Many companies are growing successfully. But then comes a phase in which the company’s growth stagnates, costs become too high and both customers and successes fail to materialize. To prevent this from happening, it makes sense to consider which growth phase your company is currently in. In this blog article, we therefore look at how to recognize growth phases and growth crises and when action is needed in your own company.

The economist Prof. Larry E. Greiner has published a model for the growth of companies. It shows that companies go through six different life cycles depending on their age and size. These cycles always begin with growth and end with a crisis. The transition to the next phase is referred to as the growth threshold. His model shows how the respective threshold typically hinders growth and how it can be overcome.

Because what is conducive to growth at the beginning of a phase becomes a hindrance at some point; it reaches its limits. Just as a greenhouse helps a small tree sprout to grow, it prevents a larger tree from continuing to grow.

In the following, we will take a closer look at the individual phases of corporate growth:

The company is still small. Everyone knows each other – the official channels are short. People talk to each other a lot. The employees are versatile – everyone does everything. The hierarchies are flat. There is a spirit of optimism – everyone is highly motivated.

The company has grown, there are more employees, so it is no longer possible to discuss everything in person. The founders are busy managing the new employees, so strategic planning falls by the wayside. The need for a second management level is beginning to emerge. There is still no organizational structure. Everyone is scurrying around. There is a lot of communication, but it is difficult to distinguish between what is important and what is not. Information gets lost. Employees become dissatisfied – it’s time to coordinate the chaos!

We no longer all do a bit of everything – instead, everyone has their own special area. New people are hired for clear areas of responsibility. A controlling instance keeps an eye on things. The management coordinates centrally. Information finds its way very quickly and communication with each other works.

Once again, the company has gained more employees. The management can no longer process all the information. In addition, decisions must be made close to the customer. Due to the specialization of the individual employees and departments that has taken place, communication is now getting stuck. Information does not reach the right place. Nobody feels responsible anymore. The company becomes slow and inflexible.

The burden on management has been eased because decision-making powers have been decentralized. Small units carry the decisions so that you can react quickly to the needs of your customers. Growth has become scalable: New units are added without losing clout.

Competition has arisen between the units. Consistency towards the customer is lost. Important standards can no longer be enforced. There is uncontrolled growth. The management can no longer see through it.

Structures are firmly prescribed from above, processes are clearly defined. There are instructions, checklists, reporting and controlling systems. The management takes back some decisions. Unity is restored, the management is back in control.

The high level of bureaucracy and the standardized processes that have to be gone through make the company immobile. Decisions are often based more on specifications and principles than on customer benefit. In addition, decision-making processes take a very long time. This is critical, as the environment and circumstances are changing faster than ever before and demand quick reactions, movement and flexible action. Many companies are currently at this growth threshold.

Companies and employees need effective communication. It is necessary to take a joint look at the current situation and to define and strive for a target situation. All processes and structures are put to the test and either adopted or adapted. Excess bureaucracy is thrown overboard. The workforce remains in dialog and keeps an eye on the current situation: What does the market need right now, what does the environment require at the moment? Lifelong learning on the part of management and employees maintains flexibility and the ability to innovate. Instead of optimizing every 5 years, change becomes immanent and thus enables permanent optimization and adaptation.

The company becomes confusing and is no longer controllable. It is no longer possible to allocate which success comes from which part of the company. Successes are sometimes overlooked and necessary investments are misinterpreted as failures.

Further growth can only be achieved through partnerships, outsourcing or networking.

The sixth phase Transition of a company into a corporate network. In this way, a large company can continue to grow.

In one of the next articles, we will talk about how you can counter growth thresholds in your company.