45,99 €
Mehr erfahren.
- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
An insightful and practical toolkit for managing organizational growth Growing Pains is the definitive guide to the life cycle of an organization, and the optimization strategies that make the organization stronger. Whether growth is rapid, slow, or not occurring at all, this book provides a host of solid tools and recommendations for putting everything in order. Now in its fifth edition, this invaluable guide has been fully updated to reflect the current economic climate, and includes new case studies and chapters discussing nonprofit life cycle tools, leadership challenges and the "leadership molecule", and real-world applications of the frameworks presented. The latest empirical research is presented in the context of these ideas, including new data on strategic organizational development. Mini-cases that illustrate growth management issues have been added throughout, with additional coverage of international entrepreneurship and companies that provide a frame of reference for the perspective being developed. Growing pains are normal, and a valuable indicator of organizational health, but they indicate the need for new systems, processes, and structure to support the organization's size. This book provides a practical framework for managing the process, applicable to organizations of all sizes. * Understand the key stages of growth and the challenges of each * Measure your organization's growing pains and development * Deploy new tools that facilitate positive organizational development * Make the necessary transitions required to ensure sustainable success Some companies, even after brilliant beginnings, lose their way as growth throws them for a loop. Growing Pains identifies the underlying factors that promote long term success, and gives you a framework for successfully managing the transitions of growth.
Sie lesen das E-Book in den Legimi-Apps auf:
Seitenzahl: 919
Veröffentlichungsjahr: 2015
Ähnliche
Table of Contents
Title Page
Copyright
Preface
Purpose and Focus
Intended Audience
Overview of the Contents
Key Differences
Conceptual Thinking
Note
Acknowledgments
Part I: A Framework for Developing Successful Organizations
Chapter 1: Transitions Required to Build Sustainably Successful Organizations
®
Organizational Success, Decline, and Failure
Building Sustainably Successful Organizations
®
The Personal Transitions Facing Founders and CEOs
The Need for Organizational Transition
Transitions Required for Continuing Success: An Overview Case Example
Summary
Notes
Chapter 2: Building Sustainably Successful Organizations
®
: The Pyramid of Organizational Development
The Nature of Organizational Development
The Pyramid of Organizational Development
The Pyramid and Financial Performance
The Pyramid as a Lens to Build and Evaluate Organizations
Improving Strategic Organizational Development at Guangzhou Construction, China
Successfully Building the Pyramid: The Example of Starbucks
Summary
Notes
Chapter 3: Identifying and Surviving the First Four Stages of Organizational Growth
Stages of Organizational Growth
Differences between Entrepreneurial and Professional Management
Discrepancies between Growth and Organizational Development
Managing the Transition between Growth Stages
Case Example of Growth from Stages I to IV: 99 Cents Only Stores
Summary
Notes
Chapter 4: Managing the Advanced Stages of Growth
Nature of Problems beyond Stage IV
Growth beyond Stage IV
The Challenge of Revitalization
Summary
Notes
Chapter 5: Recognizing Growing Pains and Assessing the Need for Change
The Nature of Growing Pains
The Ten Most Common Organizational Growing Pains
Measuring Organizational Growing Pains
Organizational Growing Pains, Growth Rates, and Infrastructure
Growing Pains and Financial Performance
Minimizing Organizational Growing Pains
Growing Pains at Guanzhou Construction
Summary
Notes
Part II: Mastering the Tools for Building Sustainably Successful Organizations
®
Chapter 6: Strategic Planning
Strategy Defined
The Nature of Strategic Planning and “Strategic Organizational Development Planning”
Strategic Issues
Management Systems' Strategic Planning Method
International Truck Dealerships: Development and Implementation of Strategic Organizational Development Plans
Ongoing Functions of Strategic Planning
Strategic Planning at Different Stages of Growth
Consultants and Strategic Planning Departments
The Value of Strategic Planning
Summary
Notes
Chapter 7: Organizational Structure
Nature of Organizational Structure
Three Related Dimensions of Organizational Structure
Alternative Forms of Macro Organizational Structure
Different Philosophies of Organizational Structure Design
Criteria for Evaluation and Design of Organizational Structure
Case Studies of Organizational Structure
Organizational Structure at Different Stages of Growth
Summary
Notes
Chapter 8: Organizational Control and Performance Management Systems
The Nature and Purpose of Organizational Control and Performance Management Systems
Performance Management Systems and Other Forms of Organizational Control
The Performance Management Scoreboard
Evaluation of Performance Management Systems' Effectiveness
Performance Management Systems in Action: Superior Security Systems Case Study
Use of Performance Management Systems at an Individual Level: The Performance Appraisal Process at Southern California Presbyterian Homes
Control and Performance Management Systems at Different Stages of Organizational Growth
Summary
Notes
Chapter 9: Management and Leadership Development
The Management and Leadership Role
A Three-Dimensional Framework for Understanding Management and Leadership Effectiveness
The Nature of Management and Leadership Development
Functions of Management and Leadership Development
Management and Leadership Development at Different Organizational Levels
Case Studies of Management and Leadership Development
Management and Leadership Development at Different Stages of Growth
Investment in Leadership Development
Summary
Notes
Chapter 10: Corporate Culture Management
The Nature of Corporate Culture
Key Dimensions of Corporate Culture
The Impact of Corporate Culture on Organizational Success and Financial Performance
Strong and Weak Cultures
Functional and Dysfunctional Cultures
Real versus Nominal Corporate Culture
Manifestations of Corporate Culture
How Corporate Culture Changes
How to Manage Corporate Culture
The Importance of Cultural Norms
Corporate Culture at Different Stages of Organizational Development
Summary
Notes
Part III: Special Aspects of Organizational Transitions in Growing and Changing Enterprises
Chapter 11: Building Sustainably Successful Nonprofits
Applying the Pyramid of Organizational Development to Nonprofits
Applying the Stages of Organizational Growth and Growing Pains to Nonprofits
Strategic Planning in Nonprofits
Organizational Structure and Structure Management in Nonprofits
Management and Leadership Development in Nonprofits
Performance Management in Nonprofits
Culture Management in Nonprofits
Summary
Notes
Chapter 12: The Challenge of Leadership Throughout the Organizational Life Cycle
The Nature of Leadership
Styles of Leadership
Factors Influencing the Choice of Leadership Style
Two Sets of Leadership Tasks
The Leadership Molecule
Emergence and Development of a Leadership Molecule in Organizations
Design of a Leadership Molecule
Empirical Support for the Leadership Molecule Model
The Leadership Molecule at Different Stages of Growth
Implications of the Leadership Molecule for Building Successful Organizations
Summary
Notes
Chapter 13: Building Sustainably Successful Organizations
®
: The Frameworks, Tools, and Methods in Action
Organizational Development at American Century Investments
Organizational Development at Infogix
Organizational Development at Bell-Carter Foods
SmileSaver
Organizational Development at Ballistic Cell
Organizational Development at GroundSwell
Conclusion
Notes
About the Authors
Eric G. Flamholtz, PhD
Yvonne Randle, PhD
Index
End User License Agreement
Pages
iv
vii
viii
ix
x
xi
xiii
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
113
114
115
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
213
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
243
244
245
246
247
248
249
250
251
252
253
254
255
256
257
258
259
260
261
262
263
264
265
266
267
268
269
270
271
272
273
275
276
277
278
279
280
281
282
283
284
285
286
287
288
289
290
291
292
293
294
295
296
297
298
299
300
301
302
303
304
305
306
307
308
309
310
311
312
313
314
315
316
317
318
319
320
321
322
323
324
325
326
327
328
329
331
332
333
334
335
336
337
338
339
340
341
342
343
344
345
346
347
348
349
350
351
352
353
354
355
356
357
358
359
360
361
363
364
365
366
367
368
369
370
371
372
373
374
375
376
377
378
379
380
381
382
383
384
385
386
Guide
Cover
Table of Contents
Begin Reading
List of Illustrations
Chapter 2: Building Sustainably Successful Organizations
®
: The Pyramid of Organizational Development
Figure 2.1 The Pyramid of Organizational Development
Figure 2.2 Six Key Drivers of Financial Results
Chapter 3: Identifying and Surviving the First Four Stages of Organizational Growth
Figure 3.1 Developmental Emphasis in a Stage I Organization
Figure 3.2 Developmental Emphasis in a Stage II Organization
Figure 3.3 Developmental Emphasis in a Stage III Organization
Figure 3.4 Developmental Emphasis in a Stage IV Organization
Figure 3.5 Causes of Organizational Growing Pains
Chapter 5: Recognizing Growing Pains and Assessing the Need for Change
Figure 5.1 Organizational Growing Pains by Company Size (Revenue) in Different Industries
Part II: Mastering the Tools for Building Sustainably Successful Organizations
Figure II.1 The Management System
Chapter 6: Strategic Planning
Figure 6.1 Flow Diagram of Management Systems' Strategic Planning Process
Figure 6.2
Figure 6.3 How You Play “The Game”: Three Levels of Strategy
Chapter 7: Organizational Structure
Figure 7.1 Functional Organizational Structure
Figure 7.2 Prefunctional Organizational Structure: Plastic Molding Corporation
Figure 7.3 Divisional Organizational Structure: InfoEnterprise
Figure 7.4 Matrix Organizational Structure: Ultraspace Corporation
Figure 7.5 Organizational Hierarchy
Figure 7.6 Organizational Structure of Design Corporation
Figure 7.7 Organizational Structure of GoodEats, Inc.
Chapter 8: Organizational Control and Performance Management Systems
Figure 8.1 Performance Management System Design
Chapter 9: Management and Leadership Development
Figure 9.1 Pyramid of Management and Leadership Development™
Chapter 12: The Challenge of Leadership Throughout the Organizational Life Cycle
Figure 12.1 Continuum of Leadership Styles
Figure 12.2 Factors Affecting Choice of Leadership Style
Figure 12.3 The Classic Form of the Leadership Molecule
Figure 12.4 Three Leadership Atoms in Search of a Molecule
Chapter 13: Building Sustainably Successful Organizations
®
: The Frameworks, Tools, and Methods in Action
Figure 13.1 The Infogix Performance Optimization System
List of Tables
Chapter 2: Building Sustainably Successful Organizations
®
: The Pyramid of Organizational Development
Table 2.1 Example of an Organization's Strategic Development Scores
Table 2.2 Strategic Development Scores Required for Different Levels of Success over the Long Run
Table 2.3 Examples of Companies with Different Levels of Strategic Development
Table 2.4 Distribution of Overall Strategic Development Scores per Management Systems' Database
Table 2.5 Revenue and Employees at Guangzhou Construction
Table 2.6 Guangzhou Construction Organizational Effectiveness Survey Results 2009 versus 2010
Chapter 3: Identifying and Surviving the First Four Stages of Organizational Growth
Table 3.1 Stages of Organizational Growth
Table 3.2 Comparison of Professional Management and Entrepreneurial Management
Chapter 4: Managing the Advanced Stages of Growth
Table 4.1 Advanced Stages of Organizational Growth
Chapter 5: Recognizing Growing Pains and Assessing the Need for Change
Exhibit 5.1 Growing Pains Survey
Table 5.1 Interpretation of Organizational Growing Pains Survey Scores
Table 5.2 Organizational Growing Pains by Company Size
Table 5.3 Organizational Growing Pains in Different Industries
Table 5.4 Percentile Scores for Overall Growing Pains
Table 5.5 Guangzhou Construction Growing Pains Survey Results, 2009 versus 2010
Chapter 6: Strategic Planning
Table 6.1 Sample Supporting Strategies for Southwest Airlines
Table 6.2 Sample Operational Strategies for Walmart
Table 6.3 Elements of the Strategic Plan
Table 6.4 Sample Objectives and Goals—Excerpts from an International Truck Dealer's Strategic Plan
Chapter 8: Organizational Control and Performance Management Systems
Exhibit 8.1 Source of Components of Performance Management Systems by Organizational Level
Exhibit 8.2 Performance Management Systems Application in Manufacturing Plant
Exhibit 8.3 Southern California Presbyterian Homes Performance Appraisal Form
Chapter 9: Management and Leadership Development
Table 9.1 Critical Aspects of Management Development Transitions
Exhibit 9.1 Outline of the First Two Weeks of International's EDLP
Chapter 10: Corporate Culture Management
Table 10.1 Nominal versus Real Culture: An Example
Table 10.2 Stories and Their Elements
Table 10.3 Elements of Alpha Manufacturing's Current Culture and Factors That Support Them
Table 10.4 Alpha Manufacturing's Current and Desired Cultures and the Tools Used to Make Its Desired Culture a Reality
Chapter 11: Building Sustainably Successful Nonprofits
Table 11.1 Nonprofit Growing Pains and How They Compare to For-Profit Companies
Table 11.2 Excerpts from a Healthy Beginnings Child Services Strategic Plan Environmental Scan
Table 11.3 Excerpts from Healthy Beginnings Child Services Organizational Assessment
Table 11.4 Sample Objectives and SMART Goals—Excerpts from Healthy Beginnings Child Services Strategic Plan
Table 11.5 Roles of Board and Staff
Eric G. Flamholtz and Yvonne Randle
GROWING PAINS
Building Sustainably Successful Organizations®
5TH EDITION
This book is printed on acid-free paper.
Copyright © 2016 by Eric G. Flamholtz and Yvonne Randle. All rights reserved
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for damages arising herefrom.
For general information about our other products and services, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Flamholtz, Eric G., author.
Growing pains : Building Sustainably
Successful Organizations / Eric G. Flamholtz and Yvonne Randle. -- Fifth edition.
pages cm
Includes index.
ISBN 978-1-118-91640-7 (cloth)
ISBN 978-1-118-91641-4 (ePDF)
ISBN 978-1-118-91642-1 (ePub)
1. New business enterprises– Management. 2. Organizational change. I. Randle, Yvonne, author. II. Title.
HD62.5.F535 2016
658.4′063– dc23
2015025337
Cover Design: Wiley
Cover Image: © iStock.com/Studio-Pro
Preface
Growing Pains deals with the problems of building sustainably successful organizations® over the long term. The first edition of this book—published in 1986 and titled, How to Make the Transition from Entrepreneurship to a Professionally Managed Firm—was written after Eric Flamholtz became aware of the paucity of theory, research, and tools for the management of entrepreneurial organizations.
Prior to the first edition of this book, most if not virtually all of business education ignored entrepreneurship and focused instead on “business administration.” This meant focusing on large established companies such as Bank of America, Boeing, Exxon, IBM, McDonald's, Procter & Gamble, and similar institutional “blue chip” companies that had already been in existence for many decades. There was very little literature or cases about starting entrepreneurial firms, or about what we like to think of as “organizational scale-up,” the process of transitioning from a successful start-up to a much larger size and different stage of growth.
Now, three decades later, entrepreneurship is an established academic field. Entrepreneurs like Howard Schultz (Starbucks), Richard Branson (the Virgin Group), and the late Steve Jobs (Apple), and more recently Elon Musk (Tesla), Jack Ma (Alibaba), and Mark Zuckerberg (Facebook) are business icons and business heroes. However, there still remains a large gap in the published literature to explain the process of transitioning from the start-up phase of early entrepreneurship to the end-game phase of becoming a sustainably successful organization (or institution) like Starbucks, Apple, or Amgen. Filling this gap is and has been (for almost 40 years) our primary academic and practical focus.
During this period, we have developed one model to explain the determinants of organizational success, another to identify the stages in an organizational life cycle, and a third to explain the origin and underlying causes of growing pains (which occur when an organization has not developed the infrastructure required by its size and complexity at a given stage of growth). Initially, these models were developed to help explain the process of transition from the entrepreneurial stage to the professional management stage (see Chapter 3) in the life cycle of a business enterprise. Later we realized that what we had actually developed was an explanation or general theory of organizational success and failure at different stages of growth.
Purpose and Focus
The overall purpose of this book is to help readers understand what it takes to continue to grow an organization successfully after a new venture or entrepreneurship has been established. Specifically, it provides a lens or framework and related tools to help people understand how to manage organizational growth successfully at different stages from a start-up to a dominant world-class company like a Starbucks.
Unfortunately, too many entrepreneurial companies founder after promising or even brilliant beginnings. Companies such as Boston Market, People Express, Maxicare, and Osborne Computer were all once cited as great entrepreneurial successes, yet all have failed. In the face of these failures and difficulties, some cynical observers have even begun to define an entrepreneur as someone, such as Adam Osborne (who created the first portable computer) or Robert Campeau (a Canadian shopping center developer), who can start and build a company to a given level and then watch it fail.
Similarly, many established companies such as GM, Kodak, Sears, Reuters, and Xerox experience difficulties after decades of success. Some fail and others become no more than corporate zombies, with little life left in them. Xerox was once an icon of corporate success; people would say, “We want to be the next Xerox.” Sadly, no one says that anymore. How did this happen? Can symbols of once-great corporate success be revitalized? How can this process be managed?
Our experience in doing research and consulting with many different types of companies in many different places in the world has led us to write this book to help present and potential entrepreneurs and CEOs of established companies (as well as their employees, advisers, bankers, and venture capitalists) understand the pitfalls typically faced by organizations at different stages of growth and to explain how to become sustainably successful over the long term. It is also intended to help governmental policymakers understand the causes of the premature demise of entrepreneurial companies that are so vital to our economy. Although this book will not solve all the problems faced by companies, our experience (as well as the positive feedback we received about the previous editions) indicates that if the ideas and methods described in this book are applied, organizations will have a significantly improved likelihood of sustainable success.
While earlier editions of this book focused almost exclusively on the transition from what we have termed an “entrepreneurship to an entrepreneurially oriented, professionally managed business” (organizations from start-up to approximately $100 million in annual revenues), this edition focuses on all stages of growth. We have also included new ideas and concepts (which we have developed over the past few years) as well as new examples and cases of companies—not just in the United States, but also in several other countries around the world. Stated differently, the strategic intent is to refresh the book and make it even more relevant to organizations through their entire life cycle from inception to decline and revitalization.
Intended Audience
This book is addressed to anyone interested in organizational success and failure. This includes the owners, managers, and employees of companies ranging from start-ups to global leaders to those in need of revitalization. The concepts, frameworks, and tools described in this book will also be of interest to investors, bankers, and venture capitalists, and to students and management scholars who are interested in answering the fundamental question, “Why, after successful or even brilliant beginnings, do companies often lose their way with many (if not most) even experiencing decline and bankruptcy?”
To answer this question, we identify the underlying factors that promote long-term success and describe what organizations must do to successfully manage the transitions they face as they grow. Case studies of companies at different stages of growth—drawn from a wide variety of industries—are included to illustrate different aspects of the transitions that must be made over the entire life cycle of organizations. The cases also show how the frameworks provided in this book can be used as conceptual maps of what needs to be done by an organization at each developmental stage. In addition, the book specifies the adjustments the founder or the CEO of an entrepreneurial company needs to make so that he or she can grow with the organization (as Howard Schultz did at Starbucks) and not be left behind.
Overview of the Contents
While this edition of Growing Pains focuses on the entire life cycle of an organization (versus exclusively on the transition from an entrepreneurship to a professionally managed organization) and what it takes to build a sustainably successful enterprise over the longer term, its title has remained unchanged. The title Growing Pains is still very relevant, even for the advanced stages of growth, and even when growth has ceased. For the absence of growth is, in a sense, a growing pain as well. Our research and practical experience in working with a wide variety of organizations over almost 40 years suggest that all organizations experience growing pains as a normal part of their development. Growing pains indicate that the company has outgrown its infrastructure and that it must develop new systems and processes, as well as a new structure, to support its size. When organizations ignore growing pains, significant problems and even failure can result.
The book's underlying framework and content are applicable to all organizations, from very small startups to very large companies, nonprofits, and even mega-companies such as IBM, Johnson & Johnson, and Walmart. In earlier editions, Starbucks was used as an example of a rapidly growing entrepreneurial company that had applied many of the concepts and methods in this book. Today, Starbucks has joined the elite group of world-class giants. The concepts, frameworks, methods and tools described in this book are still relevant to Starbucks and to other organizations of all sizes.
This book is divided into three parts. Part One begins with a chapter that provides an overview of the issues facing entrepreneurs and CEOs as they attempt to grow their organizations. It examines both the personal and the organizational issues and related transitions required. This is followed by four chapters that focus on frameworks for understanding organizational effectiveness and transitions: an organizational effectiveness model, an organizational life-cycle model, and a model to explain the origin and underlying causes of “growing pains” that occur when an organization has not developed the “infrastructure” required by its size and complexity at a given stage of growth. The organizational effectiveness model, termed the Pyramid of Organizational Development (discussed in Chapter 2) explains the variables that must be managed by companies to give them the optimal (most likely) chance of long-term success. The life-cycle model (discussed in Chapters 3and 4) identifies seven stages of growth from a new venture (corporate birth) to an established organization in decline and requiring revitalization. Chapter 3 focuses on the first four stages of growth from a new venture to a mature organization, while Chapter 4 focuses on the advanced stages of growth in the organizational life cycle. The growing pains framework is discussed in Chapter 5.
Part Two presents the most significant managerial tools that can be used to build sustainably successful business enterprises: strategic planning, organizational structure, control/performance management systems, management and leadership development, and corporate culture management. Although the tools of planning, structural design, and the like may be, at least superficially, familiar to some readers, our approach to these key components of a management system differs in some very important respects from others; there is also an integrative aspect to the set of management systems components overall.
Part Three deals with some special issues and topics relating to organizational development and transitions. It includes a chapter dealing with the application of the concepts and frameworks to nonprofits. It also introduces the concept of a leadership molecule and deals with the key aspects of strategic and operational leadership. Finally, Chapter 13 presents several comprehensive case studies of companies that have used the concepts, methods, and tools described in this book to support their continued success.
Key Differences
This fifth edition of Growing Pains differs from the fourth edition in several important respects. Although the overall direction and thrust of the book have been retained, all chapters have been revised to include updated material, updated references to companies, and new case studies, as appropriate. However, in some instances we have kept certain examples because they are “classic,” or prototypical, of the points we want to make, because there are no better current examples, or because of their historical significance.
Three new chapters have been added that focus upon: (1) how to use the frameworks, tools, and methods in nonprofits (Chapter 11); (2) specific leadership challenges and how to create a “leadership molecule” (Chapter 12); and (3) comprehensive case studies of the applications of our frameworks and tools and results of those applications in selected organizations worldwide (Chapter 13). In addition, we have cited new empirical research that has been published during the past several years that supports the framework and ideas presented in the book. Specifically, we present new data on “strategic organizational development” (in Chapter 2).
Throughout the book, several new cases, examples, or “mini-cases” of companies dealing successfully or unsuccessfully with growth management issues have been added. New mini-cases and international examples of entrepreneurship have been added because of the widespread flourishing of entrepreneurship around the globe, including examples from Europe, Australia, and Asia. A number of companies (including Starbucks) are used throughout the book to provide a consistent frame of reference for the perspective being developed. To a considerable extent, we have drawn on examples of companies where we have in-depth knowledge. In some cases, to protect the privacy of individuals and organizations, we have disguised the company's and individuals' names.
Conceptual Thinking
Our experience over the past 40 years in working with and coaching leaders of many companies throughout the world has shown that there is one key thing (not typically mentioned when discussing the requirement of leadership success) in addition to all of the standard things that leaders are supposed to be able to do. Specifically, this is to be able to think conceptually about their business. The ability of a leader or leadership group to step back from day-to-day operations and the concrete things that business involves is a critical ability that contributes to sustainable success of organizations.
This same cognitive ability is often the difference between great successes in virtually any activity, including sports that are very physical in nature such as American football. For example, National Football League (NFL) teams use the so-called “combine” to test for various abilities such as running speed, jumping ability, and cognitive ability. Specifically, they use the “Wonderlic Cognitive Ability Test.” Because NFL football is one of the most physically demanding sports, the emphasis on cognitive ability might seem surprising. However, as coaches in the NFL undoubtedly know, there is also a conceptual aspect to the game. For example, in discussing the ability of his prized recruit at UCLA, quarterback Josh Rosen, Coach Jim Mora stated: “Josh is very intelligent. He is one of those kids that the game comes to more easily than some. He understands concepts.”1
As the reader will see, some conceptual thinking is required by this book. However, the ability to do this type of thinking will pay great dividends.
Note
1
Chris Foster, “Rosen Is First Among QB Equals,”
Los Angeles Times
, April 26, 2015, D9.
Acknowledgments
This work is a product of nearly 40 years of action research and consultation with many different organizations. These range from new ventures to members of the Fortune 500. They were our research “laboratory.” Simply stated, the most significant ideas that underlie this book were the products of observing, analyzing, and conceptualizing what actually happened in successful and unsuccessful organizations as they grew. The book could not have been written without having had access to those companies of various sizes, in different industries, with different degrees of success. Accordingly, we are greatly indebted to the CEOs, presidents, senior managers, and others who invited us to serve as researchers, consultants, or advisers for their organizations. (Many of these companies are not mentioned by name, to preserve their privacy. In some cases, fictitious names are used; in others, examples are cited without the company being named at all.)
The data presented in Chapters 2, 5, and 11 are drawn from the organizational effectiveness database compiled by Management Systems Consulting Corporation. They are derived from a survey developed by Eric Flamholtz. Omar Aguilera, Senior Consultant with our firm, Management Systems, assisted in the preparation and interpretation of some of the data (updated from the fourth edition) dealing with organizational growing pains and strategic organizational development.
We want to also acknowledge the help that Clara Penny, Management Systems' Vice President of Finance and Administration, provided in preparing the manuscript of this fifth edition. And, we would like to thank the other members of the Management Systems team—Leslie McKenna and Michael Tan—for their support.
Although we acknowledge with gratitude the contributions of all those cited, we remain responsible for the book and its imperfections.
Eric G. FlamholtzYvonne RandleLos AngelesApril 2015
Part I
A Framework for Developing Successful Organizations
This first part of Growing Pains identifies the determinants of organizational success and provides a framework for understanding the key transitions that organizations and their leaders face as they grow. It also focuses on helping the entrepreneur or company leader understand and manage the personal transitions as well as organizational transitions that are required to support the enterprise's continued successful development.
The First Challenge for Entrepreneurs
The first challenge that entrepreneurs face is establishing a successful new venture. The basic skills necessary to meet this challenge are the ability to recognize a market need and the ability to develop (or to hire other people to develop) a product or service appropriate to satisfy that need.
If these two fundamental things are done well, a fledgling enterprise is likely to experience rapid growth. At this point, whether the entrepreneur recognizes it or not, the game begins to change. The organization's success creates its next set of problems and challenges to survival.
As a result of expanding sales, resources become stretched very thin. A seemingly perpetual and insatiable need arises for more inventory, space, equipment, people, funds, and so on. Day-to-day activities are greatly sped up and may even take on a frenzied quality.
The business's operational systems (those needed to facilitate day-to-day activities), such as marketing, production or service delivery, accounting, credit, collections, and personnel, typically are overwhelmed by the sudden surge of activity. There is little time to think, and little or no planning takes place because most plans quickly become obsolete. People become high on their own adrenaline and merely react to the rush of activity.
At this point the organization usually begins to experience some, perhaps all, of the following “organizational growing pains”:
People feel that there are not enough hours in the day.
People spend too much time “putting out fires.”
Many people are not aware of what others are doing.
People lack an understanding of the company's ultimate goals.
There are not enough good managers.
People feel that “I have to do it myself if I want to get it done correctly.”
Most people feel that the company's meetings are a waste of time.
Plans are seldom made and even more seldom followed upon, so things often do not get done.
Some people feel insecure about their place in the company.
The company has continued to grow in sales but not to the same extent in profits.
These growing pains are not merely problems in and of themselves, they are a symptom of the underlying problem that there is an “organizational development gap” between the infrastructure required by the organization and the infrastructure it actually has. An organization's infrastructure consists of the resources, operational support systems and management systems, and culture required to enable the organization to function profitably on a short- and long-term basis. As described further in Chapter 2, a company's resources consist of the human capital, financial capital, and physical assets of an enterprise. Operational support systems consist of all the day-to-day systems required to produce a product or deliver a service and to function on a day-to-day basis. Management systems consist of the organization's planning system, organization structure, management development system, and performance management system. “Culture” refers to the values, beliefs, and norms that drive the behavior of people in the enterprise as well as the “system” for culture management (whatever that might be). These are the systems required to manage the overall enterprise on a long-term basis.
The Second Challenge for Entrepreneurs
Once an organization has identified a market and has begun to produce products or services to meet the needs of customers within that market, it will begin to grow. As the business grows, it will be faced with the need to make a fundamental transformation or metamorphosis from the spontaneous, ad hoc, free-spirited enterprise that it has been to a more formally planned, organized, and disciplined entity. The organization must move from a situation in which there are only informal plans and people simply react to events to one in which formal planning is a way of life; from one in which jobs and responsibilities are undefined to one in which there is some degree of definition of responsibilities and mutually exclusive roles; from one in which there is no accountability or control systems to one in which there are objectives, goals, measures, and related rewards specified in advance as well as formal performance appraisal systems; from one in which there is only on-the-job training to one in which there are formal management development programs; from one in which there is no budget to one in which there are budgets, reports, and variances; and, finally, from a situation in which profit simply happens to one in which there is an explicit profit goal to be achieved. In brief, the company must make the transition from an entrepreneurship to what we term “an entrepreneurially oriented, professionally managed organization.”
As we will see in Chapter 1, this is a time when the very personality traits that initially made the founder-entrepreneur so successful can lead to organizational demise. Most entrepreneurs have either a sales or technical background, or they know a particular industry well. Entrepreneurs typically want things done in their own way. They may be more intelligent or have better intuition than their employees, who come to rely on their bosses' omnipotence. Typical entrepreneurs tend to be “doers” rather than managers, and most have not had formal management training, although they may have read the current management best-sellers. They like to be free of “corporate restraints.” They reject meetings, written plans, detailed organization of time, and budgets as the trappings of bureaucracy. Most insidiously, they think, “We got here without these things, so why do we need them?” Unfortunately, the nature of the organization has changed—and so must its senior management.
There is no one pattern for a successful transition from an entrepreneurship to a professionally managed enterprise. Whatever path is followed, the key to a successful change is for the entrepreneur to recognize that a new stage in the organization's life cycle has been reached and that the former mode of operation will no longer be effective.
Making an Organizational Transition
As an organization grows, it will, in fact, face not just one but several significant transitions and transformations that need to be managed. A key question for senior leaders (whether they are the entrepreneur of a new company or the CEO of a billion-dollar-plus company), then, is, “What should we do to take the organization successfully to the next stage of growth?” To answer this question satisfactorily, it is necessary to understand that there are predictable stages of organizational growth, certain key developmental tasks that must be performed by the organization at each growth stage, and certain critical problems that organizations typically face as they grow. This understanding, in turn, requires a framework within which the determinants of successful organizational development may be placed.
Part One of this book focuses on identifying these determinants of success, on the identification of the predictable stages of organizational growth (each requiring transitions), and on the personal transitions that entrepreneurs and other leaders need to make to support the transitions from one stage of growth to the next.
Chapter 1 deals with the personal and organizational transitions that are necessary during the life cycle of a business enterprise. It examines a variety of personal and professional changes or transitions that must be made by the chief executive officer or “CEO” as a company grows. These individual transitions include the changing nature of the CEO's role, changes in managerial style, and the behavioral and attitudinal changes required to support successful organizational transitions. It also examines the strategic and “architectural design” changes required for healthy organizational development as a company grows over time.
Chapter 2 presents a holistic framework for successful organizational development. It deals with the issue of what makes an organization successful and profitable. Drawing on research and experience from consulting with organizations of all sizes and types over nearly 40 years, it presents a systematic approach to understanding the six critical variables that determine organizational effectiveness. It examines these six critical tasks of organizational development and describes what must be done to accomplish each. Chapter 2 presents a method for self-assessment of the strength of a business in terms of these variables, which we call the Pyramid of Organizational Development. A database is provided for the reader's comparison of their company's “strategic development scores” with that of other businesses.
Chapters 3 and 4 together identify and examine the seven different stages of organizational growth, from the inception of a new venture through the early maturity of an entrepreneurial organization, and to the ultimate decline and revitalization of a company. Chapter 3 focuses upon the first four stages of growth from a new venture to scale-up, and from scale-up to professionalization of the enterprise as well as consolidation. Taken together, the four stages described in Chapter 3 comprise the period or era from an entrepreneurial start-up through transformation to becoming an entrepreneurially oriented professionally managed enterprise. Chapter 4 examines the remaining three stages—diversification, integration, and decline-revitalization. These chapters also examine the relative emphasis that must be placed on each of the six critical developmental tasks at each stage of the organization's growth.
Chapter 5 identifies and describes the growing pains that all developing organizations experience. It provides a method for assessing these growing pains and determining their severity. Senior managers need to be able to recognize such growing pains as symptoms of the need to make changes in their organizations. Chapter 5 also presents a method for self-assessment of the “growing pains” being experienced by a business as well as for interpreting the degree of “risk” of problems (including ultimate failure) facing the company. A database is provided for the reader's comparison of their company's growing pains scores with that of other businesses.
Taken together, the ideas in Chapters 1 through 5 provide a conceptual map of the “tasks” that must be focused upon to build a sustainably successful business. Part One also provides a guide for analyzing and planning the transitions that must be made in moving a company from one developmental stage to the next.
Chapter 1Transitions Required to Build Sustainably Successful Organizations®
It is well established that approximately 50% of all new ventures will fail within five years. For every Southwest Airlines that succeeds, there is a People Express that goes bankrupt. For every Facebook, there is a Myspace that was once popular, but that is now an afterthought. For every Starbucks, there is a Diedrich Coffee that failed. For every Dell, there is an Osborne Computer (who very few people even remember—even though it reached $100 million in sales revenue in three years before going bankrupt, and was a leader in personal computers prior to the founding of Dell).
It is a great achievement to create a successful start-up, given their 50% failure rate. It is an even greater challenge to create a company that is sustainably successful over “the long run.” As we view it, the long run relates to sustainable success over several decades. At a minimum, it involves success over at least two generations of company leaders. In sports such as baseball, basketball, or football, it is possible to have sustained success with a specific group of players and a single coach; but true “sustainable success over the long run” exists only when leadership has passed from generation to generation with sustained success. One company that has achieved this is General Electric (GE). Founded in 1878, GE continues to be a global leader. Another is Heineken, the Netherlands-based beer company. Heineken was founded in 1864, and also continues to be a world leader in its space. A third is Toyota. Toyota, focused on the production of automobiles, was founded in 1933 as a department of Toyoda Automatic Loom Works, which itself traces its history to 1926. Toyota Motors was created as a spinoff from the parent company as Toyota Motor Company in 1937.
Sustainable success for a long period is very challenging, but possible, as shown by GE, Heineken, and Toyota. It is difficult even over a relatively shorter period such as 15 years. A comparison of companies listed on the Nasdaq stock exchange from 2000 to 2015 shows that there were significant changes in the composition of the top listed companies by “market cap” (market capitalization, the standard measure of a public company's value).1 Only three companies were in the top 10 on both dates: Microsoft, Intel, and Cisco. Several companies that were listed as among the top 10 in 2000 were no longer on the list in 2015, including Dell, Sun Microsystems (purchased by Oracle), JDS Uniphase, and Yahoo!.
Organizational Success, Decline, and Failure
Why are some companies able to continue to manage growth successfully over the longer term (at least 10 years) while others are not? Why are some company founders and leaders like Howard Schultz at Starbucks and Richard Branson of Virgin Group able to continue to grow with their companies, while other founders and leaders such as Donald Burr, who founded People Express (and who had an MBA from Harvard!) or Adam Osborne, who founded Osborne Computer, fail to make the required transitions as their businesses increase in size and complexity? What do successful companies and their leaders do differently compared with those that are less successful or even those that have failed? Is it simply chance or something that can be learned and managed?
Through rigorous research and analysis of organizations and their leaders over the past four decades,2 we have answered these questions and have developed practical tools that can help leaders of companies at all sizes increase their probability of long-term success. Why, for example, did Starbucks Coffee (originally founded as a local roaster with stores in 1971 and later reconceived in 1986–1987 as a “specialty retail/café” hybrid) become a global brand and industry leader,3 while Diedrich Coffee (which was similarly founded in 1972 and later redefined like Starbucks as a cafe in 1983) has been broken into pieces (company stores and franchised stores) and sold to competitors including Starbucks?4 How did Starbucks become the global leader in its space even though other companies like Coffee Bean and Tea Leaf (founded 1963) and Peet's (founded 1966) existed before Starbucks was ever purchased and refocused? As we will see in the next chapter, Starbucks' success is not an accident, nor is it unique. The keys to Starbucks' success were some critical transitions made both by its founder and CEO, Howard Schultz, and by the organization itself. Starbucks developed and followed a plan, not just a classic strategic plan but one that focused upon organizational development as well.
We shall describe this in some detail and distill the lessons for other company founders and their organizations.
Lessons like these are not only important for the founders of entrepreneurial companies like Howard Schultz, Steve Jobs (Apple Computer), or John Paul DeJoria (Paul Mitchell hair products and Patron Spirits Company), they are important for venture capital and private equity investors, boards of directors, banks that lend to such companies, managers of such companies, and students of management who aspire to either start their own business or work in a company going through such transitions over time. They are also of importance to society as a whole. Companies create jobs. Successful companies create more and more jobs, while failing companies destroy jobs. For example, successful companies such as Starbucks, Google, and Apple are job-creating machines! However, when companies like Borders (retailer of books), Woolworths (specialty department store), People Express (airline) and Osborne Computer (computer manufacturer) fail, they destroy jobs and people's livelihood, and negatively impact lives.
Government programs to stimulate companies' growth have been established in countries such as Canada and Poland for just this reason. Canada created the Build in Canada Innovation Program (BCIP) to kick-start businesses and get their innovative products from the lab to the marketplace. The government of Poland has created the Polish Agency for Enterprise Development. It is a tragedy when a company fails after a promising entrepreneurial start because the entrepreneurs do not understand how to build the organization.
Building Sustainably Successful Organizations®
The purpose of our research and really, what we might describe as our life's work, is to help entrepreneurs and others understand what must be done to build sustainably successful organizations®. We have been helping organizational leaders plan for and implement the transitions required to promote long-term success for almost 40 years. This book will summarize our methods, tools, and insights in a practical and systematic way.
Two Types of Transitions Required for Sustainable Success
Our research and experience have shown that there are two different but related types of transitions that must be made at different stages of growth in order for an organization to continue to flourish and grow successfully.
One type of transition concerns the founder or ultimate leader of an organization—which is typically the chief executive officer or CEO. This person must make a variety of personal and professional changes or transitions as their company grows. These include understanding and embracing the changes in the CEO role that need to occur to effectively manage an increasingly larger and more complex organization, developing new skills, adopting a new mindset (that supports, among other things, having increasingly less direct control over results), and changing one's managerial style. For simplicity, we term these the “personal transitions.”
The second type of transition relates to the organization's strategic and “architectural design.” These organizational development transitions can include changes in the organization's systems, processes, or structure, as well as changes to what the company actually does (who its target customers are and what it offers them).
If these two types of transitions are not made effectively, they will have a significant impact on organizational effectiveness, efficiency, and success. In fact, the inability to make effective and appropriate personal and organizational transitions is a key underlying reason why organizations experience problems and, in some cases, fail. This chapter will focus on both types of transitions.
The Personal Transitions Facing Founders and CEOs
As organizations grow and change, those in management and leadership roles also need to grow—in their skills and capabilities—and change how they approach their roles. For example, the CEO of a start-up needs to spend his or her time very differently from that of a $1 billion enterprise. We will discuss tools and techniques for making these changes in Chapter 9. In this chapter, we focus on the very specific challenges facing the founder or the entrepreneur as his or her business grows.
Unlike the CEOs of large, Fortune 500–type organizations, who are typically promoted through the ranks over a period of many years, the CEO of an entrepreneurial company is typically someone who either was the founder of a company, was part of a founding group, or is the spouse or child of the founder. Examples are legion and include not only those cited above but also some other very familiar names such as Mark Zuckerberg (Facebook), Larry Ellison (Oracle), Jack Ma (Alibaba, China), Anita Roddick (The Body Shop), Martha Stewart (Martha Stewart), as well as some currently less familiar but equally significant names, including Ren Zhengfei (Huawei), Li Ning (Li-Ning, China), Isaac Larian (MGA Entertainment), and Yerkin Tatishev (Kusto Holdings, Singapore). To understand transitions that founders/entrepreneurs must make as their companies grow, it is useful to first consider who they are as people and how they got to be CEOs.
Characteristics of Entrepreneurs
Although there are no precise demographic and psychological profiles available, our experience has shown that CEOs of entrepreneurial companies tend to have certain things in common. About 90% of these people have one of three types of background: (1) a marketing background, (2) a background in some technical area, such as engineering or computers, or (3) a background in a particular industry. For example, an individual may have sold computer-related devices for a large company before deciding to start his or her own company focused on developing and producing similar products. Alternatively, a person may have been an engineer or other technical specialist and become skilled at product development before deciding to establish a new business. Finally, someone may have worked in a particular industry such as travel, executive search, construction, real estate, garment manufacturing, or a variety of technology areas including software development, computer chips, or telecommunications.
Most CEOs of entrepreneurial companies are enthusiastic about markets and products but are not very interested in management or the “nuts and bolts” of day-to-day operations. Many of them find accounting boring. They have no more interest in their own accounting system than the typical homeowner has in the household's plumbing: They want it to work, but they do not care to understand how it works. Many tend to look at financial statements only to determine “the bottom line.”
Entrepreneurs are typically above average in intelligence, willing to take risks, uncomfortable in environments in which they are told what to do, want things done quickly, and are fond of seeing things done their way. Most, but not all, do not have good listening skills and many seem to have ADD (attention deficit disorder). They are like butterflies flitting from one thing to the next, or like Tennessee Williams's proverbial “cat on a hot tin roof.”5 Anyone who has spent serious time with many entrepreneurs will recognize the behavior that includes an inability to focus on one thing for very long, an ingrained impatience, and an expectation of virtually instant results. One colleague estimates that 90% of entrepreneurs have the ADD syndrome.
Most of these CEOs have made open-ended commitments to their business, which means that business does not merely consume a great deal of their life; in most instances, their business is their life. The pejorative term workaholic, however, would be a misleading description of such people; rather, they view the business as a very complex, infinitely interesting game. It is a source of profound personal pleasure.
Entrepreneurs are accustomed to being the dominant person in business situations. Above all, entrepreneurs possess a strong desire to be independent of others' ability to control their behavior. They like to feel in control. The typical CEO of an entrepreneurial company either consciously or unconsciously values control both as an end in itself and as a means to other ends. This personal preference has most likely been reinforced in a variety of ways for a relatively long time.
The Impact of the Need for Control on Continued Successful Growth
In the early stages of organizational growth, the typical attributes of an entrepreneurial CEO are beneficial and necessary for the company. Fledgling enterprises need strong direction and open-ended commitment to make everything work properly. At this time, a compulsive CEO who knows about everything that is going on and who pays attention to the smallest detail will have a tremendous positive impact on operations.
As the organization increases in size, however, an entrepreneurial CEO's typical way of doing things (and personality) can begin to adversely affect success. Specifically, everyone in the company (including the CEO) may have become used to the idea that almost every issue—whether major or not—will be brought to the CEO's attention for decision or final approval. In other words, the CEO may have become an unwitting bottleneck in the organization. More insidiously, if the CEO has not been extremely careful, an entire organization inadvertently may have been built on people weaker than the CEO. Even though the business has grown in size and added many managers and professional specialists, the CEO may remain the most skilled person in the company in most, if not all, areas. This means that the CEO has not been able to increase the company's capabilities beyond his or her own admittedly considerable personal skills. Such a situation puts limits on the organization's capacity to grow and develop.
The CEO's desire for personal control over everything done in the organization, which was a considerable strength during the start-up stage, thus becomes a limitation or bind on the company during later stages of growth. The CEO's need to control everything can lead to an unintended dysfunctional consequence of slowing an organization down to a bureaucratic pace.
Also, some CEOs consciously want to retain control at all costs and therefore do not want to hire people who are better than they are at any particular task. Others are afraid that if they hire someone to perform a task that they cannot do themselves, they will become too dependent on that person. For example, the CEO of one service firm with $5 million in annual revenues was doing most of the company's computer programming work himself. When asked why he was spending his time in this way, he replied, “If I had someone else do it, I would be vulnerable if he left me.”
Some CEOs are able to recognize their own limitations relative to their companies' changing needs. As one founder and CEO of an entrepreneurial company aptly stated, “I'm an entrepreneur. I'm very good at controlling things—making a decision and seeing it accomplished by sheer willpower alone, if necessary. But our company has grown beyond that style. I'm not uncomfortable with the company, but I'm not as effective.” Such CEOs realize that, for the good of the enterprise, they need to make the transition from a manager who is used to controlling everything and being the center of all that happens to someone who is still important but is not an omnipresent, omnipotent figure.
Even when the need for it is recognized, however, this type of change can be stressful. For some CEOs, whose identities are closely bound up with their companies, it represents a threat—a potential loss of perceived potency. Many CEOs are simply not able to give up control to any significant degree and end up strangling their organizations.
Some CEOs go through the motions of giving up some degree of control because intellectually they know that this is essential; but emotionally they cannot really bring themselves to do it. For example, one entrepreneur built an organization that achieved a billion dollars in revenues in less than one decade. Recognizing that the size of the enterprise now made it impossible for him to manage in the old way, he brought in two heavyweights—experienced professional managers whom he had to pay high salaries to attract. One was a marketing manager, and the other was a finance-oriented manager who would be responsible for day-to-day operations. The entrepreneur himself moved up to chairperson. Unfortunately, he then proceeded to turn the professional managers into managerial eunuchs. When the organization began to do poorly, he announced that he had experimented with professional managers but, reluctantly, he had to reassume personal control himself. Similarly, this was the root cause of Steve Jobs' battles with John Sculley during his first term at Apple (which ended in 1985). Steve Jobs was, in common parlance, a control freak.
