Right from inception, organizations pass through stages of development. A small business typically passes through five stages. The organizational environment at each stage is unique. Every stage has its share of difficulties. Addressing and overcoming the issues at each stage propel the organizational development forward. The following are the five stages of development for organizations.
The business is being established and the major goal is to just exist. The focus is to find enough customers for the business to be viable. The business needs sufficient funds to pull it through the considerable cash demands of this phase. The owner is usually very involved and directly supervises everything. Systems are minimal and the staff strength is very light. The main concern is to produce the products and services and sell them.
The business has sufficient satisfied customers to become a workable entity. Now the business needs to break even and start making profits. It is essential to generate cash to stay in business and finance growth to become a competitive player. Though some professional staff members are hired, all important decisions rest with the owner. Systems development is still minimal. Most businesses remain at the survival stage, finally winding up when the owner decides to retire.
The business is now making average or above average profits. The revenue generated is used for formalizing the business functions. Decisions at this stage include taking on professional staff and moving to an expanded office space to cater better to the customer base. Basic marketing, financial and productions systems are in place. The essential aim at this stage is to maintain the status quo. Many small businesses remain at this stage for a long time, so long as there is no drastic change in the external business environment or loss of competitiveness due to inefficient management.
The company now has a track record of profitability. The key here is to grow rapidly and look at means to finance that growth. Decisions for including newer products and product lines are taken at this stage. The organization has specific divisions, usually production and sales, headed by competent managers. The systems become more refined to cater to the increased challenges. Planning and forecasting accurately become critical for the business. The owner should support the business at this stage by delegating responsibilities to the professional staff.
At this stage, the company has extensive systems in place. The company needs to consolidate and control the financial gains brought about by growth. The company should have adequate systems and staff in place to meet its increasing growth and sales targets. This is the time for the company to innovate and renew itself. Lack of new ideas may erode profitability, and the competitive edge may be lost. This has to be guarded against.