How to keep the entrepreneurial spirit in growing companies

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Ö N K Ö P I N G

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N T E R N A T I O N A L

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U S I N E S S

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C H O O L

JÖNKÖPING UNIVERSITY

H o w t o k e e p t h e e n t r e p r e n e u

-r i a l s p i -r i t w i t h i n g -r o w i n g

c o m pa n i e s ?

Master Thesis within Business Administration Author: Henko Leffers

Suzanne Elhorr Tutor: Cinzia Dalzotto Jönköping June 2008

Acknowledgements

We would like to express our gratitude to the persons who provided us with the knowl-edge, guidance and encouragement to develop our final thesis.

Mikael Petterson, Unimerco

Kenneth Johansson, Safetool

Krister Svantesson, Jönköping Posten

Niclas Adler, Jönköping International Business School (JIBS) Sheridan Tatsuno Jönköping International Business School (JIBS)

PhD student, X Jönköping International Business School (JIBS) PhD student, Y Jönköping International Business School (JIBS)

Further we are thankful to our fellow student who gave us support, feedback and good ad-vice.

Kamil Sawicki

Jönköping, June 2008 Suzanne Elhorr & Henko Leffers

Master Thesis in Business Administration

Title: How to keep the entrepreneurial spirit within growing companies

Author: Suzanne Elhorr

Henko Leffers Tutor: Dalzotto Cinzia Date: Jönköping, 2008 June Subject terms:

Abstract

Problem: Once a business is running, simultaneously the treat of loosing the entrepreneu-rial spirit is occurring. The team is not as passionate and people do not seem as enthusias-tic, and what was once a mission is now seemingly nothing more than a job for you and for them. Many factors cause the damage; however, the structure and the human resource management are two particularly factors involved in that damage.

Purpose: The purpose of this thesis is to investigate how the structure and the human re-source management serve as rescuers to force and keep the entrepreneurial spirit. The au-thors findings will help them give suggestions on how these two basic fields help in stabi-lizing the entrepreneurship.

Method: The data collection is based on theories related to findings from the real life busi-ness world. To assemble qualitative and reliable research, the authors conducted seven oral interviews with professionals working in different positions. In addition, the interviewees were selected from four different companies and different industries.

Conclusion

The structure in growing firms needs regular adjustment to hold a clear communication and clear definition of responsibilities which are crucial for the survival of the firm. Firms relying on innovativeness need to find the balance between openness of communication, flexibility and the degree of bureaucratization. In addition, firms based on innovation should be aware of tolerance of failure. Trust between management and employees also tend to influence the overall performance of the firm.

As the business develops, HRM practices also follow a certain change and update. An es-tablished firm needs to have clear competences of what is needed in the organization. Be-sides that, the firms need to emphasize training and development. In addition to keep peo-ple motivated and sustain the entrepreneurial spirit, firms need to be aware of rewarding. Eventually the authors also discovered a need to include internationalization in their thesis and how it is related to sustain the entrepreneurial spirit in growing firms.

Table of Contents

1

Introduction... 1

1.1 Background...1 1.2 Problem ...2 1.3 Purpose ...3 1.4 Research Sub-questions ...3

2

Theoretical Framework... 4

2.1 Entrepreneurship...4 2.2 Growing Companies...5 2.3 Structure ...6 2.3.1 Structure...6 2.3.2 Structural arrangements ...8 2.3.3 Smallness...10 2.3.4 De-Layering...11

2.3.5 Communication in terms of Innovation ...12

2.4 Human resource management ...14

2.4.1 Need for formal HRM ...14

2.4.2 HRM and organizational culture of trust ...14

2.4.3 Human resource practices...15

2.4.3.1 Staffing...15

2.4.3.2 Planning ...17

2.4.3.3 Appraising Performance ...18

2.4.3.4 Intrinsic Rewards ...19

2.4.3.5 Extrinsic Rewards ...20

2.4.3.6 Training and development ...22

2.5 Internationalization...22

2.6 Reflections on Theories ...23

3

Methodology ... 25

3.1 Conducted research...25

3.2 Case Design ...25

3.3 Collection of Empirical Information ...26

3.3.1 Firms included in findings ...27

3.3.2 Firms excluded in findings ...28

3.4 Methodical research approach...28

3.5 Critical treatment of gathered data ...29

3.6 Delimitations ...30

4

Empirical collection ... 30

4.1 Unimerco ...30

4.1.1 Unimerco’s Presentation ...31

4.2 Jönköping International Business School (JIBS)...35

4.2.1 Jönköping International Business School History...36

5

Analysis ... 52

5.1 Entrepreneurial Growing Companies ...52

5.2 Structure ...52

5.3 HRM practices...54

5.3.2 Culture...54

5.3.3 Staffing and Planning ...55

5.3.4 Rewarding ...56

5.3.4.1 Intrinsic ...56

5.3.4.2 Extrinsic ...57

5.3.5 Training and Development ...57

5.4 Internationalization...58

6

Conclusion and discussion ... 59

6.1 Organizational structure ...59

6.2 HRM practices...60

7

Recommendations... 61

8

References ... 62

List of figures Figure 1 Entrepreneurship as A Vector (Kuratko & Morris, 2002)………..4

Figure 2 Business Life Cycle (Kuratko & Morris, 2002)………...5

Figure 3 Entrepreneurial Mindset Kuratko & Welsh, 2004………..6

Figure 4 SAAB team………..………10

Figure 5 Elements reflected in organizational forms……….….12

Figure 6 Inverted Triangle………..………....20

Figure 7 Trapezoid (Davidsson, 2001) [Modified] ………29

Figure 8 Jonkoping University Structure (Jonkoping University, 2008) ………38

List of exhibits Exhibit 1 Structural practice to foster entrepreneurship (Schuler, 1986)………..9

Exhibit 2 Structural Practice………..…10

List of tables Table 1 The 5-15 Report………..…..13

Table 2 Employee Characteristics……….…….17

Table 3 HRM practices………...…...……18

List of boxes Box 1 Effective Entrepreneurial Organization………...…21

Appendices Table 4 Assesing Flexibility (Levey, 2002) ………... 64

1 Introduction

This chapter will introduce the reader to why the question “How to keep the entrepre-neurial spirit within growing companies” was chosen as a topic for this Master’s thesis. Firstly, the background is explained to why this subject is relevant and interesting for investigation. Secondly the area of investigation is narrowed down to the problem. Third, the specific purpose of the thesis is clarified and finally the sub-questions are also identified.

1.1

Background

It’s a fact that for some entrepreneurs managing an established company becomes more difficult and more challenging than managing a new created one. They begin to realize that to maintain growing and successful companies, they need to reenergize the team and them-selves as well otherwise they will reach a “Glass ceiling”. According to David Rae (1999), the “Glass ceiling” is where business can not grow further or can grow but other measur-able issues, such as entrepreneurial level can shrink. To overcome this glass, there is a need to learn how to manage the business differently according to the circumstances in a way to grow while sustaining the entrepreneurial spirit. Why entrepreneurial spirit in particular? Over the years, it has become obvious that entrepreneurship contributes to economic and business development. Transforming ideas into business opportunities is at the heart of en-trepreneurship. Studies show that progress has been significantly advanced by bold people who are entrepreneurial and innovative, able to exploit opportunities and willing to take risks. As any business grows, there are increasing requirements for change: improvement in the competitive situation, development of new opportunities and additional resources, all require a deep change in management (HRM) and structure within the business (McKeran, 2000). The main issue is that changes must be driven and managed in order to move for-ward. There should be a clear awareness of the key issues surrounding the growth and the development of the business.

As the business grows, a number of potential conflicts arise such as structure. Flexibility is a major point in growing entrepreneurial growth. For this reason, there is a need to develop or sustain a flexible structure. Kuratko and Morris (2002) point out that the degree of en-trepreneurship (level of innovativeness, risk-taking, and proactive ness) versus the fre-quency of entrepreneurship (number of events) is affected by the organizational structure. Any organization wishing to become flexible and continually improving must develop peo-ple who are flexible, responsive and open to growth. This is achieved when individuals take responsibility for actions. HRM, in entrepreneurial firms, should make sure to select and develop such qualified people. The job should be doubled in companies at a growth phase. Balkin and Logan (1988) argues that poorly designed compensation and performance ap-praisal systems may threaten entrepreneurial behavior. In addition, studies show that in growing companies, such systems should be more formal and more advanced. Similarly, a number of observers have suggested that organization’s level entrepreneurship can be in-fluenced by HRM-related policies (Schuler, 1986). HRM varies in practices: hiring qualified employees, managerial behaviors on employee motivation, strategic role of compensation in motivating employees, etc…These practices have been facilitators of entrepreneurship and main supporters for growth. Employees become a source of sustainable competitive advantage.

1.2

Problem

In simple words, the entrepreneurial spirit is an act focused on curiosity to discover, find, and try something new in order to build a business out of it. In professional words, there are certainly key characteristics which encapsulate the entrepreneurial spirit. It is hard to limit the number of these characteristics; however innovations, risk-taking, proactive ness, are the most common ones. This encapsulation makes many companies adopt the entre-preneurial spirit and makes it as its main core value; however, as the business grows, a number of potential conflicts arise in the areas of management, structure, strategy, and cul-ture which must be managed.

Oftentimes, the founding entrepreneur departs as the company grows (Kuratko and Welsh, 2004). More professional managers are hired and they bring in more organization and func-tional structure. Later, as the company grows, those become impediments for opportunity to develop. As they get bigger, they lose the entrepreneurial spirit. Moreover, they bring in financial measures, like return on investment, thus delimiting the level of risk taking; these things interfere with entrepreneurship concept. As the company continues to develop, one loses people and put processes in place that inhibit the entrepreneurial spirit and entrepre-neurial thinking.

The one thing that kills entrepreneurship is so many checks and controls because it creates a certain level of bureaucracy. They start out helping the organization to function, but they end up hurting it by creating too many rules and regulations.

Growing, in terms of the growing numbers of people and the shift in the scale of the busi-ness, affect entrepreneurs in some way: People are not kept informed, and they are not given regular feedback. In addition, little time is spent on developing people. These in turn affect people who were used to be children for these entrepreneurs. Now people feel unse-cured.

Entrepreneurial firms are generally characterized by employees who are expected to per-form a wide variety of tasks. The reason behind that is the lack of routinization, which makes it difficult to develop stable role definitions. Unfortunately, most of the growing companies fail in sustaining the original entrepreneurial structure, and end up with a bu-reaucratic structure killing the entrepreneurial spirit. Growing leads to an increase in the subdivision of the functions which is interpreted as a process of bureaucratization (Bendix, 1956). Bureaucratization, one form of routinization, means that bureaucratic organizations are more involved with established activities and less willing to pursue risky projects and this delimits the entrepreneurial spirit characterized by risk-taking.

People must be regarded as critical system elements. They must be managed properly. For innovative organizations to operate effectively, human resource professionals should re-cruit, develop, motivate, and retain its most valuable resource-innovative employee; How-ever, as the business grows, the ideal characteristics in employees are not well checked and examined by the HRM practices. Organizations are not stimulating and reinforcing these primary characteristics. As studies showed the HRM practices needed to foster entrepre-neurship are not well emphasized.

1.3

Purpose

The purpose of this thesis is to investigate how the structure and the human resource man-agement serve as rescuers to keep the entrepreneurial spirit.

1.4

Research Sub-questions

These are the sub questions developed to support the purpose of the thesis and to answer the initial question:

• What is entrepreneurship?

• Why growing companies are selected?

• How organizational structure should be adjusted in a way that supports entrepre-neurship?

• How communication should be handled in entrepreneurial companies? • To what extent culture of trust is necessary for HRM practices?

• How HRM practices should be adjusted in a way that supports entrepreneurship? The first question is formulated to introduce the concept of entrepreneurship to the reader. The second question clarifies why entrepreneurship in growing companies is suffering. The remaining four questions will solve the problem, and suggest several ways that keep and maintain the entrepreneurial desire and spirit.

2 Theoretical Framework

2.1

Entrepreneurship

Kuratko and Morris (2002) point out that; “Entrepreneurial thinking and acting are in the mindset of a global entrepreneurial revolution”. This fact is changing the way business is carried out at every time and every country. But “What is really entrepreneurship?”

Block (1985) defines entrepreneurship as a process of creating or innovating new products within new or existing businesses. Furthermore, Kanter (1985) defines it as a creation of new combination. Actually, entrepreneurship is the practice or activity of creating and in-novating. The process of innovation is central to entrepreneurship, or as Drucker (1985) states “Innovation is the tool of the entrepreneur.”

What distinguishes entrepreneurial from non-entrepreneurial firms is the rate of innovation (Schuler, 1996). This is to say the greater the rate of innovation, the more entrepreneurial the firm (Kanter & Drucker, 1985). Furthermore, the greater the rate of innovation, the greater the level of success and effectiveness. Kuratko and Morris (2202) underlie two fur-ther dimensions of entrepreneurship in addition to the innovation: risk-taking, and proac-tive ness.

Anything new involves risk. Risk-taking involves, according to Kuratko and Morris (2002), a “willingness to pursue opportunities that have a reasonable likelihood of producing losses or significant performance discrepancies” (p.41).

Taking any act results in new thing. This is called Pro-activeness. Pro-activeness is con-cerned with taking responsibility and doing any necessary step to activate the entrepreneur-ship concept (Kuratko & Morris, 2002).

Kuratko and Morris (2002) depict entrepreneurship as a vector in three-dimensional space (see figure 1). The more the events are innovative, risky, and proactive, the higher the de-gree of entrepreneurship. The first (E1) represents a firm that is highly innovative or proac-tive but highly risk averse. The second situation (E2) represents a firm that is highly inno-vative and risk-taking but lacking proactive ness. Any vector drawn determines to what ex-tent a firms, or individuals in firms are innovative, proactive, and risk-taker.

Another question is also addressed “Why approaching entrepreneurship?” In addition to the importance of entrepreneurship mentioned above, there are more reasons for organiza-tions tending to become entrepreneurial.

According to Cornwall and Perlman (1990), the first reason is that entrepreneurship has its biggest impact on long-term organizational performance especially the survival. It is critical to maintain an entrepreneurial process in the organization at the strategic level. Such entre-preneurial approach allows the organization to react more to changes and thus adapt and survive over time.

Cornwall and Perlman (1990) figure out a second reason for such entrepreneurial orienta-tion: The outcomes of an entrepreneurial organization are the main motivators behind such entrepreneurial orientation. Outputs vary from development of existing products and ser-vices, innovations in products and serser-vices, and the creation of new business.

2.2

Growing Companies

Organizations face the natural patterns of life cycle stages. According to Kuratko and Mor-ris (2002), the stages of development are as follow: New venture-development, start-up ac-tivities, growth stage, stabilization stage, and choice of innovation or decline (see figure 2).

Figure 2 Business Life Cycle (Kuratko & Morris, 2002)

Any stage might necessitate major changes in entrepreneurial strategy to compete in the market. Sometimes, as Kuratko (2002) said:”even the highly creative entrepreneurs are un-able to meet the administrative challenge that accompanies the stage of growth” (p.9). Four critical factors affect the extent to which a company maintains its entrepreneurial spirit (Kuratko & Morris, 2002):

-Responsibility: As the business evolves, it becomes crucial to define and determine responsi-bilities to set up flexibility and innovation. Kuratko and Morris (2002) figure out that sus-tainable entrepreneurship requires innovative activity and shared responsibility of everyone in the organization.

-Tolerance for Failure: Maintaining a tolerance for failure is necessary during the whole busi-ness life. Kuratko and Morris (2002) points out that the failure of people in start-up entre-preneurial companies is tolerated. This level of failure should stay the same in later stages, growing stage.

-Change and flexibility: As the organization grows, there is a continuous change in different fields. Change has many implications for the firm in terms of people (HRM), and structure. For this reason, it is important that flexibility regarding change be preserved.

-Control: Growth and size might bring problems in rules and controls.

Figure 3 illustrates the danger suffocating innovation. In some cases, success will affect an entrepreneur’s willingness to change and innovate. According to Welsh and Kuratko (2004):”This is particularly true when enterprise has developed a sense of complacency and the entrepreneur likes this environment” (p. 40). In other words, entrepreneurs do not want to change anymore and they will create a bureaucratic environment where orders are issued from the top down. As a result, no one is willing or encouraged to become innova-tive or entrepreneurial because such activities are stifled.

Figure 3 Entrepreneurial Mindset (Kuratko & Welsh, 2004)

Actually, Welsh and Kuratko (2004) in their book “Strategic entrepreneurial growth”, show that the entrepreneur directly affects the firm’s growth orientation. Entrepreneurs must es-tablish a business that remains flexible beyond the start-up period if he wants to have an innovative atmosphere. Welsh and Kuratko (2004) say: “An adaptive firm increases opportu-nity for its employees; initiates change, and instill the desire to be innovative in employees” (p.40). The rest of this research discusses the ways to build such adaptive firms

2.3

Structure

2.3.1 Structure

Definition

Structure is the design of an organization. Kuratko and Morris (2002) define the structure of an organization as “the formal pattern of how people and jobs are grouped and how the activities of different people or functions are connected” (p.191). Structures are created to bring order and logic to company operations. It is the structure that determines the way di-visions, departments, functions, and people link together and interact. Organization struc-ture determines operational responsibilities horizontally and vertically.

The structure of an organization plays a significant role in the success of the organization. An efficient structure facilitates coordination and interconnecting of employees and

com-munication systems. The structure also defines what the responsibilities of every one in the firm are. An organizational structure determines the role of everyone in order to achieve the overall objectives of the organization. According to Perlman (1990), organization struc-ture is “inextricably linked to the people who perform the tasks” (p.108). However, the structure is not static, it is continuously changed.

Structure in Growing companies

One can make decisions quickly or there could be many things slowing down the process. The organizational structure might be profitable; however, according to Jackson and Roper (1991): “as the company grows, it becomes difficult to maintain the needed volume of work while controlling systems, processes, and procedures to maintain operations”. To hold the organizational objectives, the organizational structure should be adjusted to allow adequate maintenance of operations.

Any organizational structure should go along with the strategy. Before shaping the organ-izational structure, managers should mold the organization’s strategy and vision, and then adjust the structure of the organization in a way that fits that strategy. The goal of structure is to support execution of the entrepreneurial organization’s chosen strategy based on in-novation. Every time strategy and vision are modified, structure should be also modified to support that execution.

In order to serve the external customers, effective communication and support systems should be spread among internal customers. As Jackson and Roper (1991) mentioned: “Within every organization, information should flow in “every direction” — from custom-ers to the company, throughout all levels within the company, and back to customcustom-ers in the form of execution”. In other words, lack of such information flow will damage the infor-mation gaps whether with internal or external customers and damage the performance as well (Jackson & Roper, 1991).

Malfunction of Bureaucratic Structure

Traditional organizations depend on bureaucracy (Weber, 1952) to ensure that work is ac-complished efficiently. Bureaucratic structure is a rigid structure where there is a standardi-zation of work in order to achieve tasks. The need to follow plans and programs is stressed (Morris, 2002). In a bureaucratic structure, power, knowledge, and data stay at the top of organization (McKeran & Flanningen, 1996). Centralized decision making, and highly spe-cialized tasks are dominant in such a structure.

Entrepreneurship suffers for different reasons. First of all and according to Cornwall and Perlman (1990): “many organizations have rules that demand that ideas for new products and other opportunities be submitted in writing” (p.109). Cornwall and Perlman (1990) point out that these proposals require employee to follow a set of format, and these pro-posals may be handled only at establishes times. The problem with bureaucratic structure is that it formalizes the process for communicating ideas for new products or processes. It is hard to write down innovative ideas in a well formatted paper.

Secondly, employees might be aware of the final goal but may be confused on how to reach it. According to Cornwall (1990) “a bureaucratic structure may impede reaching a goal be-cause it limits the alternative paths to the goal that can be taken” (p.111)

Third, bureaucratic structure does not welcome change and variety in its specific processes and procedures, and sometimes this change is needed to carry out the tasks of a project.

Benveniste argued that the bureaucratic structures prohibit the fluid environment needed sometimes to carry out a project (as cited in Cornwall & Perlman, 1990, p.111).

Ideal Entrepreneurial structure

In small companies, structure begins as little. They operate in a flexible and lose manner. However, as they grow in age and size, firms implement a bureaucratic structure (Kuratko & Morris, 2002). Consequently, “While growing, structure becomes more bureaucratic and entrepreneurship suffers” (Kuratko & Morris, 2002).

Obviously, bureaucratic structures are undesirable in entrepreneurial organization. Clifford and Cavanagh talk about bureaucracy as: “… smothering innovation, substituting rules for common sense, stultifying decision-making, and straight jacketing initiative ” (as cited in Perlman and Cornwall, 1990, p.109).

Consequently, growing companies have to adjust structure in a way that it accommodates innovative behavior. Innovation necessitates a level of flexibility in terms of resource utili-zation and time scopes. Quick decisions are often required during the innovative process and there should not be boundaries slowing down communication because, according to Kuratko and Morris (2002): “Innovation is also a communication intensive activity, includ-ing both lateral and vertical communication much of which is informal and unplanned” (p.194)

In simple words, structure in growing entrepreneurial company necessitates special struc-tural arrangements to keep its entrepreneurial growing identity.

2.3.2 Structural arrangements

Freedom and Autonomy

No ideal structure is listed; however, structural arrangements should be applied in a way to encourage and foster entrepreneurial behavior. Schuler (1986) mentioned: “At the heart of structural arrangements to keep and promote entrepreneurship is granting some degrees of freedom and autonomy to an individual and group” (p.3). High levels of autonomy and freedom increase job performance.

Employee autonomy dissolved barriers between managers and employees. Therefore, autonomy fosters relationships and trust between management and employees.

Randall S. Schuler (1986) suggested many structural practices in structural arrangements (see Exhibit 1). The more complete the structural arrangement (and granting of autonomy); the more the innovation is enhanced. Innovation may occur under less structural arrange-ments, but it occurs less frequently.

According to Schuler (1996), as the structural arrangements go from modest to more sig-nificant and complete, innovation and entrepreneurial activity show higher levels.

Exhibit 1 Structural practice to foster entrepreneurship (Schuler, 1986)

Flexibility

Flexibility is not about saying yes to all requests. Flexibility at work allows employees to think about their work and personal needs. Flexibility at work allows employees to propose new solutions that enable them to get the job done. It keeps an open dialogue about how to work most effectively (“Levey”, 2002). It is about work-process planning and answering questions like: How will the work get done? What happens during overtime? How will communication and coordination be managed? Here are some tips to improve flexibility. Reducing Segmentalism- To increase flexibility and foster entrepreneurship, reducing segmen-tation should be covered (Schuler, 1986). Reducing segmensegmen-tation and increasing integration across groups, teams, departments, and divisions facilitate idea and information exchange. This occurs as a matter of culture reflecting teamwork and cooperation which are crucial to team success. Team members must coordinate to achieve group goals. They must work to-gether and make efforts to support and cooperate with each other. Team members share information and suggestions freely.

Financial processes- Financial processes need to become more flexible if innovation is to be fostered and maintained. According to Schuler (1996): “many organizations, like Eastman Kodak, are setting up special “innovation banks” to fund new ventures or innovations out-side of operating budgets” (p.7). This allows employees to develop small activities which would otherwise find no place in a managers’ budget who are just seeking immediate prof-itability. Another form of increased financial flexibility is top management sponsoring as many small and diverse entrepreneurial projects as possible rather than just a few big ones (Schuler, 1996).

Reducing Bureaucracy- Bureaucracy describes the preciseness and rigidity of department ar-rangements, and reporting practices and rules. Schuler (1996) says that “systematic innova-tion is strengthened to the extent that the bureaucracy is minimized” (p.6). In other words there should be a cutting of the bureaucratic actions in order to maintain entrepreneurship. Exhibit 2 reflects the policies and procedures to enhance flexibility.

Exhibit 2 Structural Practice (Schuler, 1986)

2.3.3 Smallness

In order to apply the structural arrangements mentioned above, several practical structures could be proposed. One of them is the possibility to breakdown of organization into inde-pendent units, or what Cornwall and Perlman (1990) called “Smallness”. SAAB team-based structure illustrates this arrangement where the aim was to make teams operates as individ-ual companies with high level of operational freedom and responsibility (see figure 4). Hence, due to that smallness in units, employee will get immediate feedback on work per-formance, and on new ideas without delay and with the help of a quick and easy communi-cation. Moreover, they can obtain resources, information, and assistance quickly and easily. As a result, quick response to employees enhances innovation and risk-taking.

Such a SMALLNESS theory encourages entrepreneurial activities and forbid bureaucratic drawbacks. According to Schuler (1996), the higher the innovation-level, the less the bu-reaucracy and vice versa. Free departmental boundaries facilitate the flow of information and ideas which is crucial to form new combinations. Schuler (1996) points out: “Less ne-cessity to adhere to the chain of command also facilitates interaction and knowledge ex-change, and less reliance on rules and procedures recognizes the dynamics of knowledge-intense activities so characteristic of innovation” (p.11).

2.3.4 De-Layering

Fewer structural layers, is another practice which could be applied. According to Peters (1987):“Good intention and brilliant proposals will be dead-ended, delayed, sabotaged, massaged to death, or revised beyond recognition or usefulness by the over-lay structures at most large and growing firms” (p.356). Many large businesses decided to delayer their organizations. Delayering is the process of removing one or more levels in the hierarchy in order to flatten out the organizational structure. As a result, numbers of layers are reduced and the span of control becomes wider.

De-layering is necessary to keep the autonomy, creativity, to provide better service to the customer, and to increase the speed of communication and decision making. The commu-nication flows faster by having flatter hierarchical structures and encourages delegation since wider spans of control should provide opportunities for employees to take on more responsibilities. The flatter the organization, the less the number of layers and the wider the spans of control. Here are the main advantages of delayering and wider spans of control (flatter structures) introduced by Mintzberg and Peters (1987):

• Delegation puts more burdens on subordinates. Hence, there are opportunities for sub-ordinates to take on extra responsibilities, and to initiate to some level their own innovative small projects.

• The problem of most growing companies is about difficulty in the communication proc-ess and difficulty in connecting people to each other and traversing all layers. However, shaping fewer layers in the hierarchy improves the communication and hence the growing problem is dissolved (whether on horizontal level or vertical level).

• According to Mintzberg: ”There is a smaller psychological distance between those at the top and those at the bottom of the organization”. This can help to eliminate a ‘them and us’ culture where workers feel alienated from senior management (Mintzberg& Peters, 1987).

According to Cornwall and Perlman (1990), something similar happens at Siemens. To al-low the firm to be more entrepreneurial, barriers have to be broken down and decision making should be decentralized. For this reason, a restructuring process took place and the number of management layers fall from seven to three.

De-layering follows the concept of decentralization (see figure 5) where decision-making and responsibility is passed onto others in the organization. Planning and execution be-come faster and more efficient since there is delegation of authority and responsibility and day-to-day decision-making is faster. By that way, staff is empowered and hence is more motivated. Workers feel more valued since they are involved in the decision-making. Peters and Mintzberg (1987) go further and point out: ”The autonomy also means that they can use their initiative and feel a sense of ownership for their work”.

Figure 2 captures the structural changes such as de-layering, decentralization that are ac-companied by the ways horizontal units communicate and interact, the information tech-nology capabilities, and the new types of human resources management practices. HRM practices are somehow interrelated with decentralization and delayering because these ne-cessitate greater responsibility from employees and hence employees in turn nene-cessitate greater training and development and other HRM practices.

Figure 5 Elements reflected in organizational forms (Kuratko & Morris, 2002)

2.3.5 Communication in terms of Innovation

Structure and communication systems hold organizations together, transmit information, and control how new ideas are implemented. According to Cornwall and Perlman (1990), in the entrepreneurial organization, structure and communication accomplish such output by being designed to enhance innovation and opportunity. This is done by supplying enough information so that employees at all levels in the organization can pursue new ideas with a good chance in success (Cornwall & Perlman, 1990).

Innovation is also a communication activity. Communication is the transfer of information and understanding from one person to another. In growing entrepreneurial companies, all employees must know that they are heard, and that they have something to say.

“Elevator mentality”, defined by Kanter (1983) as “a pattern of following the chain of com-mand and protocol in communication, prohibits the transfer of innovative ideas”, is spread in growing companies. In an organization with elevator mentality, communication is in the form of job instructions, procedures, and practices, and feedback (Cornwall & Perlman, 1990). This elevator prohibits the productive communication and the flow of communica-tion from the bottom up. Cornwall and Perlman (1990) mencommunica-tioned that it is true that in such organization superiors communicate to subordinates, useful information do not travel up the organization easily.

To avoid such an elevator mentality, “Intertwined bowl of spaghetti” should be introduced in growing companies. This will keep and deserve their names as Entrepreneurial Companies. This Intertwined bowl of spaghetti, called so by Cornwall and Perlman (1990), represent the patterns of communication. This means that communication largely occurs on a “need-to-know” basis. It is not based on formal bureaucratic structure. Row of vertical lines branching out at new level in the organization chart will characterize the communication pattern in the traditional organization (Cornwall, 1990). In simple words, anyone, in entre-preneurial companies, can initiate communication. The feedback should be rapid and es-sential. The communication can be personal and face to face.

Managers, instead of focusing on rules on where messages to go, and how long they are, should try to achieve the productive communication. This type of communication is the only way people can get the information they need. The productive communication allows interchange of data and ideas between people (Cornwall & Perlman, 1990).

However, to reach that productivity in communication, three factors come into considera-tion (Perlman & Cornwall, 1990):

Sharing Information - In growing environment, sharing information should be much more emphasized to speed the problem solving, to inhibit people form higher positions from controlling and interfering inappropriately, to flatten organizational structure, and accord-ing to Perlman and Cornwall(1990) “to contribute to intrinsic satisfaction, since beaccord-ing in-formed can be rewarding in and of itself” (p.116).

A practical tip is the 5-15 Report suggested by Cornwall & Perlman (1990) where every employee, once a week, has to report to a manager a report which takes no more than 15 minutes to write and no more than 5 minutes to read. Managers, in turn, provide feedback to their employees (see Table1).

Box 7-1 ,The 5-15 Report

Once a week, everyone who reports to a manager, submits a report that takes no more than 15 minutes to write and no more than 5 minutes to read. In it, people can communicate what they did during the week, their problems, their successes, and their ideas. In growing companies, everyone is so busy it is difficult to keep in touch.

To be a productive form of communication within an entrepreneurial growing organiza-tion, the 5-15 report necessitates that managers provide feedback to their employees. This is not done by written comments on each report submitted but on what the manager does in response to what he or she reads. In some cases, managers may want to talk at greater length with someone. In other cases, obtaining or shifting resources to someone will be a response. In still other cases, some type of recognition award or ceremony will be in order. If managers are to act, they must act quickly, often within one week’s time. The 5-15 report allows meaningful, direct, and efficient communication.

Source: P.Hawken, “The employee as Customer,” Inc.no.9 (1987), pp.21-22.

Table 1 The 5-15 Report

Communications by Doing- Actions are stronger than words (Cornwall and Perlman, 2002). In other words, managers should not only talk about letting people innovate and get involved, rather they should show some actions. Rewarding people for taking risks which is decided by HRM professionals, empowering people, letting people innovate, and other actions should enhance the productive communication.

Clear Communication- In growing companies, there is an amount of time lost in order to de-liver and to clearly understand the messages. For this reason, clarity in communication is necessary where simple messages are used, feedback is quick, and communication is tied to the vision, mission and goals (Cornwall and Perlman, 2002). The vision can be lost in grow-ing business, so there should always be refreshment in mind of the employees about the vi-sion and the goals so that they know where they are going.

2.4

Human resource management

2.4.1 Need for formal HRM

HRM policies and practices, for example, recruitment and selection, training and develop-ment and reward systems with business strategies allow firms to gain competitive advantage (Schuler, 1986).

Researchers found that the majority of the small firms rely on word of mouth and other in-formal recruitment processes for ease of use and convenience (Schuler, 1986).

However, in growing firms, formal HRM policies and practices have to be applied if growth is to be sustained. On the first hand, and as Arthur figures out that growing means more complexity because of the greater numbers of employees and for this reason these formal policies are necessary to cope with such increase in complexity (as cited in Cornwall and Perlman, 1990, p. 127). On the other hand, managers who used to rely on informal ways in recruiting, like family members and walk-ins in small firms, have to develop more formal methods to recruit employees in growing stage.

Hornsby and Kuratko (2003) argue that if a firm fails, this is because of managerial incom-petence in handling HRM issues. According to Barringer, “The ability to overcome the “managerial capacity problem” depends in part on manager’s recognition of the importance of HRM to the firm’s performance (as cited in Schuler, 1986, 12).

Growing firms, where growth is defined as employing new staff because of expansion, ex-hibit greater formalization in their HRM practices than non-growing firms if they are to gain or maintain a competitive advantage.

2.4.2 HRM and organizational culture of trust

For the Human Resources Management to work in practice, Cornwall and Perlman (1990) suggest “there must be an organization culture of high trust” (p.93). So before introducing any HRM practices, there should be a well established culture full of trust and an environ-ment in which people can contribute. Jack Welch, a professor in the Wright state univer-sity, says that people will not do their best without trust (“Building and repairing”, 2004). Every business faces change and ambiguity, the best way to cope with that is to boost the level of trust which encourages creativity, empowerment, and teamwork. Encouraging a culture of trust necessitates certain procedures and policies which enhance the level of trust among employees like open communication and investing in employees

Individuals who trust the people they work with and they are trusted by them are comfort-able with change and growth, and comfort-able to take risks. Trust is empowering people. Trust fa-cilitates information sharing and collaboration. Most of the time, where there is no reward-ing for efforts and trusts in the rewardreward-ing system, people don’t like to discuss or share their new ideas with each other. As a result, one way to encourage them to discuss their ideas is to establish a trusty rewarding system which guarantees for them a certain level of confi-dentiality of their own ideas. Such an environment encourages developing innovative ideas and resolve growth’s problems. According to Welsh (2004), managers who trust their sub-ordinates tend to delegate more tasks to them, and subsub-ordinates who trust their managers will welcome the idea of additional responsibility even when there is some risk of failure. These subordinates know that they are allowed to fail and any mistake will not threat their careers.

However, trust is not born within the firm. It is a learned process where organizations can use procedures and actions to encourage trust among employees. This is the HRM respon-sibility and that is why HRM can not be discussed without relating to culture of trust. One of the policies is investing in employees and thus showing concern for employees whether by providing training and development experiences for employees or by providing benefits packages. In addition, as Jack Welch (2004) figures out: ”promoting open communication: Practicing an "open door" policy that permits all employees to share their concerns with management” (”Building and Repairing”, 2004).

2.4.3 Human resource practices

2.4.3.1 Staffing

Randall Schuler (1986) first emphasized many staffing practices (see table 2). These prac-tices stimulate employee innovation, cooperation, and long term focus in the organization (Schuler, 1986). In addition, the nature of entrepreneurial company is related to ambiguity and flexibility. This means that employees, in entrepreneurial growing companies, should feel comfortable with change, and thus growth. Consequently, Randall Schuler (1986) sug-gests that organizations should recruit individuals most likely to tolerate ambiguity. According to Kuratko and Morris (2002), selecting a qualified employee to a specific entre-preneurial task should not be mainly based on employee’s past performance and em-ployee‘s basic knowledge and skills the job requires. Rather, it should be based on more “self-selection” into entrepreneurial positions. By that way, HRM managers can guarantee to a certain extent, that the individual’s needs match the entrepreneurial requirements of the organization (Kuratko and Morris, 2002).

Wayne Outlaw (1998) describes in his book “Smart staffing, how to hire, reward, and keep top employees for your growing company” the relation between employees and the quality of the business. He mentions essential reasons which are badly influencing the business. The first reason is hiring the wrong employees cost money. If organizations want to sustain their competitiveness, the management should be aware of the value of human resources. HRM practices which enhance the organizational performance. Employees which are not appropriate for the job dismiss good customers, and management is much easier with hir-ing good employees. Every worker is a valuable and a critical benefit for the company and contributes to the entrepreneurial activities from the entire organization. The time and ef-fort are also crucial and hence are spent on the hiring process. This will protect the organi-zation (Outlaw, 1998).

Outlaw (1998) suggested that “to ensure that you have an ample supply of quality candi-dates, make hiring a systematic and logical procedure” (p. 8). The first phase is “Thinking before you hire”. During this phase, one need to evaluate the organization, the company’s characteristics, and innovativeness, by doing this, one determines what is needed in the or-ganization. What is a proper job definition? According to Outlaw (1998), a specific job de-scription includes the following elements:

1. Job responsibilities and task (p.3) 2. Necessary behavior on the job 3. The required level of performance

4. The potential development 5. Payment

Another issue concerning the first step is that one must hire people by following regula-tions and rules. The rules related to hiring people, are also providing an effective frame-work to gather information about candidates (Outlaw, 1998)

The second step is to locate the right qualified candidates. Outlaw (1998) suggested a re-cruitment plan which starts with a proper job description with a specific target timeline i.e. ninety days.

The third step is to interview applicants and pick a new member for the staff. The process starts by screening the candidates and then selects the most excellent candidate. The impor-tance of the interview relies on the need to be aware of the attributes and characteristics of candidates. It is important to create questions that provide the information one really wants.

Step four involves strategies to retain good employees, “Reward and keep good staff mem-bers”. For welcoming the new recruit, one should create a plan concerning issues such as training, mentoring, orientation, and a program which builds up an employee’s confidence and opens the connection between management and employee. The program should also include issues concerning job enrichment, financial incentives, and career guidance (Out-law, 1998).

Step five is “learn from your losses” learn from the loss of a valuable staff member. Make use of cautious planned techniques to reveal the cause of the resignation (Outlaw, 1998). Here is a point to be stressed: Rewards are used to attract qualified people to join an entre-preneurial organization. Cornwall and Perlman (1990) says that traditional organizations may use a high level of salary, a signing bonus, and a solid fringe benefit package; however, in entrepreneurial organization, may offer “a way of life’ that some employees find rewarding in and of itself.

In growing companies, there is a tendency to use formal selection practices: a list of skills and qualifications desired and a job description (see Table 2).

Employee Characteristics

1. Highly Repetitive---Highly Creative Innovative behavior 2. Very Short Term Focus---Very Long Term Focus 3.Cooperative Interdependent behavior---Independent Autonomous Behavior 4.Very Low Concern For Quality---Very High Concern For Quality 6. Very Low Risk Taking---Very High risk taking 7. Very high Concern for process--- Very high Concern for Results 8. High preference to Avoid Responsibility--- High preference to Assume Responsibility

9. Very Inflexible To Change--- Very Flexible To Change 10.Very Comfortable with Stability---Very Tolerant of Ambiguity and Unpredictability 11.Very Low Task Orientation--- Very High Task Orientation Table 2 Employee Characteristics (Schuler, 1986)

2.4.3.2 Planning

Fostering entrepreneurship is facilitated by planning practices (Schuler, 1986). The planning practices should be formal, and should encourage employee participation and innovation. In simple words, Kuratko and Morris (2002) put the planning practice into the box: “What are employees asked to do?”

The planning practices should stimulate innovation and get employees to assume responsi-bility (Schuler, 1986). Job-related tasks need to be easily defined, with more decision-making prudence given to employees. Additionally, as Schuler (1986) points out: “ the use of written job description, including the result criteria, should also be introduced which fo-cused more on results than process” (p.11). Results criteria force employees to work to-ward implementing ideas and systems.

Managers need to understand that, as it is the case for all HRM practices, career planning contributes to individual performance. As a manager, he/she should help the individual meet career expectations and organization’s goals by profiting from the opportunities avail-able in the organization.

Managers should be aware of how to treat employees. Bad management will influence peo-ple’s performance. Managers have to accept responsibility for the performance of their staff. Managers have to define their goals, have a clear vision, and develop a flow of precise information about their operations (Merchant, 1989).

Good Career Planning Practices could be as follow:

- By providing courses and workshops which help individuals to assess and understand their strengths and weaknesses.

- by letting managers take an active and genuine interest in the career planning needs of every single member of staff and working with each one to realize those needs.

Table 3 reflects the HRM practices in an ideal entrepreneurial growing companies devel-oped by Randall S.Schuler (1986).

Planning choices

Informal………..Formal Loose………..Tight Short term………..Long term Explicit term………..Implicit Analysis

Low employee involvement……….High employee involvement Staffing choices

Internal sources………..External sources Narrow paths………..Broad paths Explicit criteria………..Implicit criteria Limited socialization………..Extensive socialization

Closed procedures………..Open procedures Appraising choices

Loose, incomplete integration………..Tight, complete integration Behavioral criteria………..Results criteria

Low employee participation………..High employee participation Individual criteria………..Group criteria

Internal equity………..External equity Low participation………..High participation

No incentives………..Many incentives Short term incentives………..Long term incentives No employment security………..High employment security

Training and development

Short term………..Long term

Individual orientation………..Group orientation Low participation………..High participation

Extensive Organizational Structure………..Minimal organizational structure Table3 HRM practices (Schuler, 1986)

2.4.3.3 Appraising Performance

Rewarding and Appraising practices encourage employee participation; recognize the ac-complishments of groups of individuals. These practices stimulate risk taking which is at the core value of entrepreneurial organizations (Caroll and Schneir, 1982). According to Kerr and Slocum (1987): “The reward system defines the relationship between the organi-zation and the individual member by specifying the terms of exchange: It specifies the con-tributions expected for members and expresses values and norms to which those in the or-ganization must conform, as well as the response individuals can expect to receive as a re-sult of their performance.” (p. 58).

The reward system should be consistent with the goals and the strategies of an entrepre-neurial firm and with what is needed for employees. Entrepreentrepre-neurial organizations remove constraints on employees so they will take risks and innovate. Thus, a proper reward sys-tem in these organizations is one way to ensure encouragement for innovation. It is neces-sary to mention what Cornwall and Perlman (1990) point out that reward systems can not work properly without a proper structure and culture that enhance entrepreneurial organi-zation. In other words, there is an interrelation between structure, culture, and HRM which has been shown before in this research.

Two fundamental types of rewards are used in the reward system of an entrepreneurial or-ganization: Intrinsic and extrinsic.

2.4.3.4 Intrinsic Rewards

Intrinsic rewards provide what people need psychologically. These include a sense of com-petency in what they did, a sense of self-esteem, a sense of freedom and autonomy, and a sense of achievement (Cornwall, 2002).

“Organizations do not distribute intrinsic rewards, but structure their processes, cultures, and design of em-ployees’ jobs such that opportunities to engage in task that are intrinsically satisfying are available”(p. 136).

Acceptance of failure- Acceptance of failure in entrepreneurial growing companies should be a must because of the initial definition of entrepreneurship where innovation and risk taking are welcomed. It is one form of intrinsic reward. Frank de Chambeau and E.Micheal Shays (1984) believe that people in new situations make mistakes and mistakes are not necessarily reason to cancel a project or dismiss them. The main valuable issue is to make sure that they learn from these mistakes.

When the company is growing, it seems that the time spent on something new which is not guaranteed to be successful, would be much more precious if this time is spent on finishing the required tasks. So obviously, this will threaten the concept of failure and innovation. This in turn diminishes the level of entrepreneurship at the company. Even if failure, at growing phase will cost in terms of time, however this on the long term will be a deep strength.

Empowerment- Employees come to work to achieve reward in any form. Some seek financial rewards (compensating, see figure 3); others seek empowerment and power (intrinsic re-ward). The four elements of empowerment contribute to intrinsic satisfaction (Bennis & Nanues, 1985):

. Engaging in serious, significant acts and activities . Feeling competent and learning on the job

. Feeling a part of something, whether it is family, an organization, or the community. . Having fun

Empowerment is quite needed. An organization can only react quickly to changing de-mands if empowerment occurs. Entrepreneurial organizations rely on their people all the time, not only in time of crisis. Managers give employees as much information, resources, and support as they can to increase their productivity (Cornwall & Perlman, 1990).

As a result of empowerment, communication improves and becomes more open. Relation-ships cut across formal hierarchical lines and communication channels. People have as much power as possible. Empowerment enhances employee involvement, allowing anyone to come up with a good idea, exercise skills, and use power. So whatever is the level of growth at a company, people are always given information from data, technical knowledge, to expertise and resources from funds, materials, to time, so that they are always kept em-powered and hence pushed for new ideas and involvement.

The problem of communication barriers and slow decision-making in growing companies is dissolved with empowerment.

Inverted Triangle- Flanningan and Mckeran (1996) introduced the concept of inverted tri-angle believing that the ability to empower employees and to make employees as they key interface with customers achieve company objectives. By inverting the triangle, the man-ager’s role is to support employees, ensuring they have the necessary resources to achieve their objectives (see Figure 6).

Figure 6 Inverted Triangle (Flanningan & Mckeran, 1996)

2.4.3.5 Extrinsic Rewards

Intrinsic rewards are not sufficient to lead to desired levels of commitment, risk taking, and innovation within growing entrepreneurial organization (Perlman & Cornwall, 1990). There is a need to extrinsic rewards such as salary, bonuses, promotions, and other forms. Cornwall uses the extrinsic rewards in two ways: Pay-Offs and Investments.

1. Pay-offs- These are distributed after people have demonstrated productivity. There are two types of pay-offs.

.

Bonuses: These are direct and indirect benefits of organizational entrepreneurship (see Box 1). The figure depicts the four dimensions on which to evaluate the success of entrepreneu-rial organization.

Assessing the Effectiveness of Entrepreneurial Organization Four Major criteria to Consider in judging Entrepreneurial organization success. Direct Benefits

1. Financial results of entrepreneurial initiatives => These include volume, profit, return on investment, and other standard measures of financial performance for the entrepreneurial initiatives undertaken.

2. Non Financial results of entrepreneurial initiatives => These include both tangible gains, such as those resulting from better utilization of productive capacity, technological im-provements, or market synergy, as well as intangible gains, such as those resulting from an enhanced industry reputation or an improved image in the marketplace.

3. Off school entrepreneurial initiatives => Even if an entrepreneurial initiative was less than successful in terms of the direct benefits (financial and non financial results), it could still be judged as worthwhile if the learning from this experience allowed the organization to launch as successful “second generation” or offshoot initiative which evolved as a result of the “failed” first attempt.

Box 1 Effective Entrepreneurial Organization (Cornwall & Perlman , 1990)

.

Recognition: The acknowledgment of a job affects employees. The important point, as Cornwall and Perlman (1990) figure out, is that those receiving recognition must be per-ceived as clear “achievers” and “entrepreneurs”. This recognition should be kind of multi-plied in growing companies because people will be in need for it more since they see the growth of the company as the output of their efforts. Lack of such recognition will demo-tivate them:

“Whether I made efforts or not, no body appreciates my efforts”.

2. Investment Centered Rewards- These are investment for the future (Cornwall & Perlman, 1990). They are also divided into two parts:

.

Promotion As it is common; promotion is beneficial because it leads to more power, more status, more resources, salary…

.

Venture-Capital It involves placing funds in a budget for an individual’s or team’s use within the entrepreneurial organization without permission being needed (Cornwall & Perlman, 1990). People can use this amount for new innovative projects without permis-sion from the managers, this will save time in the growing phase where managers are in-volved in other task. Pinchot (1985) defines venture capital as “freedom credits” (as cited in Corlman, 1985, p.139). Schuler called it also “bank of money”. The reward is not really the money itself:

“The reward is the autonomy gained”.

The freedom funds allow people to choose their own projects, to make mistakes and fail-ures, and to use their own expertise without constraints.

3. Ownership

.

Stock Ownership: Entrepreneurship is fostered and facilitated to the extent that compensat-ing practices encourage employee participation. Accordcompensat-ingly, they should stimulate and re-inforce risk taking, or willingness to assume responsibility and a longer term orientation (Schuler, 1986). To further foster and facilitate a sense of responsibility, Schulre (1986) points out that organizations need to establish long-term financial arrangements to com-pensate entrepreneurial employees. Employee stock ownership plans and profit sharing plans ensure that employees will be compensated in accordance with the performance of the product or service over its life (Schuler, 1986).

.

Employee Ownership: There has always been an interest in employee ownership, but the de-velopment that employees owned a significant part of the company, is coming from tax in-centives constructed to support the so called ESOP plan (Employee Stock Ownership Plan). S. Estrin and D.C. Jones (1992) describe in their research that the key problem for

Employee-owned firms is the accumulation of collectively owned assets and the under-utilization of external debts as the company grows. This resulted in the difficulty that em-ployee-owned firms as a sector are failing to grow as quickly as their capitalist counterparts. Effective use of collectively owned assets and utilizations of external debts is the key, for survival and competitiveness on the long term for employee owned firms. ESOPs are most commonly used to motivate and reward employees (”A Comprehensive Overview”, 2005).

2.4.3.6 Training and development

Training and development practices can promote entrepreneurial behavior to the extent that training programs encourage high employee participation (Kuratko and Morris, 2002). Changes can occur at any time in the firm, and such a change necessitates a change in the job demands. Consequently, there is a need for continuous training. In addition, Kuratko and Morris (2002) points out that there is also need for training activities which focus on “individualized knowledge requirements”. These trainings will make the employees feel comfortable with ambiguity which characterized any change as mentioned before. More-over, these trainings serve first as facilitators for employees to take risks, assume responsi-bility, and keep them empowered.

One of the suggestions about training practice is the so called “Orientation program”. Orien-tation introduces a new recruit to his job, to his colleagues and to the company’s culture. The majority of organizations offer an oriental training program organized by the HRM department (Blackwell, 1997). On the short run, successful programs make employees un-derstand the business and get familiar with the business. On the long term, a successful ori-entation program increases job satisfaction (Gates and Hellweg, 1989).

An employee orientation plan’s main concern is to make a newcomer comfortable and con-fident. It is related to the company history, working times, employee, and customer rela-tionship. The process of training should ensure that the candidate will achieve a certain level expertise (Blackwell, 1997).

On the job training (OJT) is a useful method to make a new recruited employee comfort-able and confident with his job. The training session should start with an instruction, and include issues concerning job enrichment, financial incentives, and career guidance.

Mesut Akdere and Steven W. Schmidt (2007) examined the effectiveness of employee ori-entation trainings. They concluded that employee oriori-entation training is crucial for both employee and for the firm. The two authors’ result of their study shows important differen-tiation in understanding of employees before and after orientation programs. There is a need to continue to train and develop staff members; learning does not end after an oritation program. Both human resource and top management have to combine efforts to en-sure quality and survival of the organization. Thus, what is said in this section about orien-tation for new employees should also be applied for old employees, specifically who have been following the stages of the company’s growth because these persons should always be trained. The continuous training for employees is a necessity because with time, new abili-ties and competencies should be learned to keep innovativeness and growth

2.5

Internationalization

According to David Rae (1999), in order to prevent the phase of not growing (Glass ceil-ing); it is essential to change or to find new markets, hence the importance of internation-alization. According to the network perspective developed by Johanson and Mattsson

(1988), the internationalization of a firm means that it develops business relationships in foreign networks. This can achieved through the establishment of relationships in country networks through international extension. Development of relationships in existing net-works by penetration; and connection of existing netnet-works in different countries (Jones & Coviello, 2005).

Internationalization allows firms to acquire new knowledge, and possible access to new re-sources and markets. Internationalization entails entry into new country markets which is a process of innovation.

Anssi Poutanen (2005) describes a main advantage of internationalization: the firm’s chances of learning will increase and the chance of capacity improvements increases. With this potential increase of learning, the firm can improve existing business procedures and recognize opportunities to expand the business to different industries and at the same time increasing the competencies at the company. Innovation necessitates a level of flexibility in terms of resource utilization. Thus by acquiring more resources, the level of innovation is enhanced.

Entrepreneurship and internationalization are seen as interdependent processes. Interna-tionalization is an entrepreneurial process of behavior. As Jones and Coviello (2005) figure out that internationalization events occur when ”they are exploited in an innovative form and thus in creative thinking” (p.11). McDougall and Oviatt (2000) defined international entrepreneurship as ‘combination of innovative, proactive and risk-seeking behavior that crosses national borders and is intended to create value in organizations” (p.15). Interna-tional firms develop competitive advantage through entrepreneurial behavior, and entre-preneurial firms can operate internationally.

2.6

Reflections on Theories

Departing from the definition of entrepreneurship, many companies adopt the entrepre-neurial spirit and make it as the main core value; however, as the business grows, a number of potential conflicts of focus and allocation arise in the areas of structure, culture, com-munication, and HRM. These conflicts give rise to a series of tensions which must be man-aged. The main danger is the danger evolving into bureaucrats who stifle innovation. To cope with these problems, several things should be adjusted. First of all the structure is mentioned. Developing any ideal structure far from bureaucratic atmosphere necessitates a certain level of autonomy and flexibility which are grants for innovation. Once these are guaranteed, it is up to the entrepreneurial growing companies to develop the proper struc-ture whether a SMALLNESS strucstruc-ture (SAAB) characterized by independent units or DE-LAYERING structure characterized by a break down of barriers.

Structure and communication are interrelated and designed in a way to enhance innovation and opportunity. Thus communication is the second factor to delimit the problem arising in growing companies. Employees must feel that their voices are heard, their votes count, and their opinions matter. Any harmful factor for entrepreneurship such as the “Elevator mentality” should be cancelled and instead productive communication should be introduced. This necessitates a clear sharing of information, managing people and letting them inno-vate, and a clear vision definition.

The entrepreneurial process involves individuals. It starts with individuals. Thus HRM is a main factor in maintaining the entrepreneurial spirit. HRM should be formally

imple-mented otherwise managerial incompetence in handling HRM issues will be a major source of firm failure. HRM varies in its practices. However, for the Human Resources Manage-ment to work in practice there must be an organization culture of high trust. Hence organi-zations should use policies and actions to promote trust among employees.

Once this is achieved, HRM practices can be developed. The nature of entrepreneurial company is related to ambiguity and flexibility, for this reason, the recruiting process should select the employees able to cope with ambiguity and change. The second HRM practice is the planning practice. It is about clarifying what is needed from employees. With growing phase, vision and job requirements might become confusing, for this reason, a clear vision and job description is developed which focus more on results than process. A good career planning is needed. Changes can occur at any time in the firm, and such a change necessitates a change in the job demands, and this in turn necessitates a well devel-oped training program enhancing the employees’ skills. The forth HRM practice is the re-warding system, whether intrinsic or extrinsic rere-warding system, encourage employee par-ticipation, and recognize the accomplishments of groups of individuals.