CASE STUDY

Growing Pains: The Entrepreneurial Dilemma

Wickham (2001) states that an entrepreneurial venture is characterized by its growth potential, and that this is what distinguishes it from a small business. Entrepreneurs are motivated by the attraction of greater revenues and profits and by a desire to create a business empire that reflects their personal power. Wickham further comments that achieving successful growth requires a change in the role and skills of the entrepreneur as the organization grows and develops. The entrepreneur must learn that the future success of the venture lies in the hands of the organizations staff, and that his or her own role must change from being handson to providing direction, leadership and motivation. In order to do this, the entrepreneur must build capability in the organization and let go of everyday control. However, for many entrepreneurs this is a very difficult transition because they may lack the necessary skills to do so, even if they think they have them! This case examines this transition and illustrates the challenges involved. It focuses on the entrepreneurs dilemma in managing growth: when does the initial innovator have to relinquish day-to-day control, and how can he/she develop the organizations capability in order to do so? Softhouse is a software development organization that specializes in designing and supporting products for public sector organizations in the UK. These include local and national government, education, health organizations and quasi-governmental bodies.

Organization history
Softhouse was founded in the late 1980s by four information technology specialists, and quickly developed a consultancy and software capability that covered many areas of public administration in England. Historically, public sector organizations in the UK had developed their own administrative software in-house. But increasingly over the last decade it became obvious that these organizations had neither the resources nor the skills to cope with the rapidly expanding technology needed for their administrative upkeep. Softhouse therefore took advantage of an opportunity and innovated by way of high quality software solutions. In the first four years, although Softhouses skills, product and experience grew, the client base was slower in doing so. However, in 1993 Softhouse formed a strategic alliance with a larger, more established competitor. This partnership meant that the software and services could be expanded and developed for the increasingly compliant market. This alliance was designed to provide professional finance, personnel, resource and customer relationship management systems to public bodies. Softhouse worked as a development, consultancy and help desk provider, while its partner managed marketing and sales. In 1998, Softhouse opened a new local office to handle the increasing number of new clients. The Scottish office provided training courses and customer support, and was

the centre for web operations and development for the company. The year 1998 also saw the first public institution outside the UK join the list of customers. During the period of its joint venture, Softhouse grew substantially, with the number of public organizations served by its software growing from a handful to in excess of 50 by 1999. By February of 2000, the strategic alliance had come to an end. From that point on, Softhouse took on the functions that its partner had previously brought to the alliance, and also began to develop replacements for the areas of the suite of software that had been developed by its partner. These new aspects to the company, and also the continued growth of the client base, now mean that Softhouse is the market leader in the provision of records systems for public administration in the UK. It now employs over 50 people. The company turnover is over 2 million per year and increasing.

Competitive advantage innovation, speed and flexibility

Softhouses rapid expansion has been driven by the expansion of both its product range and its client base in the public administration software market. Product development is the core function of Softhouses business. A software house must have a product to sell and it must be a product that public sector organizations want to buy. Although the income from clients also comes from services such as help desk support, training and consultancy, these are fundamentally reliant on the quality of its product. The nature of Softhouses product development has altered dramatically over the years. As the system has become larger and has encompassed more of the processes needed by the public administration markets, Softhouse has had to expand its development team. What started out as the bright ideas and hard work of a couple of individuals has now had to become a sustainable, stable, efficient, regulated process. For a small product, combining speed to market, innovation and reliability, developed and maintained by the same two people, is a fairly difficult process. But doing the same with a product that has been growing steadily for 10 years and with a development team of some 20 people is an extremely difficult challenge. The problems of organizing and managing a development team are many, and managing amid growth is doubly difficult. As the development team and the product range and sophistication have grown, it has become increasingly difficult to identify gaps in the integration with associated and legacy programs, and also to pick up bugs in all areas. Any procedures for checking, testing and quality control inevitably slow the time to delivery for a development project. Any procedures for standardizing, codifying and regulating development practice inevitably suppress innovation in the development of the product. Softhouse, being a smaller company than its major competitors, relies on the advantages of being more flexible and quicker to react. If it is to sustain its success, it is imperative that Softhouse does not lose these advantages and fall into the traps that snare so many companies as they grow in size. Although quality control and regulation are crucial in order to retain the standard and reliability of the software, this must not result in the company losing the innovative ideas, flexibility and rapid time to market that have brought it this far. 2

There is also a widespread feeling that development productivity has not grown at the rate that could have been expected. It is true that Softhouses development productivity has not grown in proportion to the number of programmers. It is not clear whether this is due to decreased efficiency or issues relating to growth and scale, or whether it is simply unrealistic to expect to maintain past expectations.

Growth through product development

For a number of years, although the systems were developed, they were always essentially enhanced versions of the same tools. However, in 1999 Softhouse began to develop a web component to work alongside its existing client/server architecture software. For the first time since its inception, this forced Softhouses development team to come to terms with genuinely new and different technologies. With the advent of web development, Softhouse staff quickly had to become familiar with a host of new technologies such as HTML, XML, ASP, Java and Javascript. These technologies, and other new ones, continue to develop at a rapid rate and pose a challenge for the personal and professional development of all the technical staff. But the move to web-based technologies also had another effect. Hitherto, the software had been used almost exclusively by administrative and technical staff in their client organizations. Since the web was a medium that could reach a large audience with few resources needed in distribution, for the first time it was feasible to create elements of the software that could be used directly by the organizations customers. Now it could be accessed directly by the public bodies service managers and other end-users. However, this created a whole new set of problems in terms of planning and developing software. Understanding of the needs of end-users who are primarily non-technical is now a necessity, something that can be difficult for techies whose primary motivation is the technical excellence of the product. As a result, the product developers are sometimes accused of over-engineering the product instead of simply giving the customers what they want. However, direct feedback from customers to product developers is often filtered through the customer help desk. This sometimes leads to tensions between the two functions, each of which may claim that one does not understand the needs of the other.

Structure and Organization

As the range of products and number of staff has increased, the structure of the organization has developed into a simple, functional division of labour. At the top of the organization are four directors, each of whom has some functional responsibility. Notionally there are now six functions: Product Development Team 1 (certain product groups); Product Development Team 2 (other product groups); Sales; Consultancy; Customer Support (Help Desk); Administration, Finance and Projects.

The base premises are built on two levels, and functions are grouped together in an open-plan office. However, there is some separation between upstairs and down-stairs groups, and communication between floors is not always good. There are also some problems of communication with the Scottish office, whose staff feel that they are sometimes out of sight, out of mind. Communication is mainly informal and ad hoc, and formal meetings are rare. Being a technology company, the predominant form of communication is e-mail. Staff often communicate with colleagues via e-mail, even if they sit next to one another. Face-toface communication is sometimes difficult as some staff are constantly out seeing new or prospective customers, and the situation resembles ships that pass in the night.

Management Capability
Of the four directors, three have a technical background in information technology, and one has a background in sales and marketing. The Managing Director managed a large IT function at his previous organization and is therefore used to acting in a managerial capacity. The Sales Director is most comfortable when out on the road selling to customers and is rarely seen in the office. He communicates with staff mainly by telephone and e-mail. The other two directors are very talented technically and most at home when solving technical problems. The Board seems sometimes to lack cohesion and teamwork. None of its members has been formally trained in directorial responsibilities, and their management development has largely been ignored. There is general agreement that the directors role should be to determine the organizations mission, vision, objectives and general strategy, and to represent the company externally with key stakeholders. However, many lower-level staff feel that, in practice, the directors become involved with too much day-to-day problem solving, prefer the technical challenges to their managerial responsibilities, and are often difficult to contact and liaise with on issues of management and policy. This leads to the whole organization managing one level down from what should really be happening. Beneath the directors are eight staff members who have been identified as managers, although they have no formal job titles or descriptions. These managers have not been selected primarily because of their managerial skills or potential, but rather because they are all excellent at the technical aspects of their jobs and are among the longestserving personnel. They feel that they have been expected to carry out the managerial role without sufficient consultation on their personal needs and aspirations. Not all are sure that they actually want to be managers. However, while one or two say that they need further time to reflect on what they really want from their lives and careers, most say that they accept the need to expand the managerial aspect of their roles, and require some additional skills to do so. However, they would not wish to leave behind the technical aspect of their roles, since this is what gives them the greatest motivation and personal satisfaction. The managers appreciate that these dilemmas mirror those of the directors themselves.

They have been used to working in an informal, organic way, and are reluctant to over bureaucratize the company. However, the eight managers agree that there needs to be a layer of management below the directors to coordinate and control operations. The managers appreciate that they need some management training and development, but feel that before the company can proceed with a training programme, the roles, duties and responsibilities, extent and limits of authority, and boundaries with those of the directors must be clarified. Although there is no clear consensus, some participants feel that a flexible, written job description and statement of key accountabilities would be useful. They also agree that their roles will be affected and to some extent defined by the way that the directors operate. The directors realize the need to put some degree of formality into the organization in terms of structure, roles, procedures and controls, but do not wish the company to become overly bureaucratic and to lose the very things that have made it successful so far. There is much discussion of the need for balance but little agreement on where the balance lies.

Control, Coordination and Teamwork

Software development on a medium to large scale is a group activity that requires a high degree of teamwork and coordination. In a software house, coordination of the work of the different programmers is the key to an effective system. The Softhouse suite of software started as the work of a couple of programmers and required little by way of regulations and procedures to ensure uniformity, quality and stability. As the software has grown, so too has the number of programmers. With every increase in the number of programmers, there is an exponential growth in the amount of coordination needed in order to consolidate the developed programs into an integrated stable system. The size of the product development team now means that there is a significantly greater need for efficient and consistent procedures to control the production environment. This need for greater formality and organization in product development is reflected in other areas of the company. For example, as a small company, Softhouse has no formal procedures for human resource issues such as recruitment and selection, training and development, reward and performance management, although there is a rudimentary appraisal system. There are no job descriptions or organization charts, and no clear career path. These things evolved naturally as the company grew, resulting in some anomalies and inequities, which are now beginning to be significant as the organization grows larger and more complex. The directors of the company are all technically focused and undertake leadership roles of various technical, consultancy and sales functions. Since the core competence of the organization is in its technical capabilities, there is no-one in the organization with specific expertise in the softer areas of management, and as a result such issues have been allowed to drift. Inevitably, problems have begun to emerge in areas such as a lack of effective employee induction, poor internal teamwork within and between functions, frustration at the lack of promotion structure, and lack of attention to individual development needs. Although employee turnover is still low, under the surface some employees feel frustrated by the lack of progress to resolve such problems, impacting on their motivation and job satisfaction.

The product development teams see themselves as the most important function in the organization, which can lead to some internal tensions with other functions. There is little awareness of the concept of internal customers, which can result in the interface with external customers being adversely affected. Despite efforts by the directors to develop a team-based culture, teamworking awareness and skills are generally at a fairly low level.

Core Competences, Capabilities and Resources

Recruiting, retaining and fulfilling talent In a knowledge-based business like Softhouse, the old adage, people are our greatest assets could not be more true. One of the greatest problems every technology company currently faces is attracting talented staff with the right skills and experience. For a small growing company this is even more difficult, as it is not possible to compete with larger organizations in terms of financial and career opportunities. What makes this especially difficult for Softhouse is its location. Being based in what is perceived by many as an unattractive area of the country, Softhouse faces two problems: the first is a lack of skilled individuals already living in the vicinity, and the second is not being able to attract experienced IT professionals to move to the area to take up a post. This set of circumstances leads to employing new graduates and people with little or no experience, which in turn means that they are taught from scratch by the people already at Softhouse. The graduates themselves are often recruited via networking they are already known to members of the company and are encouraged to apply for available jobs. In terms of encouraging innovation this is a real problem, as the same peoples knowledge and skills tend to be recycled in the next generation within the company. So one of the continuing challenges is how to keep pace with the relentless innovation that is a minimum requirement to stay afloat in the current technology company market. Another human resource issue is how to accommodate the individual ambitions of Softhouse employees, given that Softhouse lacks much by way of hierarchy. This is a young company with predominantly young staff. Their ambition, passion for challenging work and wish for personal growth will all need to be fulfilled by the company if it is to satisfy and retain these young bucks. Being a fairly flat company means that there are few opportunities for promotion. Softhouse must therefore find other ways in which to match the ambitions of its staff. This is particularly important in the case of skilled product developers in order to retain their services in an employment market that is short of the type of skills that Softhouses employees possess.

Knowledge Management
One issue that seems to have become increasingly problematic in recent years is that of legacy software. Once it is written, software requires supporting, enhancing and the occasional fix applying to it. In the past, the individual who wrote the software has generally done any future work concerning that particular area of the software. As the organization has matured, roles and faces have changed. It can no longer be taken for granted that the person who wrote a program will be sitting nearby with the time to answer any queries. With the number of queries generated by clients and the number of developments in progress, the company must begin to share the knowledge that has 6

previously been held by just one employee. Softhouse must learn to make its collective knowledge and experience a shareable commodity within the organization. But despite its capability in designing systems for its clients, knowledge management is not well developed at Softhouse itself. There is an intranet system that enables information to be passed on and shared, but the culture is such that little actual sharing takes place, since knowledge is seen as a source of power, status and importance. The geographical dispersion on two sites, and the fact that many of the staff servicing existing and new client accounts are rarely in the office, compounds this problem. This not only leads to some inevitable reinventing the wheel, but also to a damaging lack of coordination and information, impacting on the speed and accuracy of dealing with client queries and requests.

Summary of the current situation

At the time of writing, the company continues to win orders and grow rapidly beyond the targets set by the directors. Most customers appear to be highly satisfied with the products and service provided by the company. Indeed, some individuals who were previously system users at client organizations have joined the staff at Softhouse. However, worrying signs are starting to appear. A large contract has been lost but rationalized by the company on a technical basis, although there are some who suspect that customer service has been at fault. Internally, a few employees have resigned, and there is some conflict within and between different functions in the company: are these mere growing pains or are they symptomatic of a failure to address the stresses and strains and inevitable changes that the process of entrepreneurial growth brings? Alternatively, does this point to a failure of entrepreneurs who do not possess the required skill sets?