HMN 2025: How to Explore the timing of organizational changes

High-growth firms (HGFs) refer to businesses that achieve rapid growth in terms of employees or revenue. Based on the established definition, HGFs are businesses with at least 10 employees and annual growth rates of 20% or more, observed over a period of three years. This three-year span is considered the high-growth (HG) period of the company. Even though this growth is often short-lived and difficult to sustain, it plays a significant role in driving economic dynamism. Hence, entrepreneurship-related research often focuses on the growth pattern of the HGFs and factors that affect their growth.

One such factor that affects growth is the introduction of hierarchical layers. To shed light on the role of introducing hierarchical layers into HGFs, Professor Alex Coad from Waseda Business School, Waseda University, Japan, along with Dr. Antonio Martins-Neto, from the World Bank, Washington, D.C., U.S., conducted a study based on the Brazilian employer–employee census micro-data for the period of 2003–2019. An article describing their research was published in the journal Small Business Economics on September 11, 2025.

“There are two competing theories regarding the companies’ plans for the organizational infrastructure,” explains Prof. Coad. One theory is about planning ahead, which highlights how firms plan ahead and invest proactively before the HG period. According to this theory, companies invest in adding management layers in anticipation of growth. The other theory is called “dragging one’s feet.” This refers to the situation where firms put off adjusting their organizational structures for as long as possible. In these cases, the addition of a hierarchical layer often happens at the end of the HG period.

The researchers conducted a study which is entirely based on the Relação Anual de Informações Sociais (RAIS) database from 2003 to 2019. This comprehensive database is managed by the Brazilian Ministry of Labor and Employment and includes information on over 40 million individuals annually.

The analysis was done based on 3,211,353 observations, and 2013 to 2016 was considered as the HG period (in the baseline analysis). The study followed the previously established classification of workers that included chief executive officers and managers, professionals, technicians, clerks and services, and production workers. Applying the difference-in-difference technique, the conditional correlations between firms’ growth and changes in their organizational structure were established based on the database to investigate the perfect “timing” for organizational restructuring.

“The findings of our study were interesting,” states Prof. Coad. “The results neither fit closely to the ‘planning ahead’ scenario, nor did they fit the ‘dragging one’s feet’ theory.”

The addition of the new hierarchical layer occurred neither at the start nor at the end. However, as the firms started to expand, the HGFs started to add new knowledge hierarchies until the point at which they ceased to grow. This change happens smoothly and uniformly.

A notable distinction in hiring patterns was also observed between bigger and smaller firms. Smaller firms, with fewer than 50 employees, tend to add layers soon after growth begins, highlighting the influence of size on organizational decisions. As firms grow in size, the share of managers decreases, suggesting that firms have low levels of managerial resources at the end of an HG period. The number goes up again later on.

“Planning ahead too much can be a risky strategy. But then again, delaying as much as possible also has drawbacks. It is better to take the middle road,” explains Prof. Coad, while talking about the implications of the study.

The study can give the policymakers direction regarding supporting the firms during their growth phase, instead of seeking a proactive role. This might lead to further growth and development of the HGFs in the near future.

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