The Effects of Growth on Small Organizations

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By Andrew Coutermars
Reprinted by permission from the March 2001 issue of Identity Marketing

In my January column I discussed the ramifications of role ambiguity on the individual and the organization. While role ambiguity may be easy to see or imagine in larger organizations, it is no less prevalent in small companies, perhaps more.

Role ambiguity is just one of many effects on small organizations that result from the growth of a business. In this article I will explore some of the other effects on individuals and organizations as a company expands.

Small companies of two to 12 people often function very efficiently as naturally occurring teams. Everyone knows what needs to be done and all pitch in to accomplish the work. Rarely are roles formally defined, which allows for natural cross-training and promotes teamwork. Because of the intimate nature of the small organization, employees tend to personally identify with the organization and co-workers.

Small organizations often are described as having a feeling of family. This familial association contributes to the team spirit - while at the same time adding to organizational dysfunction. Because the relationships tend to be so personal, there may be a reluctance to verbalize frustrations, concerns, or feedback for want of "keeping the family peace."

What happens then, as an organization begins to grow at a significant rate? How does this affect the individual, the team, and the organization as a whole?

First, let's take a look at teams. Regardless of which organizational theorist's model you may subscribe to, theorists generally agree there are various stages through which a team must pass on its developmental journey. A team will start with an introductory or getting-to-know-each-other stage, move into a period of frustration and discontent, followed by resolution and finally, into the stage that is characterized by high performance. Without proper facilitation and guidance, teams may become stuck in a particular stage.

Even when a team manages, on its own, to reach the stage of high productivity, as new members are introduced, the team must repeat the stages from the beginning. While the time spent in each of the stages may be brief, the reality is that the addition of new team members changes the dynamics within the group, and the team must recreate itself. As the original team members attempt to maintain the family feeling, newcomers often feel like outsiders, making their entry into the company extremely difficult. There are many organizations that have a core group of long-term employees, as well as a handful of jobs that seem to be a revolving door. Unfortunately, the tendency is to blame the turnover on inappropriate hires rather than to look at the way in which a new employee is assimilated into the group.

As the organization grows, it may become necessary to create new teams, often breaking up the original, closely-knit group. This may cause certain feelings of loss and alienation. If this re-allocation of human capital is coupled with new responsibilities that are not defined clearly, the result can be a dissatisfied, highly frustrated individual. If this is not addressed properly, the employee (symptom) will most likely become the (employee) problem. Again, the tendency is to look at the individual and not the system. What about this feeling of family? Is it healthy? What do we actually lose as this feeling dissipates because of organizational growth?

To answer these questions, let's look first at a definition of a functional family. Noted family therapist John Bradshaw in his book, "Bradshaw: On the Family," describes a functional family as one that is allowed to disintegrate in an orderly fashion. This means that the children are allowed to grow up, become adults, and leave home without being pathologically chained emotionally to mom and dad. In other words, there is a stage of maturity that the family enters in its developmental journey.

Organizations also go through stages of development, usually beginning with the entrepreneurial spirit of the founder. This spirit is carried through the initial growth phases of the company, providing a vision that drives the actions and behaviors of the employees.

As the organization grows, the "do-all" and "be-all" entrepreneurial behavior begins to cause stress within the system. In an attempt to meet the needs of customers, people begin to bump into each other, physically and mentally, often competing for resources within the company, rather than collaboratively ensuring that everyone wins. The spirit of teamwork begins to erode and efficiency is replaced with feelings of confusion and chaos.

In an attempt to rectify this, the organization is usually broken down into functional units or departments. While this may seem logical, departments tend to be divided according to tasks with little thought given to designing effective processes that will ensure efficient delivery of products and/or services to customers. Departments or teams designed around processes look and behave far differently than ones designed around individual tasks.

This is an important turning point for an organization. It is at this juncture that the organization begins to feel more like a company than a family. The organization must focus on the business of business. Much like a young adult begins the decision making required for adulthood, people within the organization must begin to take on a new level of decision making. As the organization grows, it is neither longer practical, nor prudent for one person to dominate the decision-making process. This maturation process requires a shift in mind-set. The owner/entrepreneur, as a good "parent," will have provided guidance and values that will drive the decision making that will now be required of others.

Another issue that must be considered as an organization increases in size is the issue of governance of the organization. How teams or departments will be managed and who will perform this function become questions that must be answered with care. What are the psychological effects on co-workers if their peers are promoted and they are left behind? How does this affect the team spirit? Should someone within the organization be promoted, or should an experienced person from the outside be added to the group? If promoted, what support and training will be given to the new manager? What criteria should be used for selecting the new manager? Should a person be promoted just because he/she has been with the organization for the longest period of time?

All of these are related and are difficult questions to answer. All point to the need for more definition of roles and accountability, identification and acknowledgement of appropriate skills and abilities, and training and empowerment.

The family that disintegrates in an orderly fashion and achieves a mature state, does so because of the training, support, and independent thinking that is provided and encouraged by the parents. The organization that achieves a mature state relies on these same aspects of nurtured growth.

There are, of course, many other issues faced by a small, but growing organization. What has been presented here is meant to provide some examples of the complexity of organizational life, small or large, and to illustrate issues that might not be so obvious to owners and/or managers of small organizations.

While these issues ultimately affect the overall health of the organization, nothing carries the potential liabilities - and possible disastrous impact - that the numerous and voluminous federal and state employment laws present.

Not all laws are applicable to all organizations. However, as an organization grows, particular attention must be paid to the employment threshold of each piece of legislation. For instance, the Fair Labor Standards Act (FLSA) governing minimum wage, overtime, and child labor, applies to any enterprise engaged in interstate commerce, as does the Equal Pay Act, the Employee Retirement Income Security Act (ERISA), the National Labor Relations Act (NLRA), specific provisions of the Occupational Safety & Health Act (OSHA), and the Civil Rights Act of 1866.

Title VII of the Civil Rights Act of 1964 and the Americans with Disabilities Act (ADA) apply to businesses with 15 or more employees while the Age Discrimination in Employment Act (ADEA) and the Consolidated Omnibus Reconciliation Act (COBRA) apply to businesses with 20 or more employees. On either side of this group are the Immigration Reform and Control Act of 1986 (IRCA) for any business with more than three employees, and the Family and Medical Leave Act (FMLA), which applies to any business with 50 or more employees.

There are other federal laws to be aware of and many pieces of legislation enacted by individual states that mirror or enhance the protection afforded by the federal laws. Many of these will guide the development of policies and procedures within the growing organization. It will also become necessary to appoint someone within the organization to take on the additional responsibility of staying abreast of current and future legislation, or add a person to the staff for that particular function.

Organizations are systems that require care, nurturing, and attention. The growing organization requires an awareness of issues and dynamics particular to the expanding enterprise. This article is intended to help people to start to think about their own organizations and their stage in the growth process. It is not a comprehensive dissertation on all of the issues facing the small, but growing company.

Volumes have been written regarding organizational dynamics, change, legal issues, etc. The companies that succeed are the ones that pay as much attention to the organizational issues as they pay to their customers.

Andrew Coutermarsh has an MS in management from Antioch University/Antioch New England Graduate School where he also is a member of the adjunct faculty, teaching human resource development and an advisor for student practicum projects. He holds SPHR (Sr. Professional Human Resources) designation from the Certification Institute of the Society of Human Resource Management. he has spent the past 20+ years in the human resources profession and currently is director of human resources for Prime Resources Corp.