Going from an entry-level engineer to the head of the company's largest division in five years makes me feel almost like Alice in Wonderland," says W. Scott Thompson. As a vice-president and division general manager at Advanced Technology Inc., a professional services firm based in McLean, Va., he saw the company soar from start-up to $42 million a year in six years. It ranked No. 34 on the 1982 INC. 500.

Thompson built the company's $17 million-a-year logistics engineering division from scratch, and his experience has been paralleled by other Advanced Technology entrepreneur-employees. Three of the company's division vice-presidents, including Thompson, all "came into the company as ordinary workers after answering ads in the newspaper," Thompson notes. Each then built a business within it. None had much previous managerial experience.

Advanced Technology's ability to rely on home-grown managers is evidence that careful planning for growth is key. When they launched the company in 1976, Advanced Technology's founders agreed to encourage every employee to be an entrepreneur, responsible for setting clear objectives at the start of each year and for fulfilling each contract he or she brought to the company.

Although Advanced Technology managers admit the company's decentralized approach has disenchanted many employees -- mainly by outgrowing informal channels used to communicate with employees -- the company has been able to continue growing while struggling with the new problems.

After building an $8 million-a-year division of Systems Consultants Inc. (now known as Syscon Corp.), Robert E. LaRose, Ronald H. Hobbs, and Girish K. Jindia concluded that they could be even more successful running a company of their own. So, with two other employees of local professional firms, they founded Advanced Technology. "We said from the beginning," says Hobbs, now executive vice-president for human resources, policy and planning, "that we wanted to be one of the largest professional services firms in the country and that major milestones would be the achievement of $100 million a year in revenues and 1,000 employees." With 1,100 employees and sales expected to reach $60 million this year, Advanced Technology has achieved one mark and is close to the other.

LaRose, the company president, acknowledges that much of the success comes from the company's choice of markets: The largest part of its business consists of providing plans and reports to assist the Navy in its acquisition programs. But market niche is only one factor of tlne growth. Others are the well-thought-out policies the founders developed before launching the company. Besides giving every employee the chance to be an entrepreneur:

* The company would reward top performers before they ask for salary reviews. The company is cautious about revealing how much its people earn, but Carol A. Wolfe, director of compensation and benefits, says that, according to its own surveys, Advanced Technology's pay runs 10% to 15% above industry averages. And each year 60% to 70% of the company's professionals have received bonuses for their achievements.

* It would be market-oriented. "Many companies in professional services are driven by a specific technology," says LaRose. "We decided we would be driven by where we saw a market opening up." Managers are urged to expand and sell their employees' services in fields related to their expertise. For example, Thompson, whose staff specializes in the prevention of military equipment breakdowns, found a new market in utilities and troubled waste-water treatment programs.

* The company would reorganize as it grew, often more than once a year. It would create managerial jobs to increase the number of employees directly responsible for the profitability of their work. It would create new positions as well as adding layers to its organization chart so thnt no executive would supervise more than six entrepreneur-managers. The company now has five divisions, 18 operating centers reporting to division vice-presidents, and 46 program directors reporting to operating center managers.

* The company would clearly state principles in five crucial areas: staffing, management development, marketing, contracts to be sought and fulfilled, and finance. To ensure measurable organization and performance, each manager would set clearly defined annual goals.

Thompson says that although the principles themselves are unexceptional -- in finance, for instance, they call for detailed financial planning and control, timely cost reporting, zero-based budgeting, a strong cash position, and no highrisk ventures -- the discipline of management-by-objectives employing those principles is the largest single reason for Advanced Technology's success.

Thompson's career illustrates how well Advanced Technology's management strategy can work. An engineering graduate of the University of Mississippi, he was hired by the company in 1977 soon after his discharge from the Navy, when there were about 100 employees. He was assigned to a $100,000 contract to help implement a new approach to ship maintenance: The Navy planned to install critical ship parts in modules that could be removed for servicing on shore.

Advanced Technology had worked hard for the contract to design the first maintenance plan using the new system -- the preliminary plan for the FFC-7 -- class guided-missile frigate. The company recognized that if it did well on the first plan it could reasonably expect to be awarded follow-on business. Thompson soon rose to project manager, and he and his subordinates "worked our tails off and proved we were absolutely reliable," he says. The hard work assured significantly more business. And from the contacts he made in producing the plan, Thompson learned about unrelated contracts for which Advanced Technology could compete. "The motivation was simple. If I brought in new contracts, I would be rewarded," he explains. Each year his responsibility increased, and, by the end of 1980, he and his staff had brought in $3.7 million in new business.

The company created two new positions -- operating center manager and division manager -- to which Thompson was promoted. By the end of 1981, Thompson's operating center, fulfilling $400,000 worth of contracts a month, was so large it became a separate division. Last year, Thompson's logistics engineering division won enough Navy and private-sector work to boost revenues to $1.4 million per month.

Although Advanced Technology continues to sign contracts that assure expansion, it is unclear whether its management system still works as well as it did when Thompson began. Executive vicepresident Hobbs notes that the company began showing strain when it overtook the $8 million-a-year, 200-employee division of Syscon, where its top managers had honed their skills. Many employees found the pressure intense, and significant concern developed about staff turnover. In 1980 and 1981, the turnover rate rose to 35%. New employees found top managers too busy to communicate their vision. And many new managers at lower levels in the company didn't know how to listen to or share credit with their people, even though "quality support staff" and "high motivation and growth objectives" were among the company's key staffing goals.

Thompson's operating center, then with nearly 80 people, was also affected. "I lost six or seven young people, mostly right out of college, within two months," he recalls. "They felt they weren't being told about what was going on -- that they weren't being included in the picture of the future. I felt like a parent feels when he's not able to communicate with his children."

Thompson took several of the departing employees to lunch. "I was amazed at what I learned," he says. Because he could spend little time with each young subordinate, the employees were confused about where the company was going. He "was being constantly watched by these people. My slightest facial expressions were always being evaluated. When I closed my door, people assumed something was wrong. At the time, we were moving from one office to another, and people perceived things were being deviously manipulated without them being cut in."

Hobbs was named corporate executive director for human resources. He worked full-time on personnel, starting regular employee orientation briefings and a company newsletter. Thompson and other managers at his level initiated quarterly briefings for all their staff. In May 1981, a seasoned professional, Thomas Edgar, was hired as deputy executive director for human resources. He created a training program for project managers and began reorganizing Advanced Technology's recruitment procedures to assure that people weren't given jobs inappropriate to their skills. By December 1981, when Edgar was promoted to executive director for human resources, the top managers felt that the biggest difficulties had been overcome.

The founders now believe the company can continue growing at rates comparable to those of the past. "We are an entrepreneurial company, so we must grow," says Girish K. Jindia, treasurer and vice-president for finance. "If the company doesn't grow, how will the entrepreneurial people we've hired find opportunity?"

Edgar, however, is unsure that the company's communications and personnel problems are solved, even though the professional staff's turnover has dropped to less than 20% a year. "We've hired as many as 480 people a year," he says. "That kind of growth in that short a time span does not allow you to assimilate people." Continued rapid growth is likely to exacerbate the problem, but a slowdown, as Jindia notes, would frustrate people.

Moreover, as the company gets larger it is increasingly hard to force managers to consider all the key goals in the management-by-objectives program. Because financial goals are easier to measure than management development and staff motivation, for example, their achievement tends to dominate managers' time. Edgar fears that Advanced Technology may not be building the base to fulfill all the expectations for upward mobility it has created in its lower-ranking employees. "When this company's growth gets down into the 15%-20% range for a year, there's going to be morale problems," he says.

LaRose is more optimistic. "I am a firm believer in the general manager concept," he says. "You give your managers responsibility in every direction, and as you grow, it's only the size of the numbers that's increasing. "