Definition and drivers of company growth

There are three different types of growth commonly used in literature: 1) growth in sales (also interchangeably called turnover or revenue) (Shuman et al., 1985), 2) growth in number of employees (Delmar et al., 2003; Shepheard & Wiklund, 2009) and 3) growth in productivity (Du & Temouri, 2015; Jalava & Pohjola, 2007). These three types of growth are interrelated, as demonstrated in the following section.

Growth in sales can be explained using the classic 4P model (McCarthy, 1960; Chung et al., 2012). The model consists of 1) product attributes, 2) price, 3) promotion and 4) place as factors that increase purchasing decisions and, therefore, sales. The more attractive a product is in terms of, for example, quality, features, design and related services, the better it will sell. If the price is attractive in terms of, for example, the list price, discounts or payment terms, then the sales may grow. In relation to consumers, business product attributes and price are especially known to be the best factors for increasing consumers’ purchasing decisions and, ultimately, sales (Aloina et al., 2019; Kowalkowski et al., 2017). Promotion refers to sales promotion, advertising, sales-force arrangements, public relations and direct marketing activities (McCarthy, 1960). Thus, the third way to increase sales is to increase marketing (Mohr et al., 2010, p. 374). The final P—place—as a sales increasing factor, refers to sales channels, product coverage, product assortment, sales locations, how inventory is organised and logistical arrangements (McCarthy, 1960).

A company can grow also by increasing its personnel. Increasing personnel is not seen, however, as a primary objective of a growth company because it will also increase the costs for the company and thus decrease productivity (Keythman, 2020).

In the 7P model, which is an extension of the 4P model, people or personnel are mentioned as the fifth P (Kotler, 1988, p. 750). In the 7P model, however, people or personnel refer primarily to the competence of the personnel as a success factor of a company (Hiransomboon, 2012). The service mindedness and the competence of the customer service people is known to increase sales as well. Another specific example, where sales growth may go hand-in-hand with personnel growth is when more competent salespeople are added to the personnel. It seems, consequently, that increasing personnel is also feasible and serves the sales growth, in general, if productivity can be increased at the same time (Organization of European Economic Development, OECD, 2020).

Total factor productivity (TFP) or multi-factor productivity (MFP) is defined as the ratio of aggregate outputs to aggregate inputs (OECD, 2005). Inputs refer to the labour and the capital input and the output refers to the value of production. Thus, growth in productivity refers to an increase in output and/or a decrease in the input.

Decreased input can be, for example, less raw material (increased material efficiency).

Another way to increase productivity is through digitalisation in the production or in the tools needed for the production process. Information and Communication Technology, ICT has been an important facilitator of an increase in output and productivity (Jalava & Pohjola, 2007). As discussed above, productivity may go down if the increase in personnel (labour costs) does not increase the output in the same ratio (OECD, 2020). Even if TFP is mainly used in macroeconomics, its use on microeconomic or company level may also be justified because the input and output parameters used in its definition are the same at the company level.

The growth rate of a company depends on various aspects. These growth drivers are discussed in this study using the modified structure of the McKinsey 7S framework (copyright) (Peters & Waterman, 1984, p. 10). In the 7S framework, the success of a company is analysed by considering seven variables: structure, strategy, people (staff), management styles, systems, procedures and shared values. In the light of modern growth theories, the structure used in this study combines “shared values”

and “staff” into “corporate culture” (Xu & Wang, 2018), “structure” and “systems”

into “organisation” and “skills” and “styles” into “capabilities” (Hoelzl, 2009; Stam

& Wennberg, 2009; Demir et al., 2017; Moreno & Casillas, 2007). The remaining dimension of the 7S model is “strategy”. Strategy and organisation are the so-called

“hard elements”, while culture and capabilities are the “soft elements”. In the 7S model, all elements interact with and depend on one another (Peters & Waterman, 1984, p. 10).

Corporate culture. People build the corporate culture lead by the founders of a growth company and/or the CEO (Xu & Wang, 2018). Corporate culture refers to the shared meaning among the people in an organisation (Gagliardi, 2003). The culture develops as an outcome of working together on common tasks and shared social activities, such as talking, celebrating and grieving (Lim & Ong, 2019; Gagliardi, 2003). In this interaction, the common beliefs, norms and values are converted into resources that can be put to strategic use (de Vaan et al., 2015). Continuous learning in the changing operational environment and as customer needs develop is an essential quality of the people in a growing company. Moreover, a condition for

learning is the rapid unlearning of the old dominant logic and unwished beliefs (Hsieh et al., 2018; D’Angelo & Presutti, 2019; Mintzberg, 2009).

Strategy. Strategy and strategic planning, including the differentiation (product–

market choices) explain much of a company’s capability to grow (Demir et al., 2017;

O’Regan et al., 2006; Markman & Gartner, 2002). Product and market choices answer the question “where to compete?” and provide the operational model to answer the question “how to compete?” (O’Gorman, 2001). The key players in the strategy process are the CEO and top management. Their strategic skills are among the top qualities needed for demonstrating company growth (Hambrick & Mason, 1984; Korsakienne et al., 2019; Yeo & Park, 2018). Execution capability (taking action and achieving goals) belongs seamlessly together with strategic capabilities—

managers who can quickly make the transition from a strategic to a managerial role are more likely to keep their company on the growth path (Dillen et al., 2019; Hagen

& Zucchella, 2014).

One of the first steps in a growth strategy process is to ensure the growth motivation of owners and top management. Growth intention has a positive impact on sales growth; however, growth intention alone explains only 4–5% of the variance of actual company growth (Cesinger et al., 2018; Kolvereid & Åmo, 2019). Growth intention is determined by personal psychological traits, such as growth attitude of owners and professional managers, as well as entrepreneurship (Park & Ku, 2008;

Barringer et al., 2005).

Innovation as part of the strategy is an important growth driver. It is measured by, for example, research and development (R&D) investments, the number of patents and the quantity of new products and services (Coad & Rao, 2008; Goedhuys &

Sleuwaegen, 2010). Innovations are divided into product and process innovations (Lee, 2014). Product innovations bring new sales to a company, while process innovations increase productivity by increasing the output or decreasing the input (Lee, 2014). Also, the CEO’s profile has a significant positive influence on the innovation capacity of a company (Khan & Manopichetwattana, 1989; Demir et al., 2017).

Capabilities. Capabilities refer to the background of the owners/CEOs, including their cognitive capabilities as well as industry, market or technological background.

Moreover, the agility of resource management, practices and processes, as well as the

capability to flexibly modify these to reach the company objectives, are all important (Hoelzl, 2009; Stam & Wennberg, 2009; Demir et al., 2017; Moreno & Casillas, 2007). The upper echelons theory states that organisational performance can be partially predicted by the background characteristics of the CEO and other members of the top management team (Hambrick & Mason, 1984). In addition to background characteristics, the management skills of top management are the most often mentioned drivers for growth (Hagen & Zucchella, 2014). For example, the CEO and top management set the framework for good human resource management practices related to employee selection, induction, training and incentive systems (Barbero et al., 2011; Ensley et al., 2006). Additionally, knowledge-orientation and continuous learning—as human resource development-related tools—are important for growth (Hsieh et al., 2018; D’Angelo & Presutti, 2019).

In addition to human resource management (HRM) and human resource development (HRD) skills, top management needs to understand the financial markets because various sources of financing are important for company growth (Anton, 2018). However, growth companies backed by venture capital survive at a higher probability than without venture capital (Zacharakis & Mayer, 2000). On the other hand, high-growth companies rely more on debt than equity (Brown & Lee, 2019). Thus, profitability management, efficiency of using assets and sales capacity are pivotal for small and medium size enterprise (SME) growth (Liu & Wu, 2016).

When considering finance and cash flow, the government may be able to help growth companies with various growth programs. However, there are contradictory results of the impact of government subsidies. Government business subsidies do not make an additional significant boost to the contemporary or after-subsidy growth of young high-growth companies (Koski & Pajarinen, 2013). Moreover, it is doubtful whether policymakers can improve economical outcomes by targeting HGFs (Daunfeldt & Halvarsson, 2015). However, the government high-growth entrepreneurship initiative in Finland has more than doubled the growth rates of the treated growth companies in comparison to untreated ones (Autio & Rannikko, 2016). The positive impact of government subsidies is also supported by Czarnitzki and Delanote (2017).

Organisation. In this study, organisation includes the structure and systems of a company, which act as growth drivers. Partnering with other organisations is the second most important success factor of growth companies, after management skills (Hagen & Zucchella, 2014). When forming partnerships, a company acquires

resources that are costly in terms of either time or money in order to develop from zero (Mohr et al., 2010, p. 146). The partnership types used depend on which of the four life cycle phases the company is. In the emergence phase of a company, standards, licensing or technology partnerships are used. When the company reaches the growth phase, R&D and marketing partnerships may be added to its partnership portfolio.

In the following maturity and decline phases, partnerships specific to these phases may be added (Mohr et al., 2010, pp. 146–151).

Because the focus is on company growth, the three ways of partnering that support the emergence and growth phases of a company are presented in the following section.

First, a traditional way to partner is to be present in the same physical location—e.g.

technology parks—where companies benefit from comparative advantages, shared resources and rapid interaction facilitated by vicinity (Miguel-Giner et al., 2017). As an example, the priority of the ICT industry in selecting location is the availability of human resources (Marinkovic et al., 2018). Moreover, technology parks often exist in the vicinity of universities, which may spin off research teams and lead to new ventures.

The second way in which to partner is related to large companies using growth company ecosystems to help their own R&D ideas develop (Tatum, 2007; Oksanen

& Hautamäki, 2015). For instance, both Nokia and Fortum have their own venture funds, through which they seek totally new product and service ideas for their business development from start-ups (R. Siilasmaa, personal communication, 24.9.2018; P. Lundmark, personal communication, 7.3.2019). Furthermore, Innovestor Ventures Oy is building a venture capital (VC) fund with the intention to obtain several corporate investors in order to increase the relevance of their deal flow in selected technological areas (T. Äijälä, personal communication, 24.9.2018).

The third—revolutionary—way to collaborate is through digital platforms, where ecosystems (partnerships) are formed (Kenney et al., 2019). Gawer and Cusumano (2014, p.417) define industrial platforms as follows:

Industrial platforms are products, services, or technologies that act as a foundation upon which external innovators, organized as an innovative business ecosystem, can develop their own complementary products, technologies, or services.

Platform providers offer market information and channels to end customers. They open the interface to their platform and provide interested companies with a toolkit for developing their own applications. The more that applications are being developed, the more lucrative the platform looks to end customers. Hence, digital platforms are, at best, a win-win for both a growth company and the platform provider. They are reorganising the markets, restructuring the labour force and redefining the competition (Kenney et al., 2019). Lately, there has also been a lot of criticism regarding the dominance of large platform companies in terms of administering and using customer information for their own commercial purposes (Duhigg, 2018). Examples of digital platforms include Apple, Google, Facebook and Amazon.