Stage Theories of Growth in the Context of Business Development - Literature review Example

Stage theories of growth have been accepted for decades because theyre convenient, but they dont reflect the realities of business development and growth BY YOU YOUR SCHOOL INFO HERE DATE HERE Introduction Greiner (1972) described a business growth model which highlights six specific stages that a firm moves through to achieve growth. This model suggests that growth is first achieved through creativity, followed by growth through direction, and includes further stages of growth through delegation, growth through coordination, growth through collaboration and finally growth through alliances. These are legitimate and validated phases of growth for the modern business, despite the fact that it is an outdated model that was relevant prior to globalization, brand management in the marketing function, and the emergence of highly saturated competitive markets. Today, growth is achieved through competitive differentiation and effective promotions and advertisements which better positions a business for revenue growth, a positive consumer reputation, and innovation. Traditional growth models allude to these and other business activities and operational strategies which are part of the contemporary business model. Even though Greiner’s model of growth is accepted today for its convenience, it still reflects the genuine realities of modern business in the pursuit of achieving growth. Assessing the traditional growth model Greiner (1972) describes the first stage of growth in his theoretical model as being growth through creativity. The main assertion is that a company achieves growth initially through entrepreneurial behaviours, such as creating new products and opening new markets where the business can operate and attempt to be competitive. This initial stage of growth is characterised by new injections of capital as a result of loans, investment and product-based revenues which allows a firm to be equipped to hire more support staff to sustain the business model. This theoretical first stage of growth, growth through creativity, is justified and genuinely describes how a business achieves success and becomes a well-defined enterprise capable of operating in a competitive market. Many theories of entrepreneurship support the validity of this first growth stage, suggesting that as a firm identifies a product production and distribution strategy and establishes the financial and structural resources needed to fulfil an operational strategy, firms achieve growth. Robinson (2001) offers that a reorganization of a firm’s internal resources as an aspect of entrepreneurial behaviour propels an enterprise to take advantage of new sales opportunities. Hence, a start-up business only maintains a certain low level of available capital and labour capacity in an effort to achieve growth and revenue successes. Through entrepreneurial, creative behaviours, a firm begins to understand how to produce a product, service the product, and establish an internal value chain that can support a new and creative business model. Growth through creativity is a logical and rational assessment of contemporary businesses as the new company seeking growth begins to focus on innovation as a means of creating a differentiated brand identity in an established competitive market. Kruger (2004) supports growth through creativity, suggesting that the initial establishment of a market position, building product quality, and achieving goodwill of consumers through innovation and service quality serves as the foundation for a successful, growing entrepreneurial venture. Creativity is the underpinning success formula for traditional and current businesses alike. The second stage of growth along the traditional growth model is also relevant and viable in today’s business environment. This second stage, growth through direction, suggests that as management begins to clarify objectives and business direction, it leads to better and more formal communications methods, establishes effective operational budgets, and puts new emphasis on marketing and the establishment of production efficiency. Managerial direction creates the foundation for the modern value chain, series of activities within a firm that assist in delivering customers valuable and profitable services and products in an established market (Cole 2011; Hitt, Black and Porter 2008; Porter 1985). Once a business enters a new market with a creative product, it requires managerial talent to coordinate all business operations to successfully service and market this product. This coordination requires streamlining such activities as promotion, establishing production forecasting models, auditing performance and finance, and building an effective customer service ideology. Hence, by better equipping the organisation to be efficient in its new market, growth is achieved through satisfied clients, increased revenue growth, and human capital advantages achieved through effective managerial planning and coordination. The third traditional stage of growth, growth through delegation, also is relevant in today’s business environment. The key to this growth phase is that management becomes more effective in making decisions and delegating job role activities and job role expectations to provide a firm with value and efficiency. Managers begin considering strategic direction for the firm, structuring positions to provide support and talent. In this stage there is more employee involvement in the innovation process and more motivation to be productive contributors to all aspects of the internal value chain. In the delegation phase, the hierarchy-driven business model begins to consider how to build human capital advantages, such as structuring an HR division, so that delegated tasks are accomplished without waste, with emphasis on service quality, and proper allocation of internal corporate resources. Emery and Barker (2007) describe how new transactional and transformational leadership becomes developed within the firm, hence improving employee organisational commitment. It is the ability of managers in this stage to organise the firm in a more efficient manner and ensure that all support employees accomplish objectives successfully. Setting financial incentives for performance, conducting periodic reviews and audits, and establishing the accountability structures for job roles improves firm growth. The fourth traditional stage of growth, growth through coordination, is also relevant in today’s business environment. In order to effectively compete in an established market, once-disparate business divisions now must function inter-dependently if the business is to achieve expected growth levels. This might include the formation of product groups, better coordination of all corporate expenditures (such as asset procurement) or even motivating employees through the establishment of profit-sharing schemes (Greiner). Managers, that now have experience in their competitive markets, are better able to establish controls to ensure productivity and performance from employees and throughout the entire organisational model. Growth is achieved by ensuring more proper expenditures, satisfying employees to exceed service ideologies, and establishing an accountability system related to expected return on investment. This is where management becomes strategic management, the competency to conduct competitor analyses, identify cost structures (Wu 2007), implement a total quality management matrix (Cua, McKone and Schroder 2001), and successfully implementing continuous change (Kotter 1996). Growth, therefore, through coordination, is absolutely valid in the contemporary business environment. As a firm becomes better at controlling aspects such as procurement, production, and employee behaviours, the business achieves financial and service-based efficiencies when serving its market customers. Growth comes from better control over capital resources, finding new and cost effective supply chain direction, and making the firm better able to satisfy its target customers. Managerial competency in the control process gives the firm competitive advantage which, in turn, translate into better revenue growth. The next stage along Greiner’s growth model, growth through collaboration, is also highly relevant in today’s business environment. Long-standing beuracratic systems within the business now become more decentralised and trust amongst cross-functional team members is founded. Many organisations, in this stage, begin establishing reward structures for achieving target goals and illustrating performance, which builds a more cohesive organisational culture dedicated and committed to achieving strategic goals of the firm. Culture becomes a source of competitive advantage in this stage as new and cohesive behaviours and norms are well-established which drives team-based thinking and commitment, a fundamental characteristic of a unified organisational culture (Yilmaz and Ergun 2008). In this stage of growth, the ability to create communities of practice within the organisation enhance creative problem-solving and generates better creativity and innovation which better positions the firm in its competitive marketplace. Today’s businesses require a method to differentiate itself from other firms that provide similar products and services. It becomes critical that the organisation develop an internal team-oriented methodology to come up with new service ideas and product concepts to maintain longevity along the business life cycle. Hence, Greiner’s fifth stage of growth, growth through collaboration, explains how a firm achieves enhanced revenue improvements, builds a competitive brand reputation, and manages to maintain a pioneering position in the established marketplace where the business operates. None of these successes could have been achieved without the prior phases of growth where managerial competency is improved, better control matrices put into place, better employee engagement and commitment, and better internal coordination. Hence, when comparing the modern business activity against the traditional growth model, it is still relevant today. The final stage of growth along the traditional growth model, growth through alliances, seems to be common in the modern business. As a firm finds it can no longer achieve financial growth in an established market, it must seek new markets in which to attempt to compete. In some instances, this requires moving the business to a foreign market. Hence, it becomes practical for a firm to seek mergers, joint ventures or acquisitions to achieve better revenue performance. For instance, a business that services the United Kingdom may find ample opportunities to distribute its products in China. This business, having no experience with this environment or the behaviours of Chinese consumers, acquires a Chinese firm that has operated in this market for decades. This infuses the firm with knowledge and managerial experiences in China, offering better suggestions for how to improve supply, distribute product cost effectively, and even gain commitment from a radically different Chinese consumer. A business must, in the growth through alliances stage, improve its competencies and capacity and alliances become a productive methodology to gain economic and competitive advantages. Businesses, today, require external support in many different areas along the operational model to build growth. This can involve collaborating with consultant firms or establishing a joint venture with a foreign partner in order to better position the business to achieve sales growth. Over time, as an established market becomes saturated with competition offering similar products and services, it becomes more and more difficult to differentiate the firm to gain consumer attention. The switching costs for customers becomes lower as more competitors flood a market. Hence, alliances give a business access to new capital and knowledge that is absolutely critical to find new market opportunities once growth along the firm life cycle is stifled. This last stage of growth through alliances maintains the only traditionally-recognised growth phase that is not necessarily aligned with contemporary business practices. In some markets that have become flat, or unable to achieve revenue growth, companies turn toward the brand management methodology to give the firm a better competitive reputation. According to theory, the brand is the only real asset that companies have substantial difficulty in replicating in a business environment where technologies allow firms to copy the products and services of another competing firm (Nandan 2005). Hence, to achieve growth, a firm does not necessarily have to seek out alliances to guarantee growth, but can reposition a brand in the market to gain commitment and interest from new markets that differ from the markets the business has traditionally served . For instance, a firm that produces consumer appliances might have had sales success in their market by focusing on quality as a promotional tool. However, as more competitors position their appliance businesses on this premise, the firm that has long-served this market loses their promotional advantages. Hence, the firm can seek new research and development opportunities to produce the firm’s products with advanced and convenient, built-in technologies. Now, the brand can position itself in relation to the appliance end user (the consumer), illustrating the innovative and modern benefits of its appliances. As a result, rather than gaining the market attention of the lower-resource consumer, now the high-end buyer is attracted to the firm and is willing to buy premium-priced appliances to have access to improved technology. The aforementioned example illustrates how a firm can achieve revenue growth through brand management strategies or simply altering its production ideology. It is not necessary for alliances to occur with all firms, especially when an established company has the management experience and knowledge (formed from other phases of growth) to make the firm more competitive and open new market opportunities. Marketing, in modern business, is a fundamental method of gaining growth and a better market reputation without necessarily having to seek foreign markets or select an acquisition or merger strategy. Building a strong and recognised brand identity with desired consumer segments is critical as it improves consumer-generated word-of-mouth, enhances revenue growth, and insulates a firm from competitive actions (Gounaris and Stathakopoulos (2004). Additionally, if a firm is unable to achieve growth in its current market, it can also consider a new pricing strategy as another element of an alternative marketing-based strategy; rather than seeking alliances to achieve growth. For instance, the firm might have provided a service, in its first years of operations, with a highly competitive cost structure. However, over time, demand has remained stable for the service and consumers now trust it and maintain loyalty. This provides the foundation for a firm to establish a higher pricing strategy which will equate to improved capital procurement. New pricing methodologies seem rather simplistic, but tend to illustrate that growth does not inevitably have to occur as a result of alliances. Loyal consumers are more willing to pay higher prices (Chaudhuri and Holbrook 2001). Companies that were once focused on the product can now use integrated marketing communications to give consumers the perception of a service-oriented, people-centric organisation that builds loyalty and, in turn, the ability to justify a higher pricing structure on its products and services. Apple, the leading producer of consumer technologies, is a company that achieves substantial revenue growth that is founded on years of dedicated marketing competency. This was accomplished not through alliances, but through effective advertising and hiring top talent with the skills and knowledge needed to make Apple a world-class consumer product leader. Conclusion As illustrated, all of the traditional phases of growth offered by Greiner’s growth model are relevant to today’s businesses and should be considered viable as a tool to measure what provides a company with growth; and in what stages along the firm’s life cycle. Only the sixth stage of growth, growth through alliances, is somewhat defeated by modern business practices as it relates to the advantages and benefits of the marketing function. Firm growth is founded on initial creativity which, in turn, lays the framework for a well-constructed value chain with established internal control systems that give firms long-run competitive advantages. Greiner’s model of growth that was respected in the 1970s and 1980s should also be heralded for its logical and rational perspective on what provides a business with growth opportunities. This traditional model of growth, whilst still recognised for its convenience, should also be recognised for its viability in evaluating growth in the modern organisation. References Chaudhuri, A. and Holbrook, M.B. (2001). The chain of effects from brand trust and brand affect to brand performance: the role of brand loyalty, Journal of Marketing, 65(2), pp.81-93. Cole, G.A. (2011). Management theory and practice, 7th edn. London: South-Western Cengage Learning. Cua, K.O., McKone, K.E. and Schroeder, R.G. (2001). Relationships between implementation of TQM, JIT and TPM and manufacturing performance, Journal of Operations Management, 19(2), pp.675-694. Emery, C.R. and Barker, K.J. (2007). The effect of transactional and transformational leadership styles on the organisational commitment and job satisfaction of customer contact personnel, Journal of Organisational Culture, Communication and Conflict, 11(1), p.77. Gounaris, S. and Stathakopoulos, V. (2004). Antecedents and consequences of brand loyalty: an empirical study, Journal of Brand Management, 11(4), pp.283-306. Greiner, L.E. (1972). Evolution and revolution as organizations grow, Harvard Business Review, 50(4), pp.37-46. Hitt, M.A., Black, S.J. and Porter, L.W. (2008). Management, 2nd edn. Harlow: Pearson Education. Kotter, J.P. (1996). Leading change. Cambridge: Harvard Business School Press. Kruger, M.E. (2004). Entrepreneurial theory and creativity, University of Pretoria. [online] Available at: http://upetd.up.ac.za/thesis/available/etd-08242004-145802/unrestricted/02chapter2.pdf (accessed 16 October 2014). Nandan, S. (2005). An exploration of the brand identity-brand image linkage: a communications perspective, Brand Management, 12(4), pp.264-277. Porter, M.E (1985). Competitive advantage: creating and sustaining superior performance. New York: Simon and Schuster. Robinson, M. (2001). The ten commandments of intrapreneurship, New Zealand Management, 48(11), pp.95-98. Wu, G.H. (2007). The cost drivers, revenue drivers and value chain analysis in strategic management accounting, International Journal of Knowledge, Culture and Change Management, 9(2), pp.69-78. Yilmaz, C. and Ergun, E. (2008). Organisational culture and firm effectiveness: an examination of relative effects of culture traits and the balanced culture hypothesis in an emerging economy, Journal of World Business, 43, pp.290-306. Read More