Deriving an Empirical Development
Taxonomy for Manufacturing SMEs
Using Data from Australia’s
Business Longitudinal Survey
Richard G. P. McMahon
Small Business Economics
17: 197–212, 2001.
2001 Kluwer Academic Publishers. Printed in the Netherlands.
ABSTRACT. This novel methodological paper describes the
first stage of an on-going research effort to derive, characterise
and employ an empirically-based development taxonomy for
small and medium-sized enterprises (SMEs) in the manufac-
turing sector using panel data recently made available from
Australia’s Business Longitudinal Survey. Exploratory cluster
analysis is used with key enterprise age, size and growth
variables to discover if there appear to be any stable devel-
opment pathways evident in the data. Each of four annual data
collections is separately examined, and then comparisons are
made of the resulting cluster analysis outcomes over time.
Descriptive statistics for various enterprise characteristics
facilitate interpretation of the cluster analysis solutions. Using
the clusters as markers or signposts over time, three relatively
stable SME development pathways are discernible in the
longitudinal panel results. The first is a low growth pathway
apparently leading to the traditional or life-style SME con-
figuration (around 70 per cent of the panel). The second is a
moderate growth pathway possibly leading to the capped
growth SME configuration (around 25 per cent of the panel).
And the third is a high growth pathway seemingly leading to
the entrepreneurial SME configuration (around 5 per cent of
the panel). These findings are clearly in accord with the
observed rarity of substantial growth amongst SMEs world-
Over many decades it has been very common
amongst researchers to view small and medium-
sized enterprise (SME) growth as a series of
phases or stages of development through which
the business may pass in an enterprise life-cycle.
Having its origins in the literature of economics
(Marshall, 1890; Penrose, 1952, 1959; Rostow,
1960), reliance on this paradigm in the SME
literature is most frequently claimed to date
back to Steinmetz (1969). In an often cited book
of readings on the organisational life-cycle,
Kimberly and Miles (1980, p. ix) draw attention
. . . the cyclical quality of organizational existence.
Organizations are born, grow, and decline. Sometimes they
reawaken, and sometimes they disappear.
This quotation invokes a biological metaphor for
business organisations which has been the source
of much controversy in the literatures of eco-
nomics, business and sociology (Penrose, 1952;
Kimberly and Miles, 1980).
Before presenting the findings of their own
empirical research, Hanks et al. (1993) critically
review virtually all significant prior writing and
research on the enterprise life-cycle construct.
Commenting on wide differences in the specifics
of prior stages of growth models (particularly
inclusion of from 3 to 10 stages), Hanks et al.
(1993, pp. 11–12) observe that:
In recent years, a few empirical studies of the organization
life cycle have emerged, providing important contributions
to life-cycle theory (Kazanjian, 1988; Kazanjian and
Drazin, 1990; Miller and Friesen, 1984; Smith et al., 1985).
However, most of these studies have defined growth stages
a priori, using existing conceptualizations. The lack of
specificity and empirical rigour in these typologies may
account for unexpected intrastage variance found in some
analyses. . . . It may be possible to address some of these
difficulties by deriving taxonomic rather than typological
models . . .
Final version accepted on March 22, 2001
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