greiner, 1997).

The third phase entails the evolution stage of delegation. Having developed a decentralized structure of the organization the firm now focuses on motivating its employees and customers through offering of bonuses and profit centers. The management is now heavily inclined to the top managers and the executives in the firm who managerial decisions based on the incoming intermittent field reports. They are delegated with the responsibility of marking their territories in the market. There exists easier communication between the higher ranked and the lower ranked staff whereby telephone communication and direct visits are employed. The decentralized structure therefore ensures innovation, easy penetration and response to customer demands since the lower ranked staff are well motivated. Notably, the main goal of delegation is staff motivation.

Crises arise when it comes to control. A need for a unique coordination arises in the firm since most of the top ranked staff members (mostly the managers) have closed minded attitudes strive to attain a centralized organization structure so that they can regain full control of the firm since they come to the realization that they are pre-exposed to more ‘low-ranked’ activities such as field visits. However, due to the complexity of the organization’s structure, regaining of control is inhibited (Greiner, 1997).   

Ultimate coordination is achieved in the fourth phase through enactment of formal systems, headed by former executive leaders. Product groups are developed in place of decentralized groups whereby more personnel are hired into the main firm so as to initiate manager review and control programs (Roberts and Hirsch, 2005). Allocation of firms to production is now done based on the capital returns and expenditure observed through the firm’s returns records. Further, organizational identity is encouraged through sharing of profits and freedom of stock-options attributed to each firm by the headquarter firm. Operation and typical decision making is left decentralized even though most technical functions are left only with the headquarter firm (Greiner, 1997).

The revolution associated with this phase is the red-tape predicament. As Greiner (1997) puts it, ‘a proliferation of systems and programs begins to exceed its utility and a red-tape crisis results’. The biggest indicator of this crisis is the dampening of innovation and problem solving procedures in the grown firm due to shaken confidence between the general staff and the line of managers present in the firms.  A need arises for a revolution in the management system since the firm structure has become of a larger and complex scope and cannot be subjected to the available formal and non-flexible management systems.

The final phase of SMEs growth is that which the staff members and the line of managers are forced to collaborate so as to get past the red-tape crisis. Interpersonal differences are skillfully tackled through spontaneous team-managerial tactics (Gomez, 2007). Rather than formal systems, self and social controlled discipline is initiated thus attaining a more behavioral and flexible approach towards management. The phase is mainly characterized by: team building in the problem solving and the task assignment functions; reassignment of staff experts in the headquarter firms so that they are compacted into consultation teams; a matrix organizational structure employing multipurpose systems rather than formal systems; the major issues (problems) are solved by the top managers in frequently conducted conference meetings; the managers and the members of staff are trained how to function as a team; ultimate rewards are given to the best and effective team operation rather than to the best individual achiever; and venturing into new firm practices which better its functionality (Greiner, 1997).

As noted in figure 2, the crisis (revolution) at this phase is uncertain and yet to be established. Nonetheless, Greiner (1997) suggests that the major revolution in this stage would crop out from the staffs’ psychological being. He terms it as the ‘psychological saturation’. Where the staff is overwhelmed by the success they have attained in of their firm such that they will be psychologically satisfied and at the same time, ironically, they will be withdrawn from the much excitement. As such, they will have psychological crisis during their normal operations and a need will rise for a major rest from all the achievements so as to relieve the mind. A periodic rest (vacations) from the overwhelming work environment is the best remedy for the members of staff at this stage.

This model exploits five major phases of the SMEs growth ‘journey’. In the model Scott and Bruce (1987) seek to formulate a model that can be considered by the SMEs so as to develop feasible strategies in their aspiration for development. It is important to note that the model was developed in close study of the Greiner’s model and thus the two models are prone to many similarities.

The model (as shown in figure 3) incorporates the stages: inception, survival, growth, expansion and maturity as the main phases of growth of SMEs. The axes of the model illustration constitute size (y-axis) and age (x-axis). In this case the age strictly represents the time duration within which the firm has been functional in a given market setting. The time period is dependent on the ability of each firm to adapt to the changes corresponding to the growth and also to the ability of the individual firm to respond efficiently to the corresponding threats (crises) as it grows (Blakstad, 2008). On the same token, it is important to note that size in this model is not narrowed down to any specific definition but rather it varies depending on the firm in question. However, on a general scenario, the size is dependent on the sales, returns, number of employees, and market coverage of the individual firms (Scott and Bruce, 1987). Of importance also are the transitions between two successive stages. In this model the transitions are denoted by the ‘crisis’ mark. In line with this is the fold which is represented by the dotted curve lines. The fold represents the failure of the firm if it does not respond and adapt to the crises encountered after growth. Scott and Bruce don’t fail to mention the fact that firms collapse mostly during the transition period from one growth stage to another if they fail to adapt to the prevailing conditions.

Figure 3: SMEs growth model (Scott and Bruce, 1987, p 47).