Stages of Organizational Growth - Stage 3

 Stage 3… As successful stage 2 companies build their operational infrastructure and increase sales during stage 2, they enjoy a steady period of growth.  Then, something strange happens….the formulas and strategies that worked so well are no longer still effective.  The organizational structure that worked fine when the company was smaller is not appropriate anymore.  All the fundamental assumptions about the business are now in question.  At this point, one of three things usually happen….the business plateaus reaching its own internal limitations to growth; or the company slowly deteriorates as it clings to the old formulas, while the outside world/environment continues to change; or the company experiences a breakthrough by redefining its strategies, structures, and/or systems. Stage 3 represents an inevitable crossroads for every growing business.

To continue profitable growth, the organization must break from past patterns of success by either embracing new behaviours and actions, or by reconfiguring old patterns.  If this stage is managed well, the company begins a transition to the next level of growth and profitability, if it is not managed well , then the company often will stagnate and/or decline. External conditions often play a significant role in hurling unsuspecting companies into stage 3. New competitors, shifting market conditions, new technology or changing customer demands and preferences.  In order to grow and compete a company must either change its strategies and patterns of success from the past, or deal with the consequences.

A key challenge for a company entering stage 3 is to develop or formalize the management systems that are needed in a professionally managed firm. There are four management  systems that must be developed: planning, organization structure, management development, and control of performance management systems.  These systems are critical in helping the company co-ordinate the functions of its personnel and departments, provide direction to its employees, and motivate employees to achieve goals.

In summary, successfully developing a stage 3 company typically requires the following:

  • The ability to plan and develop strategy
  • The ability to develop an appropriate organizational structure and controls
  • The ability to provide management development and leadership development
  • Willingness to transform to professional management

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