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Manage growth
Why we should dare to manage responsibly
growth responsibly
Denise L. Fleck
Coppead Graduate School of Business, Federal University of Rio de Janeiro, 1529
Rio de Janeiro, Brazil

Abstract
Purpose – This paper seeks to suggest that the responsible management of the growth process can
prevent the organization from becoming “too big to fail”. Moreover, responsibly managing growth
enhances the organizational propensity to experience healthy longevity.
Design/methodology/approach – Four growth-related challenges provide the basic framework
that organizes the discussion and inspires the main dimensions that make up the responsible
management of growth.
Findings – Responsibly managing growth comprises providing responsible responses to the growth
challenges. It encompasses nurturing continued value creation; performing responsible risk
management; securing value capture for the businesses (profits) and for the organization as a
whole (legitimacy); performing systematic scanning of the environment; responsibly reacting to
external pressures, preferably in anticipation of upcoming changes; sustaining the firm’s integrity, in
face of increasing diversity; and equipping the organization with the right amount and variety of skills
at the right time.
Practical implications – Management should keep under close scrutiny the growth challenges and
develop systematic procedures to check the impact of decisions and actions on the growth challenges.
Originality/value – The paper advances the notion that organizations exhibit a dual nature.
Growing organizations can develop a potential ability to renew and self-perpetuate; but they can also
sow the seeds of their own destruction.
Keywords Business development, Organizations, Large enterprises
Paper type Research paper

On account of the 2007-2008 global financial crisis the so-called “too big to fail”
organizations have stepped into the spotlight. The underlying idea is that a big size
and a large network of interorganizational relationships will shield the organization
from failure. Such a belief in the invulnerability of the large corporation may induce
reckless growth, careless investment and irresponsible resource allocation decisions,
which sooner or later end up producing a huge financial disaster. The larger the
organization and the more extensive its interorganizational relationships, the wider the
scope of the disaster will likely be. That is why it may seem quite reasonable to
suggest: let’s limit organizational growth!
The problem with this remedy is that we may be throwing the baby away with
the bath water. In fact, over the long run, non-growing organizations will end up
facing obsolescence, and bringing about major adverse implications for the
well-being of its stakeholders and society as a whole. The history of Lincoln
Electric provides an interesting example. Founded in 1895, the company was by Management Decision
Vol. 48 No. 10, 2011
the 1980s the world’s largest manufacturer of welding machines and electrodes. pp. 1529-1538
Lincoln’s successful business model promoted the well-being of its main q Emerald Group Publishing Limited
0025-1747
stakeholders – customers, employees and stockholders. For one, the prices for DOI 10.1108/00251741011090315
MD Lincoln’s consistently high quality products were acknowledged to be the lowest in
48,10 the marketplace. In addition, the company’s personnel policies stimulated employee
participation in decision making and handsomely rewarded employees’
commitment and productivity. Finally, an extremely stable earnings record and
the absence of debt in Lincoln’s capital structure resulted in a low risk stock
(Sharplin, 1986). Employee morale and productivity was consistently high and
1530 made the company grow and reach a 40 percent market share. An ingrained belief
that “no company should ever grow larger than one man could administer or
manage” (Hastings, 1999) coupled with compliance with antitrust legislation, not
only kept Lincoln’s market share stable but also acted as a deterrent to the firm’s
development of renewal capabilities. In fact, Lincoln’s disastrous
internationalization efforts in the late 1980s and early 1990s revealed how
ill-prepared the company was to renew. According to Donald Hastings, Lincoln’s
CEO at that time, “it took the crisis to make us realize that we had reached the
limits of the management approaches and skills that had served us so well when
we were a smaller, simpler company” (Hastings, 1999).
It can be said, therefore, that neither undertaking irresponsible growth, nor
restraining organizational size will contribute to foster the long-term well-being of the
organization. This paper contends that the responsible management of the growth
process can prevent the organization from turning into a “too big to fail” organization.
Moreover, responsibly managing growth enhances the organizational propensity to
experience healthy longevity.

Organizational growth challenges

Organizations exhibit a dual nature and growth plays a major part in it. Growing
organizations can develop a potential ability to renew and self-perpetuate. On the other
hand, they can also sow the seeds of their own destruction. According to Fleck (2009),
depending on how an organization responds to the growth challenges, it may follow a
self-perpetuating or a self-destructive trajectory. In the first case, the organization will
positively affect its stakeholders and the environment. On the other hand, if the
organization becomes self-destructive, its problems will harm many others, as the
global crisis has eloquently demonstrated.
Self-perpetuating responses include systematic analyses, well-thought-out
preparation, and a discipline for learning from failure, feedback and assessment
systems, to name a few. Self-destructive responses, on the other hand, are both inviting
and dangerous because they are less sophisticated, less costly, less time-consuming,
and require less interpersonal energy than the self-perpetuating responses. A sense of
urgency and immediacy prevails, leading management to abstain from thorough
strategic, financial and operational considerations when deciding and implementing
expansion. The harmful effects of pursuing a self-destructive path may rapidly become
apparent, as in the case of Lincoln’s international expansion in the 1980s. In a more
dangerous variant, figuring out the pernicious effects may take decades.
Westinghouse’s persistent myopia is a case in point. Throughout its existence, the
company’s superior R&D capabilities enabled the company to explore new fields on a
par with GE. However, in what concerns the profitable exploitation of innovation in the
electrical industry, it was up to GE to conceive the schemes that would secure
handsome returns to all industry players, including Westinghouse. As a result, the fact
that Westinghouse lacked important managerial capabilities remained unnoticed. This Manage growth
started to become evident only in the 1960s, when the number two company in the responsibly
industry already was seventy years old.
In light of a set of growth-related challenges (Fleck, 2009), the following sections
develop the notion of responsible management of the growth process.

1531
The enterprising challenge
The enterprising challenge has to do with pursuing risk managed expansion on a
sustained basis. Organizational expansion encompasses undertaking exploitation and
exploration strategies (March, 1991), and risk managed expansion seeks to avoid the
organization’s overexposure to risk. One of the challenges of sustained enterprising is
this: alternating and/or combining more of the same expansion (i.e. exploiting, proven
strategies) with innovative moves (i.e. exploring new avenues of growth). Relying on
one to the detriment of the other produces either insufficient or excessive renewal.
Concentration on exploitative strategies may open the way to organizational
obsolescence, as the organization most certainly will progressively reduce value
creation to its stakeholders. On the other hand, limiting expansion to exploration
strategies may give rise to unnecessary business obsolescence. In this case, a faster
than needed innovation pace may preclude the organization from creating value in a
responsible form, and what is more, from capturing value from its innovation efforts.
Throughout its existence, General Electric (GE) has managed to combine both
strategies. The inauguration of the GE’s Research Laboratory in 1900 and its nurture
ever since provides GE with a regular flow of product and process innovation. Besides
exploring new fields, GE systematically exploits its products and markets, pursuing
market leadership worldwide.
Another dimension of the enterprising challenge concerns risk management of
expansion moves. Appropriate assessment of risk requires a number of skills. A case in
point is the ability to neutralize cognitive biases (Kahneman et al., 1982; Gilovich et al.,
2002) that impair managerial judgment (Penrose, 1959). A pioneer of the highly
leveraged takeover deal, Lord White of Hanson Industries (Hill, 1995) epitomizes such
ability. White’s takeover directive – “watch the downside” – sought to neutralize
wishful thinking. It meant that rather than considering the potential benefits of a deal,
one should consider what could go wrong. This called for scrutinizing worst-case
scenarios and conjecturing which neutralizing actions could handle the likely
consequences of a worst-case scenario. Protecting the corporation from business risks
is another required ability. In the 1950s GE’s Research Laboratory managed to produce
artificial rain. Risk assessment of this innovation indicated that the typical
unpredictability of weather conditions could put the entire company at risk. So,
despite the huge commercial potential for the agricultural market, the project was
discontinued (Fleck, 2007).
The enterprising challenge, thus, encompasses antagonistic forces that must not be
taken lightly. One such tension relates to innovation: combining exploration and
exploitation. The other requires fine-tuning entrepreneurial audacity and prudence.
Thus, responsible management of the enterprising challenge includes the effective
handling of these forces in order to avoid organizational illnesses that may produce
negative spillover effects upon stakeholders.
MD The navigating into the environment challenge
48,10 In some ways the enterprising and the navigating challenges are complementary.
While the enterprising challenge refers to the organization’s efforts to expand, renew,
and create value to its stakeholders, the navigating challenge concerns strategies
(Oliver, 1991; Oliver and Holzinger, 2008) whereby the organization aims at capturing
value in two ways (Oliver, 1997). First, the organization seeks to fashion the
1532 environment in a way that enables sustained economic value capture from its value
creating initiatives. Second, the organization strives to capture normative value by
means of acquiring and sustaining organizational legitimacy.
The two challenges are also complementary in what concerns the two main sources
of organizational pressures: market and nonmarket (Baron, 1995; Baron, 1997). The
market strategy of an organization seeks superior performance in the market place,
while the nonmarket strategy aims at shaping the competitive environment (Baron,
1997). While the enterprising challenge mainly deals with market pressures (Porter,
1980; Barney, 1997), the navigating challenge essentially copes with nonmarket
pressures (Baron, 1995; Baron, 1997).
GE’s development of the ductile tungsten filament provides an illustrative example
of a strategy that made use of nonmarket elements to secure value capture. Following
the 1911 consent decree, which expressly stated that patent licenses might specify any
price, terms, and conditions of sale desired, but could not fix resale prices, GE took a
number of initiatives. These included acquiring suppliers of lamp bases and bulbs;
turning dealers into agents under contract of GE; and offering licenses to other
manufacturers, including Westinghouse. Among other things, these licenses
established selling quotas for each licensee. In sum, GE was able to control two
fundamental variables, i.e. the volume produced and the price charged, and managed to
avoid the formation and development of a price war, a phenomenon that prevented
European manufacturers form making money in the lamp business. The end result was
the structuring of a profitable industry, in which all players made money, while GE
managed to capture the largest portion.
The navigating challenge has two main complementary dimensions: environmental
scanning and reacting to external pressures and trends. A responsible scanning
encompasses unbiased, systematic assessment of trends and pressures regarding
present and possible future situations in the fields the organization operates, or may be
considering operating. Such scanning must comprehend not only economic and
technological, but also social, political and environmental tendencies that may impact
the organization’s businesses as well as the acquisition and sustainability of
organizational legitimacy to operate in the environment.
General Electric’s (GE) history suggests that GE has consistently cultivated a
responsible scanning organizational trait. As of the first annual report that Jack Welch
wrote (General Electric, 1981), he stressed that leaders should face reality as it is, not as
it used to be or one would wish it to be. Welch was not the first GE leader to emphasize
the importance of unbiased assessment. His predecessor, Reginald Jones, sponsored a
thorough study of the effects of the escalating inflation of the 1970s on manufacturing
companies like GE. In fact, GE’s history provides several examples of responsible
scanning. Illustrative examples are the pre-second world war studies GE undertook in
the 1930s and the post-second world war studies initiated in 1942.
 Responsible reaction to external pressures and trends consists of a repertoire of Manage growth
proactive and anticipatory responses rather than merely defensive and passive responsibly
reactions (Oliver and Holzinger, 2008). As Chandler (1977) noticed, defensive strategies
hardly contribute to the continuing growth of the firm, although they may be relevant
for a while. Over the long run, the dominance of defensive and passive strategies
weakens the organization’s chances of continued, healthy existence. In a number of
ways, General Motors relied on defensive and passive strategies in the last three 1533
decades of its existence. GM’s response to the oil crisis of the 1970s included very
expensive productivity enhancing projects, such as robotics, factory-floor automation,
and paperless offices meant to fight bureaucracy. GM’s response, however, failed to
properly appraise the likely impact of the changing environmental conditions on GM’s
traditional businesses. Instead, the company engaged in persistent defensive efforts to
keep doing what it had always profitably done.
The business world is presently facing various pressures for change, such as
including consistent environmental concern in corporate strategy and redesigning
executive incentive systems to fight greed. Responsible management of the navigating
challenge encompasses responsible scanning of the environment and responsible
reaction to external pressures. This requires, therefore, two basic things: facing reality,
as Welch has several times emphasized, and refraining from engaging in merely
defensive and reactive strategies.

The diversity management challenge

A by-product of a successful growth process is increased organizational diversity.
Even in the absence of a deliberate diversification strategy, growth brings about
different sources of diversity, such as people, geography, competitive strategies and
tactics, interorganizational relationships, to name a few. The diversity challenge has to
do with sustaining the firm’s integrity as the firm experiences increasing diversity. In
fact, the growing firm faces the problems and opportunities of workforce diversity
(Page, 2007), as well as structural and business diversity (DeLuca and McDowell, 1992),
that is, a variety of markets, products, technologies, and human resources proliferate.
Heterogeneity among the constituent parts of the organization gives rise to conflicts
and rivalry, which pose serious threats to organizational unity (Selznick, 1957).
There are two simple, yet dangerous ways of handling this challenge. In the first
case, the organization stimulates weakly-coordinated autonomy of its parts and
abstains from promoting interunit exchange. This sort of organizational arrangement
is characteristic of the way Westinghouse dealt with the diversity challenge. Up to the
1960s the portfolios of businesses of GE and Westinghouse were basically the same.
However, they differed in what concerns how they responded to the diversity
challenge. While GE made consistent efforts to integrate the enormous variety of
businesses, Westinghouse deliberately refrained from making such efforts. Hence, it
should not be surprising that this poorly integrated company ceased to exist in 1997:
Westinghouse’s businesses were swiftly split up.
The other easy way of responding to the diversity challenge will turn the
organization into a simpler entity (Miller, 1993). According to Miller (1993), simplicity
is “an overwhelming preoccupation with a single goal, strategic activity, department,
or world view – one that increasingly precludes consideration of any others” (Miller,
1993, p. 117). Simplicity encompasses standardization of procedures and routines,
MD concentration only on certain skills, and implementation of information systems that
48,10 homogenize the range of actions and things management thinks about. As a result, the
organization optimizes resource usage, delivers stellar performance, and produces
slack resources that are reinvested into more of the same expansion strategies.
Continued success reinforces the pursuit of efficiency, bringing about an increasingly
simpler organization that increasingly drives apart from the changing environment.
1534 Successful-turned-into-simple organizations include companies like DEC and
Lincoln. While the first experienced a pretty unfortunate end, Lincoln fortunately
managed to recover. Interestingly, it was Lincoln’s strong organizational integrity in
North-America that enabled the company to reverse the calamitous situation caused by
the company’s international expansion. Instead of resorting to massive layoffs and cuts
in executive salaries, Lincoln turned to the US employees for help. Manufacturing
would boost production, which would imply a utilization rate of more than 100 percent.
Sales people would increase sales in the still slow-moving American economy, and
management would borrow money to pay the bonus for the profitable North-American
operation (Hastings, 1999).
Both types of response, ill-coordinated fragmentation and organizational simplicity,
provide the growth process with a highly valued quality among the business
community: speed. However, speed must be a secondary, rather than the primary
consideration in growth-related matters. In fact, successful management of
organizational diversity is far from simple and immediate. Responsibly managing
diversity requires, therefore, harmonizing heterogeneous and homogeneous
organizational elements, and fomenting suitable bonding relations (Stickland, 1998).

The human resources provisioning challenge

The challenge of provisioning human resources for organizational growth
encompasses a quantitative and a qualitative dimension. It is about setting up the
right amount of people and the necessary variety of skills to support organizational
growth. An oversized staff is dysfunctional for the organization. Its by-products
include organizational inefficiency, tolerance for incompetence, cumbersome
administrative procedures, to name a few (Lorange and Nelson, 1987). Undersized
staff is also detrimental to efficiency. Overloading people with work on a continued
basis not only breeds unhealthy stress, but ends up affecting the quality of what is
done and made throughout the organization. In the same vein, matching people and
tasks is of major importance too. Assigning simple, however important tasks to
overqualified people may negatively affect their motivation and performance
(Hackman and Oldham, 1975). Assigning a task to someone who is not adequately
qualified is also counterproductive. It would seem therefore, that having the right
amount and variety of personnel at the right time is what is required for organizational
health. But this is not that simple.
In response to oversized staff, a quest for “organizational fitness” has been typical in
the last two decades. Since the early 1990s, reengineering (Hammer and Champy, 1993),
outsourcing (Davidow and Malone, 1992) and flat organizational structures (Ouchi,
1977) have been implemented worldwide to counter organizational inefficiency. The
continued use of the “rightsizing” treatment has produced organizations unfit for
carrying out healthy growth processes. As Penrose (1959) stated, the most important
limitation to the growth of the firm is what she called the managerial limit. In her view,
the capacities of the existing managerial personnel of the firm necessarily set a limit to Manage growth
the expansion of that firm in any given period of time. Penrose argued that “existing responsibly
management limit the amount of new management that can be hired (after all the
services of existing management are required even to greet, let alone to install and
instruct, the new personnel)” (p. 46). In addition, she adds, even those few that can be
hired will lack the experience of working together with existing management. In sum,
hiring new management on a just-in-time basis is not effective when it comes to 1535
building managerial teamwork to pursue organizational growth.
In what concerns the qualitative dimension, growth requires two main types of
services from management (Penrose, 1959). The first, the entrepreneurial service,
encompasses ambition, imagination, versatility, and the ability to raise funds. The
second, the managerial service, comprises providing adequate judgment of the risks, as
well as organizing the growing firm (Penrose, 1959). Each type of service calls for
different skills and profiles. Uncertainty, for example, is not an issue for the creative,
entrepreneurial type, while it can be quite disturbing for the systematic, organizing
individual. Both types contribute important, complementary services.
Failure to equip the firm with both types of services will harm expansion efforts.
Hastings’ (1999) comment on Lincoln’s first international expansion efforts illustrates
this:
Our senior ranks were now much too thin for a company of our size and complexity (. . .) We
had been naı̈ve to think that we could instantly become a global company with Lincoln’s
limited management resources (. . .) At least five years before we launched our expansion
program in 1987, we should have started building a management team and a board of
directors from whom we could have learned how to proceed.
In sum, when Lincoln started its expansion abroad, the company lacked robust
entrepreneurial services, as well as the right quantity and quality of managerial
services to coordinate operations in different cultures.
Growth-oriented organizations pursuing healthy growth address these challenges
in a planned, consistent way. For example, at Odebrecht, a Brazilian diversified
corporation in the fields of engineering and construction, and chemicals and
petrochemicals, the evaluation process at all managerial levels (top, middle and down
to the supervisory level) includes an item that refers to succession. Every manager
must indicate which individuals he/she is training as his/her successor, or whose
training he/she has completed. This means that every manager is always training a
successor and being trained to succeed someone else. This allows the company to offer
new challenging positions to its managers in recognition for their good performance.
At the same time, the organization refrains from undergoing harmful disruption.
General Electric’s succession process at the top level has been systematically planned
ever since the first succession took place in 1922. GE’s top executive at that time,
Charles Coffin, had in mind two names: Owen Young to replace him at GE’s
chairmanship and Gerard Swope for GE’s presidency, replacing Edwin Rice. To make
sure they would make up a team, Coffin sent them on a mission to Europe. During the
long trip the two executives proved they not only respected each other, but that they
also shared a common ground on which to base team work. Once Coffin realized this
had happened, he made up his mind and indicated them to the top two positions.
Westinghouse, on the other hand, more than once had an interim CEO during several
MD month long processes that took place to choose a replacement for the outgoing
48,10 executive.
Responsible management of the human resources provisioning challenge and being
in a rush do not go together. It takes time to do what is required: to build and nurture
managerial teamwork, to make sure the needed amount and variety of skills is
available to support growth, and to preclude from responding to short-term pressures
1536 with recurrent just-in-time hiring and downsizing.

Conclusion
This paper suggests that responsible management of the growth process can prevent
the organization from turning into a “too big to fail” organization. Four growth-related
challenges (Fleck, 2009) provide the basic framework that organizes the discussion and
inspires the main dimensions that make up the responsible management of growth.
Responsibly managing growth comprises providing responsible responses to the
growth challenges. In what concerns the enterprising challenge, responsible
management seeks to nurture continued value creation by means of exploration and
exploitation strategies (March, 1991), and to perform responsible risk management of
such strategies. As for the navigating challenge, responsible management seeks to
secure value capture for the businesses (profits) and for the organization as a whole
(legitimacy). This calls for systematic scanning of the environment in search of
unbiased reality, as well as for responsible reaction to external pressures, preferably in
anticipation to upcoming changes. The responsible management of the diversity
challenge seeks to sustain the firm’s integrity in face of increasing diversity. This
demands coordination efforts to harmonize heterogeneous and homogeneous
organizational elements in a way that enables economies of scale and scope and
organizational learning to take place. Finally, the human resources challenge seeks to
equip the organization with the right amount and variety of skills at the right time.
In a society dominated by the short-term pressures, responsible management of
corporate growth requires an odd combination: serenity to build and nurture strong
organizational foundations, and decisiveness to carry out timely moves. Let’s consider
the enterprising challenge. The right timing is essential for the successful launching of
exploiting and exploring strategies. But this does not mean that urgency should
dominate all preparatory activities, especially those that assess expansion risks. The
navigating challenge, for example, requires serenity to systematically scan the
environment and decisiveness to respond to external pressures and trends. The same
kind of combination applies to the other challenges.
Moreover, management should be aware of the ruinous effects that responses to
short-term pressures may have on long-term oriented organizational policies. A case in
point is talent management – an important policy associated with the human
resources challenge. A report on a recent survey about the impact of the talent function
and management strategies is quite revealing (Anderson, 2010): even though
executives continue to perceive talent management as an important element of
organizational success, companies have responded to the 2008-2009 global economic
crisis with layoffs of employees. As a result, not only are organizations likely to
experience knowledge gaps, but they should also face important problems to win back
the commitment of dedicated employees and to implement growth strategies when
economic recession is over.
 Finally, it can be said that the pursuit of healthy growth encompasses a number of Manage growth
antagonistic forces that can potentially help the organization to avoid harming not only responsibly
itself, but also those around it. Moreover, as Penrose (1959) stated, the capacity of
management to deal with the increased problems with which they are confronted
necessarily restricts the expansion plans of a firm. By responsibly responding to the
growth challenges, management can activate a number of embedded mechanisms that
limit reckless expansion and that take into account the well-being of those around the 1537
organization. For example, because the navigating challenge includes the acquisition
and maintenance of organizational legitimacy, responsible responses cannot afford to
ignore the impact of organizational actions on everything that surrounds the
organization.
Notwithstanding all these benefits, practicing the responsible management of
growth is the exception, rather than the rule, among organizations worldwide. A few
reasons can be advanced. For one, implementing the responsible management of
growth is not an easy task that depends on one single individual. Moreover, it is
time-consuming and requires the development of a truly long-term commitment with
the well-being of the organization. Finally, it requires long-term-oriented people who
are passionate about building long-lived organizations and who dare to persist on the
tiresome path that drives towards organizational healthy longevity.

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Corresponding author
Denise L. Fleck can be contacted at: denise@coppead.ufrj.br

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