Glass ceilings to organizational growth
W. Evenhuis
Glass ceilings to organizational growth
W. Evenhuis
Studentnummer: 1062638
Afstudeerbegeleiders:
D.F.F.R. Maccow C. Carroll
Begeleider EIM:
R.G.M. Kemp
Den Haag, 24 maart 2004
De auteur is verantwoordelijk voor de inhoud van het afstudeerverslag; het auteursrecht van het afstudeerverslag ligt bij de auteur.
Most recent EIM reports and much more on SMEs and Entrepreneurship can be found at: www.eim.nl/smes-and- entrepreneurship.
Preface
The process of doing this research can be compared with the process of running into and breaking through a glass ceiling to growth by organizations. After I had initially developed my broad strategy, and started working, I soon realized stable growth. Inevitably, I was confronted with some glass ceil- ings to growth. At those moment I had to reconsider my strategy, my resources, myself, and my devel- oped routines.
In the following reorientation phases, I had help from several experts. Therefore I would like to express my thanks to a few people. First, I would like to thank Ron Kemp, who has aided me throughout the research, for his support and inspiration. I would also like to thank Delano Maccow for giving important advice and recommendations during the research process. Next to that, I thank Charles Carroll and Wynand Bodewes for their help and suggestions on dealing with complex theories.
Den Haag, March 2004 Wessel Evenhuis
Summary
Growing organizations provide for employment growth, which is an important policy issue. However, some organizations are unable to grow because of glass ceilings to organizational growth. A glass ceil- ing to organizational growth is a dominant problem that a growing organization limits in its growth. This problem is related to the growth itself and has to be overcome to be able to continue to grow.
The central question of this research is:
How do glass ceilings to growth appear over time?
The central question is divided into four sub-questions:
1 What is organizational growth?
2 Which growth phases does an organization go through, which characteristics of an organization are important in the distinguished growth phases, and how does an organization move from one phase to the next?
3 Which determinants of organizational growth can be distinguished?
4 How do organizations in the furniture industry deal with glass ceilings to organizational growth?
In this research, organizational growth, and thus glass ceilings to organizational growth relate to or- ganic growth in size, in number of employees. Organizations in stable markets are viewed, that have the intention to grow, because these are likely to be confronted with these glass ceilings to growth.
A glass ceilings to growth model is developed, based on the organizational life-cycle model of Garnsey (1998). Organizations go through several distinguishable growth phases, which are followed by reori- entation phases. A growth phase is eventually ended when an organization is confronted with a glass ceiling to growth. In a reorientation phase, an organization needs to adapt some of its characteristics in order to pass the glass ceiling to growth. These characteristics relate to the variables resources, en- trepreneurial/managerial skills, and strategy. Adapting the characteristics of an organization however is problematic, because an organization develops routines. These routines are related to the glass ceiling to growth variables. The developed routines are useful during a growth phase, because they then sup- port organizational functioning. This leads to organizations having relative inertia. Eventually, an or- ganization comes across a glass ceiling to growth again, and needs to adapt its strategy, resources, and entrepreneurial/managerial skills, and the related routines in a reorientation phase. However, this adaptation is difficult, because of the routines that support growth during a growth phase. It is impor- tant that an organization makes the adaptations that are needed to pass a glass ceiling to growth in a reorientation phase, which can be rather drastically. An organization however tends to remain close to the initial state of the organization, and therefore may not be able to make the needed adaptations, and therefore may not be able to break through a glass ceiling to growth. A glass ceiling to growth thus is rooted in the (early) development of an organization.
In this research, not so much the specific routines are viewed, but merely a routinization of the vari- ables that are thought to lead to glass ceilings to organizational growth. These variables resources, entrepreneurial/managerial skills, and strategy are further operationalized based on an extensive litera- ture review. Resources relate to human capital resources, physical capital resources, organizational capital resources, and financial capital resources. Entrepreneurial/managerial variables relate to per- sonal competencies, motivation, and future orientation. Strategy relates to market approach and set- ting strategy.
The developed glass ceilings to growth model is empirically tested in a cross case analysis in the Dutch furniture industry, in which six organizations were researched.
All organizations came across one or more distinct reorientation phases. The organizations have rela- tive inertia in strategy, resources, and entrepreneurial skills during a stable phase, but no specific rou- tines can be attached to the variables that lead to glass ceilings to growth. Organizations do adapt in the reorientation phase, but tend to remain close to the initial state of the organization. Therefore, the organizations, both small and large, may not be able to break through a glass ceiling to growth.
All classes of variables seem to influence organizations to come across glass ceilings to growth. How- ever, no specific glass ceilings to growth were found that can be attached to specific groups of organizations at specific moments.
Initial support thus was found that the developed glass ceilings to growth model seems applicable, but there are some major limitations to the research. A number of theories is considered, which were sometimes difficult to integrate. Therefore, in further research, the theories need to be integrated bet- ter. Next to that, the research was conducted on a small scale in an industry that was not the most suitable for this research, because there were little organizations that grow substantially. Therefore, the model needs more testing.
Contents
1 I n t r o du ct io n 1 3
1 . 1 A i m a n d c e n t r a l qu e s t i o n 1 3
1 . 2 S u b - q u es t i on s 1 4
1 . 3 Re s e ar c h s tr u c t ur e 1 4
1 . 4 S t r uc t ur e o f t h e r ep o r t 1 5
2 As p ec t s o f o r ga n iz at i on a l g r owt h 1 7 2 . 1 Di s t i n g ui s h i n g o r g a ni z a t i on a l g r o wt h 1 7
2 . 2 I n t e n t i o n t o g r o w 1 9
2 . 3 Or g a n i z at i o na l g r ow t h r a t e s 2 0
2 . 4 Co n c l u s i o ns a n d i m p l i c a t i o ns 2 2
3 L it e r at u r e r e vi ew 2 5
3 . 1 Or g a n i z at i o na l l i f e- c y c l e m o d e l s 2 5
3 . 2 Cr i t i c i s m o n o r g a n i z at i o na l l i f e- cy c l e m o d e l s 2 7 3 . 3 Gl as s c e i l i ng t o or g a n i z a t i o n al g r ow t h v a r i a b l e s 2 8 3 . 4 T ow ar ds a g l a s s c ei l i n g s t o g r o wt h m od e l 3 0
3 . 5 Re o r i e n t a t i o n 3 4
3 . 6 Co n c l u s i o ns a n d i m p l i c a t i o ns 3 5
4 O p er a t io n al iz at i on o f v ar i a b le s 3 7
4 . 1 Op e r a t i o n al i z a t i o n 3 7
4 . 2 Co n c l u s i o ns a n d i m p l i c a t i o ns 4 2
5 M e t ho d ol og y an d co n t ex t 4 4
5 . 1 Ca s e s t u di es 4 4
5 . 2 Ca s e s el ec t i o n 4 4
5 . 3 Da t a c o l l e c t i on 4 6
5 . 4 Da t a a n al y s i s 4 6
5 . 5 Re s e ar c h c o n t ex t 4 7
5 . 6 Co n c l u s i o ns a n d i m p l i c a t i o ns 4 9
6 Ca s e a n al y s is 5 1
6 . 1 T he c a s es 5 1
6 . 2 Cr o s s c a s e a n a l y s i s 5 6
6 . 3 Co n c l u s i o ns a n d i m p l i c a t i o ns 6 1
7 Co nc lu s io ns , l im it at i on s , an d s ug ge s t io n s f or f urt h e r
r e se a r ch 6 5
7 . 1 Co n c l u s i o ns 6 5
7 . 2 L i m i t at i o ns 6 7
7 . 3 S u g g es t i on s f o r f ur t h er r e s e a rc h 6 9
Ref er e nc e s 7 1 Ann e x 1 I n t e r v ie w q u e s t io ns Er ro r! Bo o k ma rk no t d ef i n e d.
1 Introduction
Growing organizations provide for increasing employment, and thereby economic growth. However, not all organizations grow. Some organizations do not even want to grow. In the Netherlands there are relatively little organizations that grow substantially. Starting organizations are often small and remain small over time (Ministerie van Economische Zaken, 1999). In order to support employment growth and economic growth, the government focuses policy on organizational growth and the factors limiting this organizational growth.
Organizational life-cycle literature focuses on factors limiting organizations in their growth. In this litera- ture, dominant problems at different moments in time are studied that have to be overcome in order to continue growth. It is stated that organizations face different dominant problems at different moments as a result of their growth.
In literature there has been done quite some work to provide determinants of organizational growth.
Wiklund (1998), for example reviewed 70 articles concerning determinants of organizational growth, finding that different authors consider different variables to explain organizational growth. The charac- teristics of small growing firms are studied. This means that variables that explain why organizations grow are viewed, not so much factors limiting organizations in their growth.
Baljé and Waasdorp (1998) studied the development of fast-growing companies in the Netherlands, because these companies contribute strongly to economic development and employment. They con- clude that in high-growth organizations the original founders often still play an important role, and that these companies are able to effectively break through the ‘growth barriers’ that they encounter. Many organizations run into these ‘growth barriers’ or ‘glass ceilings’ to growth, as Baljé and Waasdorp (1998) call them. A ‘glass ceiling’ to growth is an invisible barrier to growth that organizations come across in their strive for growth, for example because the organizational structure needs to be adapted because of the increasing size of the organization.
Kemp and Verhoeven (2002) studied possible organizational growth patterns of high-growth compa- nies and theories that can explain these growth patterns. It appeared that a lot of these high-growth companies could not maintain high-growth over more than one period. They stated that these compa- nies possibly came across a ‘glass ceiling’ to growth as well.
1.1 Aim and central question
This study is part of an overall EIM-research on SME1 growth. This EIM-research covers the studies by Kemp and Verhoeven (2002) on growth patterns, Gibcus and Kemp (2003) on strategy, and Philipsen and Kemp (2003) on capabilities for growth. These studies altogether are the basis for a large-scale research on growth of SMEs that will be carried out in 2004. This current study is complementary to these studies and focuses on glass ceilings to organizational growth. This is a new subject for EIM.
The research therefore will be rather explorative.
This overall study is part of research on SMEs and Entrepreneurship that EIM conducts for the Nether- lands’ Ministry of Economic Affairs. The study is conducted for government-policy, which focuses on employment.
1 small and medium enterprises
This study focuses on barriers to growth that organizations may come across. Little is known about how these barriers appear, and especially on how organizations deal with these barriers. These barri- ers are called glass ceilings. The aim of this study is to provide insight in how organizations deal with these glass ceilings to organizational growth.
These possible glass ceilings are to be explained and the determinants that account for these glass ceilings are to be found. Next to that, the actions that organizations perform to break through these glass ceilings are to be provided. This leads to the following central question:
How do glass ceilings to growth appear over time?
In this study, a ‘glass ceiling to organizational growth’ is defined as a dominant problem that a growing organization limits in its growth. This problem is related to the growth itself and has to be overcome to be able to continue to grow. This implies that a glass ceiling can be broken through by active actions and activities undertaken by an organization.
1.2 Sub-questions
To provide an answer to the central question, this question is divided into four sub questions:
1 What is organizational growth?
2 Which growth phases does an organization go through, which characteristics of an organization are important in the distinguished growth phases, and how does an organization move from one phase to the next?
3 Which determinants of organizational growth can be distinguished?
4 How do organizations in the furniture industry deal with glass ceilings to organizational growth?
1.3 Research structure
The research is based on an extensive literature review in order to identify the variables that may lead to a glass ceiling to growth. Furthermore, the relationships between these variables and growth will be studied. This will be done through a literature review on growth phases that an organization goes through, and a review on determinants of growth and how the factors that affect growth can lead to a growth ceiling.
The first sub-question is used to mark off the boundaries of the research. Choices are made regarding which organizations and which markets will be viewed. These choices are based on literature that fo- cuses on different types of organizational growth, and different types of growing organizations. The second sub-question deals with literature on organizational growth over time. Here, organizational life- cycle literature will be reviewed, as well as other literature that provides insight in organizational growth problems over time that may complement life-cycle theory and lead to a model that explains when and why glass ceilings to growth may appear. In answering sub-question 3, literature on organ- izational growth determinants will be looked at in order to complement the developed glass ceilings to growth-model. In this research, the variables that determine organizational growth are thought to ac- count for glass ceilings to growth. This will be tested empirically.
In answering sub-question 4, the glass ceilings to growth that organizations may be confronted with are researched empirically in the furniture industry. The glass ceilings to organizational growth are based on the concepts stemming from the literature review. This is a first test of the developed glass ceilings to growth-model. Emphasis in this research however will be on the development of a model that explains when and why glass ceilings to growth may appear.
Because of the explorative nature of this research and the complex relations between the concepts, the empirical research will be qualitative. This type of research provides for good insights in the com- plex change-processes that organizations go through in overcoming a glass ceiling to growth. It then is possible to obtain in-depth insight in the processes that may lead to glass ceilings to growth. A multi- ple-case study will be conducted in order to gain information on glass ceilings to growth. The case study will be conducted in the Dutch furniture industry, and contains six organizations of different size.
Therefore interviews are held with entrepreneurs/managers, and additional background information is considered. The case-study research will lead to a view on the actual appearance of glass ceilings to growth. The research will not be normative in nature, but is used to gain understanding for glass ceil- ings to growth over time.
This qualitative research will be followed by a quantitative research on glass ceilings to growth to pro- vide a more extensive view on these glass ceilings. This will not be done in this research, but in a next EIM-research. This research thus is rather explorative in combining theories. In the next research, the glass ceilings then can be considered more specific.
1.4 Structure of the report
In the second chapter, the aspects of organizational growth that will be taken into account in the following chapters are discussed. The chapter deals with definitions of organizational growth, differences between organic and non-organic growth, the intention to grow, the influence of the market on growth, and organizational growth rates.
The third chapter deals with organizational growth over time. Here, organizational life cycle theories and an evolutionary theory of economic change (Nelson and Winter, 1982) are considered in order to comprehend the dynamic nature of organizational growth. Life cycle theories prescribe when and how organizations need to change as a result of growth, or because of developments in the environment.
The focus in this research is on change-processes. Life-cycle theories do not provide a view on how organizations move to a next phase. This will be studied explorative, not normative, by complementing life-cycle theory with an evolutionary theory of economic change. This theory describes the complex nature of organizational growth, and explains that organizations tend to resist to change, because of organizational routines. These theories combined then serve as a framework for the appearing glass ceilings to growth over time.
Chapter 4 deals with the operationalization of the variables that are identified in chapter 3, which are thought to lead to glass ceilings to growth over time. Literature on organizational growth determinants is considered, which provides an explanation on variables that determine organizational growth. When these variables are not dealt with properly, this may lead to a growth barrier. The identified variables relate to the overall categories strategy, resources, and entrepreneurial/managerial skills.
Chapter 5 describes the methodology of the empirical research, and the research context. It deals with the choice for case-study research, and describes how data will be collected and analyzed. Here, a choice is made to perform the empirical research in a specific industry, namely the furniture industry.
The second part of the chapter describes the Dutch furniture industry as context for the cases, in order to illustrate the important developments herein.
Chapter 6 deals with the cases, and the cross-case analysis. It provides insight in the actual glass ceil- ings that organizations may be confronted with, and how these are dealt with. The research’s final conclusions then are presented in chapter 7, along with the limitations to the research and suggestions for further research.
2 Aspects of organizational growth
Organizations can pursue different types of growth, and follow different growth paths, which have dif- ferent implications for running into a glass ceiling to growth and breaking through this glass ceiling.
This chapter deals with the first sub question:
What is organizational growth?
This chapter can be seen as an introduction to the research and serves to set boundaries to the re- search. These boundaries will be explicitly considered in the empirical research, while they are used in the theoretical part of the research implicitly to judge the applicability of previous research for this re- search.
This chapter is divided in three sections. How an organization can grow is discussed in section 2.1.
Organizations can grow on different dimensions. Five definitions of organizational growth will be pro- vided. The limitations and consequences of these definitions exposed in previous research will be dis- cussed here. Afterwards, the realization of organizational growth, either by growing by themselves (autonomous growth) or by acquiring other organizations, is discussed. Next, the influence of the mar- ket on growth is considered. Organizations in a growing market are more likely to grow than organiza- tions in a stable market.
Literature takes the view that organizations have a growth objective, but not all organizations do strive for growth. The importance of the intention to grow by the organization or the entrepre-
neur/management-team therefore will be considered in section 2.2. Intention to grow is considered, because organizations that do not intend to grow are not likely to come across a glass ceiling to organ- izational growth.
Section 2.3 deals with growth patterns of organizations. Organizations that grow at different speed are likely to come across and deal with glass ceilings to growth differently. Therefore, organizations that belong to different growth classes may provide for interesting information on glass ceilings to growth.
2.1 Distinguishing organizational growth
This section deals with definitions of organizational growth, and which types of growth are considered in this study.
2 .1. 1 De f in it io ns of or g a niz at io na l gro wt h
Growth is the process of increasing in size. It is a dynamic process, taking place over time. Organiza- tional growth can be defined and measured in different terms. Crijns and Ooghe (1997) define organ- izational growth in four different ways, in which growth is seen as the increase of a certain parameter during a certain period of time.
Organizational growth can be distinguished in:
− growth in organizational size: growth seen as an increase in sales, added value, number of em- ployees, volume, etc.
− growth in profit: growth measured as an increase in profit before tax, return on investment, etc.
− growth in value: growth seen as growth in stockholder value or shareholder value.
− growth in quality: improving the quality of the organization. Seen in services, image, know-how, innovation, etc.
In the long term there often is overlap between these four meanings of organizational growth. Increase in profit, size or quality will often lead to growth in value. Classifications within each group are likely to be positively related in the short term as well; an organization growing in employment will often be growing in sales as well. Classifications between groups are not always positively related. These may even conflict. For example, growth in sales may be reached at the expense of growth in profit.
Also a combination of different definitions is possible. OECD (1997) used another definition of growth, namely growth in productivity. This conforms to added value per employee. Value is not the same here as distinguished by Crijns and Ooghe (1997). Organizations with higher productivity may replace com- panies with lower productivity, because such an organization is more efficient and able to produce at lower costs.
Measurement of organizational growth in research
Delmar (1997) reviewed 55 articles on the used measurement methods of organizational growth and demonstrated that researchers use different concepts for measuring growth, making it difficult to com- pare results from diverse studies. He states that three variables have impact on the results in research:
the choice of growth indicator, the choice of studied time period and the choice of the calculation (ab- solute, relative or logarithmic). Employment and sales are the most used variables for indicating growth in research. Delmar (1997) suggests that this is probably because these are objective meas- ures and they are easily available, not because they fit best to the goals of the research. He states that
‘growth measures are apparently chosen in a relatively ad hoc manner without any (reported) consid- erations to the theoretical consequences’. So in order to select appropriate indicators for growth in re- search, the goals of the research have to be accounted for.
2 .1. 2 O rg a nic an d non - or g anic gro wt h
Organizations can grow on their own, from within their original organization, or by acquiring other or- ganizations. Some authors name these types of growth internal growth and external growth (Crijns and Ooghe, 1997; OECD, 2002), while other authors distinguish between organic and non-organic growth (Davidsson and Delmar, 1997, Levie, 1997).
At a macro-level, non-organic growth does not create size or profit in the short term. Increase in for example employment or profit is realized at one organization and decreasing at another organization, so no net job creation or value creation is realized. In the midterm, an acquisition may lead to a de- crease in employment, because organizations redesign the new organization as efficient as possible.
For example, double functions are deleted. In the long term, these organizations can grow organically, after optimizing the processes. Non-organic growth in profit is realized by an acquisition, if the organi- zation is able to perform better. Growth in quality can be a motivation for an acquisition; an organiza- tion is aware of its lack of a certain quality and acquires the quality by acquiring another organization.
Non-organic growth in productivity can have synergy effects. Organizations become more productive, because knowledge is shared, or economies of scale are realized.
Organic growth is growth realized from within the organization, based on organizational actions and activities. In this case ‘new’ net employment or added value is created, leading to growth in size. Or- ganic profit growth can be reached through decreasing expenditures, which means improving effi- ciency, or through increasing sales. Organic growth in value is the result of growth in size, profit, qual- ity and/or productivity. This classification of growth reflects organizational growth well because it is based on the market value of an organization. Organic growth in quality means that for example ser- vices, image, know-how and/or innovation are improved in order to perform better. Organic growth in productivity is related to improving employee performance. This can be based on capital investments or by the development of individual workers, who learn to perform better.
2 .1. 3 G ro wt h i n st ab le mark ets
Organizations can grow because the market is growing; then all organizations in the market are able to grow, because total demand is increasing. Organizations do not necessarily have to perform as effec- tive or efficient as possible, and do not stop growing because of a glass ceilings to growth, but be- cause the market stops growing. Then they may find out that their organization does not act as effi- cient and effective as possible. Certain problems, e.g. no change in organizational structure, remain unnoticed until market growth stops. These organizations grow in absolute terms. The position relative to the competitors however will probably remain the same. Relative growth is realized when organiza- tions grow in relation to competitors. If this is done in a growing market, organizations may have a bet- ter market approach than other organizations. However, the internal organization is not necessarily consistent with the environment. So glass ceilings to growth may be ‘disguised’.
Organizations in stable markets can strive for growth as well. An organization then needs to differenti- ate from the other organizations in the market. These organizations can come across a glass ceiling to growth. It is important for an organization to distinguish themselves from other organizations, and have an appropriate consistent market approach and matching organization.
The organizations in a stable market then can come across glass ceilings to growth, when they intend to grow, but are unable to. A stable market then is defined as a market with little or no growth.
2 .1. 4 O rg a niz ati on a l g r o wth i n th is res ea rc h
This study focuses on employment in the Netherlands. Therefore, in this research, organic growth in organizational size in number of employees is considered. The study then deals with employment growth, which is an important subject in government policy. In other studies, organizational growth in size also is considered. It then is possible to integrate different studies that consider this perspective in the next chapters. Growth in stable markets is considered in this research, because organizations in these markets are most likely to come across genuine glass ceilings to growth.
2.2 Intention to grow
In literature on organizational growth, there often is the implicit assumption that organizations have the intention to grow. For example in organizational life-cycle literature, which will be discussed in the next chapter. However, not all organizations consider growth as an objective (Curran, 1986, Davidsson 1989, Wiklund et al., 2003). Hulshoff et al. (2001) say that three out of four starting organizations do not strive for an increase in personnel. Story (1994) argues that organizations may avoid growth be- cause it is risky. According to Davidsson (1989), willingness to grow is influenced by the perception of growth-opportunities. Wiklund et al. (2003) suggest that in determining an attitude towards growth, non-economic concerns may be more important than expected financial outcomes. Especially the con- cern for employee well-being is an important factor influencing the attitude towards willingness to grow.
Next to this belief, the beliefs of losing control over the operations of the organization, losing inde- pendence towards external stakeholders and the ability to survive crises can be seen as disadvan- tages of growing and therefore organizations might not consider growth an objective.
Davidsson (1991) focuses on the individual growth motivation of a manager. The intention to grow is influenced by the need to grow. Need is the perceived personal situation of a manager and its relation to personal goals. An organization will pursue growth when it feels the need to do so. The need to grow declines when organizational age and size increase, likely because profits are high enough to provide a satisfactory level of living for the manager. Also the manager’s age seems to be negatively related to organizational growth because no additional income might be needed. Need to grow is influ- enced by the personal aspirations to grow as well. An older manager might have less aspiration to grow, because the initial aspirations are reached (Davidsson, 1991).
S p i r i t s o f e n t e r p r is e
Julien (1998) states that entrepreneurs have different spirits of enterprise. This means they consider different objectives. Julien distinguishes two different types of entrepreneurs: PIGs and GAPs. These classifications are abbreviations for the objectives of an entrepreneur, in decreasing importance. PIG stands for Perpetuation – Independence – Growth; GAP stands for Growth – Autonomy – Perpetuation.
PIG entrepreneurs, who mainly strive for survival, will avoid risky changes. These entrepreneurs are resistant to chase market opportunities that risk the survival of the organization. These organizations are unlikely to realize continuous growth. GAP-organizations mainly strive for growth in order to realize financial outcomes. They are reinvesting to realize more growth. Only the organizations that pursue growth can be hindered by glass ceilings to growth. Organizations that do not have a growth intention are unlikely to experience a growth barrier, because they are not searching for growth.
Meijaard et al (2002) did research on the importance of the different objectives for entrepreneurs in SMEs in the Netherlands. Hereby should be noted that small organizations (up to 9 employees) are over represented. These organizations have realized (relatively) little growth, and the majority does not intend to grow as well. The results of this research are shown in table 1.
Table 1 Importance of different objectives for entrepreneurs in Dutch SMEs (including organi- zations without personnel)
Most important objective
Second most i mportant objective
Third most important
objecti ve Relative frequency
Perpetuation Autonomy /
Independence Growth 33%
Perpetuation Growth Autonomy /
Independence 24%
Autonomy /
Independence Perpetuation Growth 20%
Growth Perpetuation Autonomy /
Independence 13%
Autonomy /
Independence Growth Perpetuation 6%
Growth Autonomy /
Independence Perpetuation 3%
Source: EIM, in Meijaard et al (2002)
The largest group of entrepreneurs in Dutch SMEs represents the PIG type (33%). These do not intend to grow if it risks perpetuation. They are relatively small and will remain small as well. Only a small group of entrepreneurs (3%) represent the GAP type, considering growth as the most important objec- tive. This table shows that many organizations do not want to grow.
I n t e n t i o n t o g r o w i n t hi s r e s ea r c h
Organizations that do not have a growth objective will not be considered as coming across a glass ceil- ing to growth. Organizations that have the intention to grow, but are unlikely to do so, can come across a glass ceiling to growth. These are the organizations that can be helped by researching glass ceilings to growth. Studying the organizations that intend to grow and are able to do so as well, can help to identify the glass ceilings to growth, and, more importantly, can be useful to understand how these glass ceilings to growth can be broken through.
2.3 Organizational growth rates
Organizations follow different growth patterns. The government is interested in continuous growth and high-growth organizations, because then employment is created. However, little organizations realize
continuous and high growth. Organizations may be unable to realize continuous and high-growth be- cause a glass ceiling limits growth. How organizations do grow is represented in this section.
Organizations grow (and shrink) at different rates. This organizational growth rate can be classified, based on the growth of an organization over one time period. An organizational growth pattern emerges when organizational growth over more than one time period is viewed. Bangma and Verho- even (2000) identified five possible classifications for the growth rate of companies, based on growth in employment and turnover over a five-year period. Growth is measured using the EIM-index, which mixes absolute and relative employment growth. Organizations are classified as:
− fast-growing companies
− normal growers
− stable companies
− shrinking companies with high turnover
− other shrinking companies
The group shrinking companies with high-turnover consists of organizations that are decreasing their employment in order to grow in terms of turnover, for example by doing capital investments, replacing personnel by machines. This growth-strategy means a temporary decline. Therefore these are also named growth-shrinkers by the authors. In this group, not just employment is used to define the or- ganizations, but turnover as well.
Bangma and Verhoeven (2000) studied the annual growth rate within a five-year period and an eight- year period as well. They found that the annual growth rate of a company can vary. An annual steady growth rate is not common. Within all classes, some companies annually switch between high and low growth, or (high) growth and shrink.
Over a longer period there is a high mobility between companies in these growth classes. Over these multiple period, an organizational growth pattern can be distinguished. It is difficult for companies to keep the same growth rate over time (Bangma and Verhoeven, 2000). This becomes clear in table 2, which shows that for example only 40 percent of the organizations classed as high growth in the period 1990 – 1994 are still high-growth organizations in the period 1993 – 1997, while 44 percent become normal growers.
Table 2 Switchi ng patterns in growth rate comparing the periods 1990-1994 with 1993-1997 (destination)
Period 1990-1994
Fast-growing Normal grow-
ing Stable Shr inking Period
1993-1997 Fast-growing 40% 9% 3% 3%
Normal grow-
ing 44% 51% 25% 24%
Stable 7% 21% 50% 21%
Shrinking 10% 19% 22% 52%
Source: EIM; based on data of database Reach, bureau Van Dijk, in Kemp and Verhoeven (2002)
An explanation for the growth patterns can be the growth rate of a company that is influenced by a glass ceiling to growth. Remarked here is that within the five-year period, growth (or shrink) is not nec- essarily constant year by year. It may be realized erratic; one year high-growth, followed by no growth
or even shrink the next year, followed by normal growth, resulting in a certain growth classification over five years.
It then may be said that a growing company stops growing because it runs into a glass ceiling. If it is possible to break through the glass ceiling, it can continue to grow. Some companies may grow, or grow faster than other companies, because they are better able to identify a glass ceiling and break through this glass ceiling than other companies. It is also possible that organizations with different growth rates come across different glass ceilings to growth.
In literature there is a special interest in fast-growing companies (among others Baljé and Waasdorp, 1998; Davidsson and Delmar, 1997, 1998; OECD, 2002; Kemp and Verhoeven, 2002). Fast-growing companies contribute strongly to economic growth and job creation. Therefore, also policy makers are interested in high-growth companies to stimulate the development of these organizations. These fast growing companies are sometimes called ‘gazelles’ (Birch, 1979) or ‘flyers’ (Storey, 1994). The small number of these high-growth companies account for a large share of job generation. In the Nether- lands, the 8% fastest growing companies account for 50% of the gross job creation (Baljé and Waas- dorp, 1998). According to Storey et al (1987), out of every 100 small firms, the fastest growing four firms will create half the jobs in the group over a decade.
2.4 Conclusions and implications
In this part, the definitions of organizational growth, the ways this growth can be achieved, the different growth patterns, the intention to grow, and the classifications of markets on glass ceilings to growth are dealt with, in order to set boundaries to this research. These issues will be taken into account in the literature review on factors determining organizational growth and the stages of growth in the next chapters implicitly, and in the empirical part explicitly.
In researching which glass ceilings to growth may appear at what moment it is important to realize that organizations grow in diverse ways and that organizational growth can be defined differently. Growth can be defined in size, profit, value, quality and productivity. Glass ceilings to growth thus can be seen as problems in increasing size, profit, value, quality or productivity. In measuring growth it is important to realize that different researchers measure growth in different ways. In order to compare the results from their studies in a useful way, these differences should be paid attention to.
In this study, organizational growth and thereby glass ceilings to growth will be looked at in size (in number of employees). This is because the government is most interested in employment growth and how this can be improved. Another reason is that most studies concerning organizational growth con- sider growth in size. Therefore, choosing this organizational growth definition makes it possible to inte- grate different theoretical perspectives.
Growth can be realized organic or non-organic. Organic growth is growth realized by an increase in size, sales or productivity from within the initial organization, while non-organic growth does not create net employment or sales from within the organization, but by taking over an other organization. In re- searching glass ceilings to growth, these types of growth can lead to different types of glass ceilings to growth. In organic growth, the glass ceiling might appear smoothly. With non-organic-growth the glass ceiling might be perceived easier, because growth is more apparent. In this study, mainly organic growth will be viewed, because the perspective of growth in size, based on the government’s interest in employment growth is considered, and organic growth provides for the genuine net growth in em- ployment. Next to that, the empirical research in this study will be qualitative, based on a case study.
Therefore this research will be more representative if only organic growing organizations are viewed.
In previous theoretical and empirical research, the distinction between organic and non-organic growth was not always made. Therefore non-organic growth and the implications on the glass ceilings to growth will be viewed in the literature review as well.
Some organizations grow because the market is growing, and therefore do not necessarily perform as effective and efficient as possible. Organizations in stable markets that want to grow, on the other hand, need to undertake efficient and effective actions and activities in order to be able to grow, and therefore need to distinguish themselves from other organizations in the market.
Not all organizations consider growth an objective. Organizations that have growth as an objective and are actively pursuing growth may be better at perceiving the glass ceilings to growth, because they are aware of the risks of growing and pay attention to these risks that appear in the growth process. Some organizations do not have a growth objective, but are able to grow as well. These organizations may come across glass ceilings to growth, and stop growing because the glass ceiling is not perceived.
These organizations will not be viewed in this research. This study deals with organizations that have the intention to grow, but are unable to.
Different companies grow at different speed. Some companies grow fast while other companies grow slower or not at all. Most organizations do not grow at the same speed every year. In order to measure the pace of an organization reliable, growth should be measured over time. Different growth-types of organizations can be distinguished, based on their growth speed. Bangma and Verhoeven (2000) de- scribe fast-growing companies, normal growers, stable companies, shrinking companies with high- turnover and other shrinking companies. Organizations may stop growing or not be able to grow be- cause they come across a glass ceiling to growth, while other organizations may grow or grow fast because they are better able to detect and break through the glass ceiling. The glass ceiling a fast growing company may come across might differ from a glass ceiling normal or stable growers experi- ence. It is possible that these fast-growers are able to grow fast because they are better at detecting a glass ceiling, or that these are easier perceivable because they appear more sudden. It is possible as well that a fast-growing company might stop growing fast because it is unable to break through a glass ceiling to growth. Therefore it is important to be aware of different growth-types of organizations in re- searching glass ceilings to organizational growth. Therefore, organizations that belong to different growth-types are to be considered in the research on glass ceilings to organizational growth.
In this study, a glass ceiling to growth is seen as a dominant problem that a growing organization limits in its growth. This problem is related to the growth itself and has to be overcome to be able to continue to grow. Growth then is considered as organic growth in size, in number of employees. Organizations in stable markets will be viewed, that have the intention to grow. So in this research a glass ceiling to organizational growth relates to:
− Growth in size, in number of employees
− Organic growth
− Stable markets
− Organizations that have the intention to grow
These aspects will be considered explicitly in the empirical part of this research. In the literature re- view, these factors are considered more implicitly, in order to determine the suitability of the literature for the research on glass ceilings to organizational growth.
3 Literature review
In this chapter, the second research question is dealt with. This is:
Which growth phases does an organization go through, which characteristics of an organization are important in the distinguished growth phases, and how does an organization move from one phase to the next?
This research question deals with literature on organizational growth over time. That is because differ- ent glass ceilings to growth are thought to appear at different moments in time as organizations grow.
Organizational growth theories then may provide insight in why organizations run into barriers to growth over time that may be seen as glass ceilings to growth.
A theory that treats organizational growth over time is the organizational life-cycle theory. Different models will be reviewed, and a model that represents glass ceilings to growth over time will be pre- sented. This will be the basis for a framework in which distinguished growth variables can be used to explain the glass ceilings to growth. An attempt is made to combine organizational growth variables and the glass ceiling to growth in one model.
In order to find out how and why organizations run into glass ceilings to growth, some concepts from Nelson and Winter (1982), and Aldrich (1999) are considered. These theories provide insight in the process of change, and complement organizational life-cycle theories in explaining the transition to a next growth phase. This is neglected in organizational life-cycle theories.
3.1 Organizational life-cycle models
The growth path of individual organizations is represented in organizational life-cycle models. These models suggest that organizations develop through several distinguishable growth stages or phases over time. Each of these stages is associated with potential problems and challenges that an organiza- tion has to overcome in order to continue growing. These problems may be viewed as barriers to growth and can be seen as glass ceilings to growth. A number of authors shaped organizational life- cycle models (among others Greiner, 1972; Churchill and Lewis, 1983; Scott and Bruce, 1987), or re- viewed organizational life-cycle models (among others Miller and Friesen, 1984; Beaver, 2002; Ris- seeuw, 2003), each with its own characterization of stages and occurring problems and challenges.
According to organizational life-cycle models, an organization grows in evolutionary and revolutionary phases. Because of the growth, significant problems will arise in an organization, because its internal development is too far out of step with its size (Flamholtz, 1986). There is no longer a fit between the internal organization and the environment. Each evolutionary phase is followed by a revolutionary phase, in which the organization needs to adapt internally to the changed circumstances to be able to continue to grow and enter a next phase. It thus can be said that an organization is able to realize growth, based on an initial state of the organization in an evolutionary phase, but needs to adapt to changing conditions in a revolutionary phase. The organizational fit needs to be reestablished. Differ- ent authors distinguish different variables that influence growth and fit.
Di s t i n gu i s h e d l i f e - c y c l e m o d e l s
Greiner (1972) is considered as one of the first to use the concept of organizational life-cycles. He states that growing organizations go through five calm periods of evolution. Each evolutionary phase is characterized by a dominant management style that is used to achieve growth. All evolutionary phases are ended by a short revolution, which is characterized by a dominant management problem that must be solved in order to continue growth. Each phase is an effect of the previous phase, but also inhabits
future problems. Greiner considers management problems as the factor hindering organizations in their growth. He underlines that the pace at which an organization goes through the different phases is closely related to the growth rate of the industry. Churchill and Lewis (1983) consider more variables to hinder organizations in their growth. They describe stages in the life-cycle by management style, or- ganization structure, the extent of formal systems, strategy, and the owner of the organization. Scott and Bruce (1987) build on Churchill and Lewis, and extend the life-cycle model by adding an external component. They state that the external factors are usually beyond the manager’s control, so monitor- ing the key issues is important so that he is prepared for possible change. Galbraith (1982) also ac- knowledges an external component. He says that the development of organizations is based on a business idea. A business idea (Galbraith, 1982; p.70) consists at least of a market or niche, the prod- ucts or offerings, a basis for dominating the niche, resources and resource combinations that are needed to achieve dominance, and a basis for embodying the basis of dominance in the organization.
The business idea evolves through stages. Pieces of it are tested as an organization moves through the stages. For different tasks in different stages, different structures, decision processes, reward sys- tems, and people are needed. These are related.
The characterization of the factors that influence the problems in different phases in the models dis- cussed, and the distinguished phases are shown in table 3. All authors distinguish different phases and different variables. The variables are related, and organizations thus are considered as systems.
In reviewing ten life-cycle models, Hanks et al. (1993) found that all of these models included a stage related to organizational birth or start-up, expansion and maturity. All but three models include a diver- sification or revival stage and only three models include a decline stage.
Table 3 Organizational life cycle phases
Author(s) Focus on Distinguished phases
Greiner (1972) - Management focus - Organization structure - Top management style - Control system
- Management reward emphasis
1. Creativity 2. Direction 3. Delegation 4. Coordination 5. Collaboration Galbraith (1982) - Task
- People - Reward - Processes - Structure - Leader
1. Proof of pr inciple / Prototype
2. Model shop
3. Start-up / Volume production 4. Natural growth
5. Strategic maneuvering Churchill and Lewis (1983) - Management style
- Organization (structure) - Extent of for mal systems - Major strategy - Involvement of owner
1. Existence 2. Survival 3. Success 4. Take-off 5. Resource maturity Scott and Bruce (1987) - Stage of industry
- Key issues
- Top management role - Management style - Organization structure - Product and market research - Systems and controls - Major source of finance - Cash generation - Major invest ments - Product-market
1. Inception 2. Survival 3. Growth 4. Expansion 5. Maturity
Thus, according to organization life cycle models, growth takes place in evolutionary stages until an organization is confronted with a dominant problem that limits the organization in its growth. The prob- lem consists of an internal organization and an external organization part. In reviewing organizational life-cycle literature, Risseeuw (2003; 229) makes a distinction between variables that are influenced during the life-cycle. He divides the internal organization in the development of the entrepreneur, and the development of the organization. Both go through their own growth process, and thereby come across different demands and barriers. He states that the development of the organization is mainly reflected in changes in organization structure and financial position. In the development of the entre- preneur, different demands are set on attitude and dedication. At the interface of entrepreneur and organization, and the external organization is the process of strategy formulation. This process needs to evolve with organization and entrepreneur as well.
3.2 Criticism on organizational life-cycle models
In literature there is quite some criticism on organizational life-cycle models. The life-cycle models tend to be not universally applicable to organizations, and the characterization of the phases leaves little room for individual choice. It seems that ‘average’ organizations are characterized, resulting in a
‘common’ life cycle model. Beaver (2002) cites four of the most serious criticisms:
1 Most small businesses experience little or no growth, and therefore never reach the later stages 2 Life-cycle models do not allow for a backward movement along the continuum, or for the skipping
of stages
3 The models do not permit firms to exhibit characteristics from one or more stage
4 The labels and classifications of stages and phases are too limiting and do not reflect the opera- tional and strategic realities and capabilities of the firm in relation to its chosen markets and sec- tors
Another critical remark is made by Churchill (1997), who states that a preparatory phase is not consid- ered in most life cycle models, while failure often occurs because founders have little knowledge of their chosen area of activity and neglect preparatory work. Also, in this preparatory phase, choices are made that exclude future options, and initial routines are developed.
It is important to keep these criticisms in mind in developing a glass ceilings to growth model. The first criticism is dealt with by the definition of this research, which takes into account the development of organizations that have an intention to grow. Organizations that have the intention to grow and still experience little or no growth are possible coming across a glass ceiling to growth, and therefore are interesting to research.
The other criticisms are related to the normative nature of the models, which leads to a simplistic re- production of an organization. Therefore different characterizations of organizations are to be consid- ered in the model, instead of configurations. Garnsey (1998) developed a more universally applicable model for the early growth of an organization. This model is considered in section 3.4.
Li f e - c yc l e m od e l s a s t h e b a s i s f or a g l a s s c ei l i n g s t o gr o wt h m o d e l
It thus is difficult to class organizations based on these models. However, the models serve as a useful base for researching glass ceilings to organizational growth. It can be said that organizations need to adapt the internal organization, based on the growth. This adaptation in SMEs is closely related to the development of the entrepreneur, whose tasks should be adapted as well. The variables distinguished in life-cycle literature are rather normative. Therefore it is important to find useful variables that ac- count for organizational growth. Theories about determinants of organizational growth may provide insight in the variables that lead to glass ceilings to growth, and may be integrated in a glass ceiling to growth model. Therefore, such theories are considered in the next section.
Fr om on e p h as e t o t he n e x t
In organizational life-cycle literature, different phases are distinguished. However, it is not clear how organization go from one phase to the next. In some studies (Greiner, 1972; Churchill and Lewis, 1983), a crisis-phase is distinguished. A lot is known about the life-cycle phases, but little about the crisis-phases, while this crisis, or transition phase, possibly inhabits major threats to growth. The iden- tification of the need for the transition, and shaping the transition therefore deserve more attention.
The importance of the transition phase is dealt with in section 3.4 and 3.5.
3.3 Glass ceiling to organizational growth variables
The specific classification of variables in life-cycle literature is normative. Therefore, more appropriate variables need to be considered that may lead to barriers to growth. Variables stemming from literature on determinants of organizational growth are considered in explaining glass ceilings to organizational growth. These theories describe the variables that organizations deal with in growth. Inappropriate use of these variables by an organization then may lead to a barrier to growth. Some research was done explicitly on barriers to growth, a lot of different authors researched determinants of organizational growth.
3 .3. 1 Ba rr i ers t o or g an iz at io na l gr o wt h
Barber, Metcalfe and Porteous (1989) were interested in how established small firms grow into me- dium-sized firms. They researched the process of the transition from being a narrow-niche producer to a company with a range of products within a particular specialism. This is a complicated process.
Therefore these authors researched barriers to growth, and the steps that can be taken to mitigate their effects. Brought up in this study is the fact that growth barriers appear at different stages in the life of a firm. Variables are grouped under the headings management and motivation, resources, and market opportunities and structure. In this case, resources relate to access to finance, skilled labor, and technology. These authors stress the importance of the interrelatedness of internal and external factors. An organization is not only to recognize and capitalize external opportunities, but also to rec- ognize and implement changes in the internal organization. However, these variables were not inte- grated in one model by Barber et al. (1989), but dealt with separately. This was an early attempt to distinguish factors that influence and limit organizational growth. In later years more researchers at- tempted to explain organizational growth.
Barth (1999) as well, considered barriers to small firm growth. He shows that organizations function as a system, and focuses on one specific aspect as a barrier to growth. Barth (1999; 23) describes or- ganization structure as dominant barrier to growth for SMEs in manufacturing markets, and relates it to the entrepreneur: “A dominant barrier to growth for small firms is lack of appropriate change of the or- ganization structure as the size of the firm increases. The argument builds on the assumption that there are a limited number of activities that an individual can manage to coordinate and control before the structure of the organization has to change. If these managerial limitations are ignored, the firm will experience barriers to growth as a result of not adopting an organization for further growth.” He says that other barriers to growth are related to these managerial skills and structure.
To find the variables that may account for actual barriers to growth, more variables need to be viewed.
These are based on literature on determinants of organizational growth.
Or g a ni z at i o na l gr ow t h d et er m i n an t s
There has been done a lot of research on explaining small firm growth (for a review, see e.g. Wiklund, 1998; Philipsen and Kemp, 2003). The conclusion can be drawn that diverse authors distinguish be- tween different factors contributing to organizational growth. Wiklund (1998) states that ‘it is difficult to find any single variable that is represented in more than a small fraction of all the studies’. To better be able to compare the variables considered by different authors, the variables can be classified.
