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...sales, differentiation in labor force, and the level of labor productivity decrease. Development effects can be treated as interdependent. Our findings show that the effects of growth can be predicted to a certain extent. In efforts towards development, these predictions are important to business strategy, as well as to consultation with and education of SME entrepreneurs.
Introduction
This paper aims to analyze differences between subsequent stages in the life cycle of small and medium-sized enterprises (SMEs) in the professional services sector. (We will use the terms SMEs and small businesses interchangeably). We will start with a diversified theoretical review, examining a general picture and focusing in on SMEs in particular. Much has been written on this subject, especially from a theoretical perspective, and as regards the manufacturing sector. Throughout this body of literature, different authors have tended to take a more or less similar approach. Our paper's contribution to the literature lies in its discussion of the empirical authorization in the services sector, and the refinement of the stages approach.
Three interdependent research hypotheses on change during the life cycle have been formulated and tested. Our research sought to determine whether firms in the start, growth, maturity, or decline stages show different levels of sales diversification, labor force differentiation, and labor productivity. Empirical material was used to test the presumed life cycle effects. The test results led to promising recommendations for future research.
Theoretical Framework
This section presents an overview of the most important works in the field of firm life cycles, starting with general studies. This is followed by a discussion on the growth of SMEs. Finally, our focus will shift to SME development models.
General Firm Development
Greiner's (1972) work provides the basic foundations for the theory on firm development (evolution and revolution). He concluded in his theoretical review that growing organizations move through five distinguishable stages of development. Each phase contains a relatively calm period of growth that ends with a management crisis. These phases and crises are:
(1) growth through creativity, followed by a crisis of leadership;
(2) growth through direction, followed by a crisis of autonomy;
(3) growth through delegation, followed by a crisis of control;
(4) growth through coordination, followed by a crisis of red tape;
(5) growth through collaboration; followed by a crisis of psychological saturation among employees. This crisis can be solved by new structures and programs that allow employees to periodically rest, reflect, and revitalize themselves.
A great deal has been written on firm development since Greiner launched his evolution and revolution model; and the phenomenon has become multifaceted indeed. Lavoie and Culbert (1978) stressed the human factor in organizational development in their review of a series of different theories. To be effective, organizational development must be tied to progressively mature reasoning processes that characterize managers working in increasingly higher stages of the organization's evolution. Valid organizational change and development basically addresses the problem of getting managers and their employees to upgrade the values and logic underlying their patterns of decision-making.
Adizes (1979) concluded in his theoretical, essay-like work that future-oriented management of the attitudes and style of an organization's managers may provide a means for ensuring a long and effective life for an organization. At every life cycle passage, a typical pattern of behavior emerges. At the courtship stage, the most pronounced role is that of selling the idea to others and reinforcing one's own commitment. At the next stage (infant organization), risk becomes an issue due to significant expenses involved. A significant change in behavior is needed, as production is crucial. The following stage (go-go) calls for vision and administrative systems of increasing importance. At the adolescent stage, more time should be spent on planning and coordinating. If the organization sails safely through adolescence, it may enter the prime stage of the organizational life cycle. An organization in its prime is result-orientated, has plans and procedures to achieve efficiency, and keeps an open eye on its environment. The mature stage is characterized by institutionalized systems, that is, procedures and policies (systems) for accomplishing tasks.
Quinn and Cameron (1983) combined nine models of organizational life cycles into one theoretical summary model. All nine models suggest progress through similar life cycle stages. Each of the models contains an entrepreneurial stage (early innovation, niche formation, creativity), a collectivity stage (high cohesion, commitment), a formalization and control stage (stability and institutionalization), and a structure elaboration and adaptation stage. There is a consistent pattern of development in organizations over time, and organizational activities and structures at one stage are not the same as those at another. Thus, the criteria used to evaluate an organization's success at one stage of development may well be different from the criteria used to evaluate success during another developmental stage. A few years earlier, Carper and Snizek (1980) presented a more general overview of literature dealing with organizational taxonomies.
Tentatively, there appears to be a life cycle for firms that show similarities to the standard product life cycle. Whereas individual approaches may have differed, in their own way, all of the authors incorporated elements of start, growth, maturity, and decline in their studies. We will now narrow our scope and focus on SMEs only.
SMEs and Growth
The fairly classical approach maintains that SMEs (especially the start-ups) hold growth as a cherished objective. But more and more evidence suggests that not all small businesses are growth-oriented, and that...
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