How to see into the future of your business
(MoneyWatch) Of all the topics I teach in the USC Executive MBA program, the one that gets many students the most excited is organizational life cycle. Boring title, yes, but here's why you should keep reading: If you apply this model, you will see exactly what steps to take to make your company more effective today, how to prepare it for challenges it won't face for years, and how to position yourself as the leader for decades to come. Applied correctly, the model will make you one of the top 1 percent of leaders in your field -- no exaggeration.
The thanks for these insights goes to Professor Larry Greiner, one of the pioneers of the Executive MBA at USC's Marshall School of Business. Not only did he write the definitive article that is the basis for this blog post, but he also took the time to explain its nuances to me, so that I could teach them to a new generation of leaders.
In my next blog post, I'll show you -- as Greiner showed me -- how leaders can make a fortune by applying this model in three specific ways. First, the model, and why so many companies mess this up.
There are four major phases to how organizations age. The first is the startup phase. (Greiner called it "agency," but "startup" is the phrase we know best.) Here, there are no systems, procedures, or formal roles outside of perhaps the CEO. No HR department, no performance appraisals. People in startups often brag about how they don't have to deal with "management mumbo jumbo" -- they just get stuff done. Whomever is nearest to the trash can when it fills up or starts to stink takes it out to the dumpster. The company lives and dies by sales, and cash in the bank. When Amazon (AMZN) was in this phase, a bell announced each sale. It was fun until it was annoying -- just like this first phase itself. The lack of structure hits a predictable wall.
Invariably, the startup phase ends in what Greiner calls a "crisis of leadership." One person, no matter how smart, can't call all the shots. The lack of systems means that the growing staff can't work effectively. Every decision is made from scratch. The lack of policies on everything from vacation to performance reviews makes important things like pay seem arbitrary.
Day of the expert
As the organization grows past the crisis, it moves into the second phase, called "functional." Here, the coin of the realm is expertise. When Meg Whitman took over the reins at eBay (EBAY), she had the good sense to bring in experts in legal and marketing. Phase two emphasizes efficiency, order, clarity, and good decisions made by experts. There's really only one general manager, and that's the CEO. The key jobs have titles like "operations," "finance," "marketing," and "legal."
This phase usually ends because a functional company can't grow very well. To move to a new market, like a U.S. firm entering Asia, means you have to get all the functional heads (marketing, operations, finance, etc.) to agree, and they don't have a strong incentive to enter uncharted waters. Even worse, doing so might expose a lack of knowledge, and when expertise is king that's a discussion people want to avoid.
The next step in the company's development comes when something seemingly minor happens, but that will have enormous impact in the years to come. It's often when the CEO announces that everyone in the company will report to a new position. For U.S.-based companies, this position is often called "president of the Americas." Don't worry, the CEO says. This isn't a step down for anyone because the CEO will sit in both boxes -- the chief executive seat and this "president" job. A new position also is created, which is the troublemaker who wants to expand. It may be called "president, Asia," or head of "Windows" at Microsoft (MSFT) in the early days. Whether it's geographic or product-based, the company is now moving in a completely different direction. The coin of the realm is no longer expertise, it's growth.
The third phase, which has now begun, is called "divisional." In it, the hot job is to run a division, where you have your own functional people reporting to you. If another division does poorly, that's bad news for the company. But that may be great news for you, because the divisions often compete for the best people, resources, and the spotlight. The buzz phrase now is "making plan," which means hitting your numbers. As the company moves deeper into this third phase, it creates more and more divisions. Each is almost its own company, often with its own systems, processes, way of doing things. This lack of efficiency isn't a major problem, because the whole place is growing so fast. The strategy now amounts to a land-grab strategy. Get the customers now -- we'll worry about cost later.
When General Motors (GM) was at its height in the 1950s, it was a divisional company. Many people at Procter & Gamble (PG) remember the divisional days. So what happened? Competition caught up, and customers demanded a uniform experience. Imagine the effect if Apple (AAPL) were divisional, and you see why this doesn't last forever. Imagine if the iPad you bought in China looked nothing like the iPad you'd get in New York. It may even have a different name. The brand wouldn't gel in anyone's mind, because it varies from region to region. Worse yet, imagine the iPad costing 10 times what it does, because the iPad division had to invent its own manufacturing, inventory control, and personnel systems.
The transition from divisional to the next phase is the most critical. Most large companies have not made it all the way through this transition and are caught somewhere in-between, often with damaging results.
Welcome to the matrix
If it does make it through the transition, it enters the fourth phase, called "matrix." In it, people realize that the old decentralized model won't work anymore. Amazon still talks about the day someone in Europe wanted to order a product and got a notification that it was back-ordered. But a friend living in another European country had no problem getting it right away. It was the same product, but different distribution centers didn't communicate very effectively.
In the matrix, all the distribution center heads report to their geographic region leader, but also to a head of distribution that is responsible for increasing customer service and decreasing costs. The new buzzwords are "shared services," meaning the company has a local presence and different products, but shares human resources, IT, finance, etc. When the star of the movie "Office Space" complains that he has six bosses, it's because his company is a matrix, and his job reports to six different people. This isn't an exaggeration. I've seen people with a dozen or more bosses.
The matrix can be the most effective form of organization, but usually the promise is far ahead of reality. Most people in a matrix don't communicate very well. They form silos or fiefdoms, and don't share information. Leaders don't feel like they can call the shots because employees have competing interests. When the matrix works well, it is almost unstoppable, because it harnesses the power of local execution with the resources of a big company.
(Greiner discussed another two phases, but the research for them is spotty at this point. Readers who want to know more should read his original article.)
In my next post, I'll go through how to apply this model to make you and others more successful.
What growth phase is your organization in? Is it ready to take the next step? I hope you'll share your growth experiences in the comments below.
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