Frontiers of Entrepreneurship Research
1997 Edition

SUMMARIES

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CHALLENGES OF MANAGING RAPIDLY GROWING COMPANIES

1John H. Eggers
2Kim T. Leahy
1Al Mikalachki

1Richard Ivey School of Business
University of Western Ontario
London, Ontario, Canada N6A 3K7

2Center for Creative Leadership
8910 University Center Lane, 10th Floor
San Diego, CA 92122-1085

Telephones: Ivey: 519-661-4170, CCL: 619-453-4774
Faxes: Ivey: 519-661-3485, CCL: 619-453-6154

Principal Topics

To understand the management challenges of leading rapidly growing companies, we conducted a national survey study of 112 entrepreneurial organizations. We used the Eggers, Leahy and Churchill model (1994) of small business growth to define phases of management. We examined leader and organizational behaviors used by organizations in Rapid Growth versus other phases of management development. We then discussed two cases to demonstrate challenges faced by these rapidly growing companies.

Method

Each of the 112 participating companies completed the Entrepreneurial Performance Indicators (EPI)SM  a family of three 360-degree surveys (Center for Creative Leadership/Kauffman Foundation, 1996). These surveys are: 1) the EPI Leadership Survey, 2) the EPI Management Team Survey, and 3) the EPI Organizational Culture Survey. These are multi-rater surveys-capturing perspectives of the CEO, management team members, and non-management employees. A total sample of 1100 raters was available for analysis from these entrepreneurial companies-companies that closely resemble the population of small businesses in the US.

Major Findings

By comparing the frequency of CEO behavior across phases of management, we found significantly higher levels of Vision and Planning & Goal Setting in Rapid Growth companies compared to those in Stabilization. In addition, companies within the Stabilization phase that had higher levels of CEO Vision also had greater profits. In a previous study, we found Vision to be significantly correlated with profit and return on investment (Eggers, Leahy & Churchill, 1996).

When we viewed the quality of CEO behavior, we found two significant linear trends. Higher ratings of CEO Self Motivation were correlated with higher levels of management development from Stabilization to Growth Orientation to Rapid Growth. This was also true for CEO Sales behavior across the phases of Survival, Growth Orientation, and Rapid Growth. CEOs of Rapid Growth companies had higher quality ratings for Planning & Goal Setting, Relationship Building and Vision than did CEOs whose organizations were in Stabilization.

For frequency and quality interactions of CEO behavior we found that companies in Rapid Growth had significantly higher ratings in Customer Relations, Relationship Building, Self Motivation, and Vision than companies in Stabilization.

When we compared management team performance across phases of management, we found four significant differences. Team Adaptability, Coordination, Effectiveness, and Goal Setting are significantly higher in Rapid Growth companies than in companies in earlier phases of development. Eight dimensions of organizational culture and functioning were also found to be higher in Rapid Growth companies when compared to Stabilization or Growth Orientation companies. These dimensions are: Communication Across the Organization, Leadership Confidence, Planning & Goal Setting, Product Quality, Rewards, Training & Development, Trust, and Vision Clarity. Each of these factors has been previously linked to organizational financial performance (Eggers, Leahy & Churchill, 1996).

We illustrate our findings with two case studies. Cermatic Corporation never stabilized due to poor management-team functioning, organizational design, and an ineffective CEO. This company represents the lower scoring organizations in our study. We then compare Cermatic  to S.S. Technologies Holdings, an organization that represents the higher-scoring Rapid Growth companies in our study.

Implications

Our findings demonstrate that CEO behavior, management team functioning, and organizational factors are related to organizational development and performance. Maintaining high levels of internal effectiveness can be an illusive goal during during a company's Rapid Growth phase. As our illustrative cases will reveal: Maintaining organizational effectiveness in this time of growth can be a significant challenge.

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Last Updated 03/20/98