Tuesday, July 20, 2010

Understanding how a company grows.

Post 527 - In the beginning, the company is just an idea. A need or opportunity has been identified and initial discussions about the idea are filled with enthusiasm and high expectations. The focus is on the future and the air is full of “convincing talk.”

Here, the initial steps have been taken. The idea has become a reality and now requires time and resources to bring it to life. The emphasis is on making things happen, selling and producing results. Each day brings new challenges. There’s little planning and few formal systems. Energy is high, consistency is low, and firefighting is a way of life.

The company has learned to produce results and is beginning to expand its sense of what it can do. A new product here, a new market there, it sees opportunity around every corner. Bigger is better and nothing seems out of reach. However, rapid expansion brings risk and vulnerability. The company is so optimistic and confident in its ability that it often takes on more than it can handle and constant expansion creates continual crises. People are spread too thin. Standards become lax and excellent performance is sometimes compromised.

Too much is promised. Too many projects are started, and mistakes are made. Confusion and conflict between people, departments and cliques often characterize the company at this stage. Leaders aren’t always in agreement on direction or on the risks that should be taken. Entrepreneurs are often at odds with their more conservative colleagues. Teamwork suffers. Rapid expansion can lead to a loss of focus, confusion about the mission of the company, the markets it serves, and how it should be organized. To get under control, the company moves into a period of rethinking, consolidation and reorganization. Here, the firm is born again as an entity separate from the founder.

Here, there’s a strong, shared sense of strategy, purpose and achievement. Performance is generally predictable and processes are continuously improved. Challenges are faced and resolved efficiently and effectively. The culture is one of open communication, honesty and accountability with a norm of high-performance. Reward and recognition systems are aligned with the company’s strategy and culture. The inherent danger in this phase is complacency. Finding and developing enough capable and competent managers for new growth is often a problem. The biggest challenge for organizations in their Prime is to be able to stay there.

When a company ceases to stretch for excellence, complacency sets in as the leaders slow down and become comfortable. Aspirations for growth and improvement begin to fade. This is the first stage in the aging process and it’s difficult to notice because the changes are very small and are spread over a considerable period of time. The company’s still profitable, and may still be viewed as an industry leader but it’s losing its energy. Honest criticism is less tolerable as politics becomes more prevalent. There’s more focus on how things are done rather than what’s actually being done. The emphasis is on activities rather than on results. The company no longer goes after what it wants; instead, it settles for what it can get.

As the drive to produce results declines, it’s replaced by a more easy-going attitude, including a tolerance for poor performance, and an culture of “don’t make waves.” The aristocratic company may still be profitable and have a good balance sheet. However, the most common behavior is denial about problems, and denial that customers aren’t as satisfied even though fewer come back each year. The drive for profit now focuses on reducing costs, or raising prices. This is the beginning of a decline.

Early Bureaucracy.
If the company doesn’t recognize these symptoms and makes no effort to re-energize itself, it'll continue to decline. When results worsen, complete denial is no longer possible. People begin talking openly about “the problems” and try to identify who’s responsible for them. Eventually, scapegoats are found, the culprits are removed, and the management team rejoices. However, because the problems are systemic, the removal of a couple of people isn’t the answer and soon the witch-hunt begins again. As people turn inward and point fingers, they turn their backs on customers. Service levels fall. Customers complain. After this point, the company generally self-destructs unless there’s an immediate and significant effort to turn the business around.

If the declining company is big and essential to the nation’s economy, the government intervenes, driving it into full-fledged bureaucracy. When this happens, employees focusing on form rather than function, paper work abounds and customers are left crying in the wilderness.

Knowing where a company is in its life cycle helps you to understand and put its problems in perspective. It also helps to set priorities for avoiding and solving problems and for knowing what to change.

Now, answer the following three questions:

1. Where is your company in its life cycle?

2. What does it need to focus on to continue its drive to Prime?

3. What's your role in making this happen?

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