Firm Lifecycles: Linking Employee Incentives and Firm Growth Dynamics
While being innovative can lead to a firm growing quickly, the opposite may also be true. Growing quickly may contribute to a firm’s ability to improve its processes. Employees are often a source of process improving ideas. Employees’ primary incentive to go “outside the job description” to improve those processes is often promotion. The availability of promotions, however, is linked to the firm’s growth rate. Firms that are growing quickly can credibly promise to reward their most innovative employees with promotions. Established and slowly growing firms have fewer opportunities for growth, which gives employees less incentive to go “above and beyond.” This can mean that rapid growth can reinforce a firm’s competitive advantage .
