Guide to Managing Growth Read online

  The periods of revolution are at the heart of the model. Greiner’s notion of revolution draws attention to the inevitability of change in the development of an organisation. The “critical task” for management in each revolutionary period is to find the new set of practices that will become the basis of managing the next period of evolutionary growth. But in so doing managers “experience the irony of seeing a major solution in one period become a major problem in a later period”.

  The five phases are as follows:

  Creativity. In the phase of creativity, the founder’s energies are consumed by doing rather than managing and decisions are taken quickly and reactively. It ends in a crisis of leadership, in which the business addresses the question of who will establish some necessary order in the chaos. Resolution of the crisis might well involve the recruitment of a “capable business manager”.

  FIG 2.2 Greiner’s five-phase model

  Direction. The first revolution will be followed by a phase of direction, in which management systems and processes are introduced and developed and communication and management become more formal. As the organisation grows, however, such systems, designed initially to support growth, end up constricting it. There is a crisis of autonomy, in which middle managers are “torn between following procedures and taking initiative on their own”.

  Delegation. The second revolution is resolved by the establishment and development of a more decentralised structure in a phase of delegation, during which senior executives manage by exception and junior managers have budget and profit responsibility for divisions and departments. But the revolution, a “crisis of control”, occurs when senior executives sense that they are losing control of a business with more and more offshoots. For some a re-imposition of central control is the obvious way forward.

  Co-ordination. However, going backwards is never an option for a business with ambition. The third revolution results in a phase of co-ordination, in which senior managers use formal systems for achieving co-ordination. Some functions are centralised, capital expenditure is carefully controlled, formal planning processes are established, and share options and company-wide bonus schemes may be used to “encourage employees to identify with the organisation as a whole”. This focus on systems and co-ordination ends in a crisis of red tape, in which “procedures take precedence over problem solving”.

  Collaboration. The fourth revolution results in a phase of collaboration in which teamwork, social control and self-discipline replace “formal control”. The focus shifts from process to problem solving, and from headquarters to interdisciplinary teams. Matrix structures (see page 78) are established to balance and resolve the competing thinking of different interest groups. Above all, there is a shift from individuals and systems to the collective.

  Greiner, in his first article on the subject, said that he did not know how phase five would end (although he later suggested a sixth phase – see below). He imagines that the revolution “will centre around the psychological saturation of employees who grow emotionally and physically exhausted from the intensity of teamwork and the heavy pressure for innovative solutions”. He imagines organisations with structures that allow employees to “rest, reflect and revitalise themselves”. He imagines organisations making more use of sabbaticals, and balancing structured work and reflection. In so doing, Greiner is attempting to describe not so much the next phase of growth of businesses in general but the organisation of the future. Thus Greiner is one of the first to discover what many writers about growth have subsequently discovered, though few have been as honest as him in acknowledging, that the early phases of growth are a lot easier to describe and analyse than the later phases.

  Greiner is also unusual in being allowed to be his own best critic. His 1972 piece was reprinted as a Harvard Business Review classic in 1998. In his comments on his own work after an interval of 26 years it is phase five that comes in for the most robust criticism. He suggests that his “speculation that ‘psychological saturation’ is the crisis ending phase five now seems wrong”, and that the crisis is likely to be the realisation that there is no longer an internal solution. To keep growing the organisation needs to look outside itself – for partners, or maybe for “opportunities to sell itself to a bigger company”. Indeed, Greiner suggests that maybe there is a sixth phase of growth dependent on such “extra-organisational solutions”, and gives GE as an example of an organisation in which a group of companies have been built up around a core.

  His model is presented as a series of hypotheses. Greiner reminds us that in the original article “the phases outlined … are merely five in number and are still only approximations”. The article always was an invitation to others to test, refine and, in all likelihood, correct if not contradict his work. Though many have worked on growth, Greiner’s model still serves as the standard against which all others are judged.

  Does Greiner’s version of growth have any practical utility for managers? Greiner thinks so, though his “explicit guidelines for managers in growing organisations to keep in mind” are modest. Managers, he argues, benefit from knowing where they are in the development sequence and therefore understand when the time to act has come. His model implies that managers should recognise the limited range of their own solutions. Managers’ interventions are time and context specific. No matter how good they were last year, next year a different phase might start, with a different set of problems. Greiner argues, after all, that the problems of one revolution are sown like seeds in the solutions to a previous revolution.

  Greiner’s analysis has a lot to commend it. Business leaders do indeed find it useful to plot their business against Greiner’s model, using it to help understand the problems it survived last year and anticipate what might be around the corner. The focus on revolution and crisis is also useful. Too many managers assume that business problems need solving only once. Greiner reminds us that in a growing business in particular yesterday’s solutions become tomorrow’s problems; in an ambitious, successful business, continuous change is necessary. If nothing appears to be wrong, ask yourself whether you are looking in the right place. The model also draws attention to the pain that growth brings. If you are ambitious and choose to grow your business, you need to acknowledge the problems you will encounter.

  The model’s simplicity is beguiling to many of those attempting to anticipate and prepare for the changes that growth will bring, but some find it frustrating and unnaturally deterministic. Cynics might see the oscillation between revolution and evolution as a reflection of the times in which the model was created (the early 1970s), with the barriers not long down outside the Sorbonne and Marxism taken much more seriously in academic and political circles than at any time since. Greiner writes about the importance of “the forces of history” and notes that he has “drawn from the legacies of European psychologists who argue that the behaviour of individuals is determined primarily by past events and experiences rather than by what lies ahead”. Indeed, he is dismissive of managers who “fix their gaze outward on the environment and toward the future, as if more precise market projections will provide the organisation with a new identity”. But context is crucial, and a manager who attempts to manage without paying attention to it is risking much. Besides, Greiner himself took to speculating about the future even while trying to outline the characteristics of the later phases of the model. He is right when he suggests that managers should pay attention to the influence of “past decisions”, although he is perhaps unfair in suggesting that these matter more than “present events or market dynamics”. In the real world business leaders need to plan, and planning involves an understanding of the present as well as some anticipation of what the future holds, both in the market place and in the company. Business plans are discussed in Chapter 4.

  Small business growth: the Churchill model

  Neil Churchill is Emeritus Professor of Entrepreneurship at INSEAD in France and has been a distinguished member of the faculty of other ins
titutions. His Five Stages of Small Business Growth was first published by Harvard Business School in 1983, and has been much revised since. Churchill, together with his co-author Virginia Lewis, was conscious of being just one in a line of theorists; he explicitly mentions the work of five previous thinkers, including Greiner. Churchill takes the thinking further, testing his original hypotheses against 83 responses to a questionnaire distributed to 110 owners and managers of successful small companies who had participated in a small-company management programme. They had also read Greiner’s article and had identified “as best they could” the stages in Greiner’s model that they had passed through.

  Churchill is a believer in growth models. When looking at the growth of small businesses, “points of similarity can be organised into a framework that increases our understanding of the nature, characteristics and problems of businesses”. Such frameworks can help “in anticipating the key requirements at various points”, and can provide bases “for evaluating the impact of present and proposed governmental regulations and policies on one’s business”. Frameworks can also “aid accountants and consultants in diagnosing problems and matching solutions to smaller enterprises”.

  Churchill has the experience of testing his hypotheses empirically. He points out that growth can be difficult to pin down – growth of what? Too many business leaders think only in terms of turnover and headcount, but complexity of product line, rate of change in products or production technology, number of locations and so on are also important. Churchill is right, though the challenge of framework and model making is always to strike the right balance between simplification and complexity. Too close to the former will result in the model failing to reflect the messy business that is reality; too close to the latter will render the framework unusable. Churchill also challenged the “grow-or-fail hypothesis implicit in the [Greiner] model”. Businesses “plateaued … with some marginally profitable and others very profitable over a period of between 5 and 80 years”. He noted that several of his research subjects were not start-ups but were companies purchased while in a “steady-state survival or success stage” which were then moved further along the growth model thanks to a new attitude (and capability) on the part of new owners and managers.

  Like Greiner, on whose work his is based, Churchill describes five phases. He has little truck with Greiner’s crises, however, and his phases are presented as discrete stages of evolution:

  Existence. In the first stage the organisation is fighting for customers and meeting customer needs. Businesses cannot stay at this stage; they get to stage two or they fail.

  Survival. The business has shown that it works, but its main concern is still to cover its costs. In corporate terms it is eking out a subsistence living. Many businesses stay at this stage, including, Churchill argues, “Mom and Pop stores … [and] manufacturing businesses that cannot get their product or process sold as planned”.

  Success. In the first version of his model Churchill calls the third stage the success stage. The business is established and sustainable, and this success offers the owner alternatives. The success stage comes in two forms. III-G is the “success-growth substage”, during which the owner throws the dice again in pursuit of further growth. Such a path is inherently risky; the owner might lose. III-D is the “success-disengagement substage”. Rather than throw the dice again, the owner chooses to take a step back and live off the cash generated by the business, trusting management to run the business conservatively. On the assumption that the economic environment is stable, Churchill sees no reason why a business might not stay in the III-D phase for a long time.

  Take-off. A business owner who chooses to throw the dice again in stage III-G and succeeds will reach stage four, which Churchill calls take-off. He talks about the owner’s ability to delegate; the ability of the business to generate sufficient cash to satisfy growth; and operational and strategic planning. At this stage the founder might have left the business.

  Resource-maturity. The prize for the successful negotiation of stage four is stage five, called resource-maturity. This is the phase inhabited by bigger, stable businesses. Businesses in stage five need to “consolidate and control the financial gains brought on by rapid growth” while retaining “the advantages of small size, including flexibility of response and the entrepreneurial spirit”. The biggest danger is that the entrepreneurial spirit will be crushed as management expands. Churchill suggests that there might be a sixth phase called ossification but does not develop his thinking.

  Although Churchill was hugely influenced by Greiner, his thinking differs significantly. Churchill recognises that businesses have options. For Greiner, businesses are set on a historically predetermined path. The pace of change might vary, but the sequence of stages is almost predestined. Churchill allows more room for choice. Indeed, stage three of his original model presents the alternatives III-G and III-D – growth or disengagement. This might not be considered a choice at all, rather a sensible recognition that many business leaders, like most players of Monopoly, will choose to give up playing the game rather than see it through to its later stages. That many business leaders choose not to throw the dice again does not introduce flexibility into the model. Indeed, in later versions, Churchill replaces the alternatives III-G and III-D with a more conventional stage three leading to stage four.

  Although at first glance it may not seem so, Churchill’s model is much more complicated than Greiner’s. Introducing alternatives and choices will complicate any model. Churchill also discusses management factors identified in his research that change in importance as a business passes from one stage to the next. Four of these are related to the company itself: financial, personnel, systems and business resources. Four others are associated with the owner: personal goals, operational abilities, management abilities and strategic abilities. Churchill attempts to wrestle with many more variables than Greiner does. On the one hand this reflects the diversity of the real businesses that lie behind his thinking; on the other hand it makes the model less easy to apply by managers interested in the fates of their own businesses.

  As already indicated, Churchill has over the years made revisions to his model, including the radical replacement of the choice between III-G and III-D. That his thinking has evolved shows how difficult it can be to generalise about how businesses change as they grow.

  An anthropomorphic approach: the Adizes model

  Ichak Adizes takes a very different approach to growth from both Greiner and Churchill. Adizes was a member of the faculty of UCLA until 1982, when he founded the Adizes Institute.

  Adizes, who outlines his approach in his 1999 book Managing Corporate Lifecycles, is unusual in that he envisages a tenstage corporate life cycle charting the life of a business not just from birth to success, but also from success to death. His stages are as follows (the labels are his but the descriptions in brackets are the author’s):

  1. Courtship (the creation of the organisation)

  2. Infancy (the commencement of trading)

  3. Go-go (energetic early growth with the chaos that can result)

  4. Adolescence (the organisation is established but still evolving fast and has recently established an identity independent of its founders)

  5. Prime (the organisation has reached its “prime of life” and is therefore at its fittest, most competitive, and profitable)

  6. Stability (though still effective, and often still profitable, the signs of decline are beginning to appear even if they are not properly acknowledged)

  7. Aristocracy (few doubt that the organisation has a powerful place in the market, but it is viewed as inflexible and conservative; nimble new market entrants are beginning to take market share, and maybe market trends are changing, leaving the organisation behind)

  8. Early bureaucracy (called “recrimination” in some versions of the model – even the organisation itself acknowledges that something is wrong; doubts and internal squabbles distract attention from custome
r service and the objectives of the organisation)

  9. Bureaucracy (attention is focused inwards as the organisation struggles to stay alive; any outward attention is directed at possible exits or the sale of the organisation)

  10. Death (or rather the commercial equivalent – one of the various forms of bankruptcy, or protection from bankruptcy – receivership, administration, liquidation – or perhaps sale for break-up.)

  FIG 2.3 The Adizes model

  It is the road to “prime” that matters most to Adizes, and making the changes necessary to keeping your organisation there once you have achieved it.

  As Figure 2.3 illustrates, there are several places where Adizes suggests the business can fail. He also uses distinctive language – the language of human development. Adizes is not the only thinker to liken the growth of an organisation to the growth of a human being. Indeed, it can be difficult not to slip into anthropomorphic metaphors when discussing the evolution of the business. Some writers go further – Greiner noted the influence on his thinking of the “legacies of European psychologists”. But Adizes is distinctive in the extent to which he pushes the analogy.

  Undoubtedly, many business founders are comfortable with this sort of thinking, often adopting parent/child-style relationships with the businesses they have created. Their attachment can often seem irrational – for example, when it comes to selling equity in the business, more than one business founder has likened it to selling your children. The risk, of course, when applying the analogy to a growth framework, is one of oversimplification.

  The DIAMOND model

  The DIAMOND model was created by partners and staff at the London office of BDO Stoy Hayward, now BDO LLP, a global accountancy network. The creators of the model reviewed and critically evaluated the published literature and then tested the resulting hypothetical framework against the experience of the firm’s clients. The aim was to synthesise the best of the rest, and produce something business leaders and their advisers could use (see Figure 2.4).