In the dynamic landscape of business growth, understanding the optimal timing for structural changes within high-growth firms (HGFs) remains a pivotal question for both researchers and practitioners. High-growth firms, defined as businesses employing at least ten individuals and exhibiting annual growth rates exceeding 20% over a three-year span, serve as engines of economic dynamism despite the often ephemeral nature of their rapid expansion. Recent research spearheaded by Professor Alex Coad of Waseda University and Dr. Antonio Martins-Neto of the World Bank offers compelling insights into when firms strategically add new hierarchical layers during periods of rapid growth, challenging prevailing theories on organizational adaptation.
Conventional wisdom in organizational theory presents two distinct views regarding structural adjustments in HGFs. One posits a forward-looking approach, where firms anticipate growth trajectories and proactively invest in additional management layers before scaling begins—a strategy termed “planning ahead.” This perspective assumes that systematic preparation equips firms to manage complexity and sustain growth. Contrarily, the “dragging one’s feet” theory suggests that companies delay structural changes until they become indispensable, often implementing new managerial hierarchies only once growth pressures peak or exceed existing capacities.
Delving into these competing paradigms, the study utilized the extensive Brazilian employer–employee census database (RAIS), covering data from 2003 to 2019 and encompassing over 40 million individual records annually. This rich dataset allowed for a nuanced difference-in-difference analytical framework applied to more than three million observations, with the high-growth period primarily defined between 2013 and 2016. The classification of labor roles ranged from chief executives and managers to production workers, providing a granular perspective on organizational composition changes relative to firm expansion.
The empirical findings of the study intricately defy a binary interpretation. The timing of hierarchical layer addition does not strictly align with either the proactive “planning ahead” or the reactive “dragging one’s feet” models. Instead, firms demonstrate a gradual, incremental integration of new knowledge management layers concurrent with their ongoing expansion. Hierarchical restructuring emerges as a fluid process, evolving steadily throughout the high-growth phase rather than manifesting abruptly at the beginning or conclusion of the period. This fluid adaptation reflects a more sophisticated organizational response shape to growth pressures.
Moreover, firm size plays a critical role in shaping organizational decisions related to hierarchy. Smaller firms—those with fewer than 50 employees—tend to introduce new management tiers earlier in their growth cycles. This early structural augmentation might reflect their heightened need to formalize managerial oversight quickly as operational complexity intensifies. Conversely, larger firms exhibit a decline in the proportion of managers as growth approaches its zenith, possibly indicative of lean managerial bandwidth during peak expansion phases, with managerial staffing rising again post-growth stabilization.
These findings bear profound implications for strategic management within HGFs. Premature hierarchical expansion entails risk, potentially imposing unnecessary bureaucratic costs that can stifle agility. Conversely, excessive delay may precipitate organizational bottlenecks, hindering efficient coordination and innovation. The study advocates a measured, moderate approach—one that promotes adaptive and progressive evolution of organizational structure calibrated to the firm’s growth trajectory and operational demands.
From a policy perspective, this nuanced understanding invites a recalibration of governmental and institutional support mechanisms aimed at fostering firm growth. Rather than prescriptive interventions advocating early hierarchical formalization, policies should encourage flexible organizational development, providing firms with resources and incentives aligned to their specific growth phases. Such calibrated support could stimulate sustainable scale-up processes, amplifying the economic contributions of HGFs.
Professor Alex Coad emphasizes that the research underlines the delicate balance firms must navigate in managing organizational complexity amid growth. “Understanding that neither extreme—overplanning nor procrastination—yields optimal outcomes directs attention to dynamic, contextual management strategies,” he notes. This perspective enriches ongoing debates in entrepreneurship and organizational theory, adding empirical rigor to discussions on firm scalability and structural agility.
The methodological rigor of the study, leveraging large-scale administrative data coupled with sophisticated econometric techniques, sets a benchmark for future research aiming to link micro-level organizational activities with macroeconomic outcomes. It exemplifies how big data analytics can illuminate intricate patterns of firm behavior previously obscured by less granular datasets, enhancing the predictive understanding of firm growth processes.
In essence, the work of Coad and Martins-Neto significantly advances our comprehension of the temporal dynamics in organizational design within HGFs. By transcending simplistic theoretical binaries, their research paints a more realistic picture of managerial structural adaptation that resonates with the complexities faced by rapidly scaling enterprises globally. This knowledge equips entrepreneurs, executives, and policymakers with strategic lenses essential for navigating the unpredictable tides of business growth in the 21st century.
Analytically, the research highlights that hierarchical restructuring is not a single decisive event but a continuous series of adjustments reflecting evolving operational realities. This underscores the importance of flexibility and responsiveness in organizational practices, especially in environments characterized by volatility and uncertainty. Firms that master this balancing act position themselves advantageously to harness growth opportunities while mitigating the risks associated with structural inertia or premature formalization.
In conclusion, the study’s insights urge a paradigm shift from rigid growth models toward more adaptable and context-sensitive organizational frameworks. They advocate for managerial vigilance that continuously assesses internal capabilities and external market dynamics, facilitating incremental and timely changes to hierarchical structures aligned with growth demands. Such an approach not only bolsters firm resilience and performance but also contributes meaningfully to broader economic development goals driven by the vitality of high-growth enterprises.
Subject of Research: The timing and process of introducing hierarchical layers in high-growth firms during periods of rapid expansion.
Article Title: Planning ahead or dragging one’s feet? Organizational structure and high-growth events
News Publication Date: 11-Sep-2025
Web References: https://link.springer.com/article/10.1007/s11187-025-01098-z
References: Antonio Martins-Neto, Alex Coad. Planning ahead or dragging one’s feet? Organizational structure and high-growth events. Small Business Economics, 2025.
Image Credits: Professor Alex Coad from Waseda University, Japan
Keywords: Economics, Business, Entrepreneurship, Economic growth, Public policy, Data analysis, Corporations, Social sciences
