What's Your Stage of Growth?

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Larry E. Greiner, a management and organization professor at the University of Southern California, suggested 5, and subsequently six phases of corporate growth…each with their own challenges and revolutions that shake up the status quo and ushered in the next stage. He also believed that many organizations stall because management is unable or unwilling to shift its organizational paradigm, or especially, because individuals at the top are reluctant to give up power.

Larry’s outline of how companies grow strikes remarkably close to home. Knowing where you stand can reap tremendous benefit in planning smooth transitions to your next phase of growth. Read on!

Phases of Growth:

Growth is determined by two concepts. Evolution (periods of growth where no major upheaval occurs in organizational practices) and Revolution (periods of substantial turmoil in organizational life). As a company progresses through developmental phases, each evolutionary period creates its own revolution. For instance, centralized practices eventually lead to demands for decentralization. Traditional management practices, which were appropriate for a smaller size and earlier time are brought under scrutiny by frustrated managers. During such periods of crisis, a number of companies fail – namely, those unable to abandon past practices and effect organization change. The critical task for management in each revolutionary period is to find a new set of organization practices that becomes the basis for managing the next phase.

There are five major phases of growth. Each evolutionary period is characterized by the dominant management style used to achieve growth, while each revolutionary period is characterized by the dominant management problem that must be solved before growth can continue.

Phase 1: Creativity…

In the birth stage of an organization, the emphasis is on creating both a product and a market. Here are the characteristics:

• The company’s founders are usually technically or entrepreneurially oriented, and they disdain management activities; their physical and mental energies are absorbed entirely in making and selling the product.
• Communication among employees is frequent and informal.
• Long hours of work are rewarded by modest salaries and the promise of ownership benefits.
• Control of activities comes from immediate marketplace feedback; the management acts as the customers react.
And the leadership crisis: As the company grows, larger production runs require knowledge about the efficiencies of manufacturing. Increased numbers of employees cannot be managed exclusively through informal communication; new employees are not motivated by an intense dedication to the product, service or organization. Additional capital must be secured, and new accounting procedures are needed for financial control. Thus, the founders find themselves burdened with unwanted management responsibilities. So they long for the “good old days” still trying to act as they did in the past. And the conflict between the harried leaders grows more intense.

At this point a crisis of leadership occurs. Who is to lead the company out of confusion? Quite obviously, a strong manager is needed who has the necessary knowledge and skill to introduce new business techniques. But that is easier said than done. The founders often hate to step aside even thought they are probably temperamentally unsuited to be managers. So here is the first critical developmental choice – to locate and install a strong business manager who is acceptable to the founders and who can pull the organization together.

Phase 2: Direction

Those companies that survive the first phase by installing a capable business manager usually embark on a period of sustained growth under able and directive leadership. Here are the characteristics:

• A functional organization structure is introduced to separate “manufacturing” from marketing activities, and job assignments become more specialized.
• Accounting systems for inventory and purchasing are introduced.
• Incentives, budgets and work standards are adopted.
• Communication becomes more formal and impersonal as a hierarchy of titles and positions builds.
• The new manager and his key supervisors take more of the responsibility for instituting direction, while lower-level supervisors are treated more as functional specialists than as autonomous decision-making managers.

…and the autonomy crisis: Although the new directive techniques channel employee energy more efficiently into growth, they eventually become more inappropriate for controlling a large more diverse and complex organization. Lower level employees find themselves restricted by cumbersome and centralized hierarchy. They have come to possess more direct knowledge about markets and the manufacturing process than do the leaders and thus feel torn between following procedure and taking initiative based on their now superior knowledge.

A crisis then develops from demands for greater autonomy on the part of these lower level managers. The solution adopted by most companies is to move towards greater delegation. It is difficult for top managers who were previously successful at being directive to give up responsibility. Moreover, lower-level managers are not accustomed to making decisions themselves. As a result, numerous companies flounder, adhering to centralized methods while lower-level employees grow more disenchanted and leave.

Phase 3: Delegation:

The next era of growth evolves from the successful application of a decentralized organization structure.

• Much greater responsibility is given to the managers of plants and market territories.
• Profit centers and bonuses are used to stimulate motivation.
• The top executives at headquarters restrain themselves to managing by exception, based on periodic reports from the field.
• Management often concentrates on making new acquisitions which can be lined up beside other decentralized units.
• Communication from the top is infrequent, usually by correspondence, telephone or brief notes to field locations. (Ed Note: These days it might be intranets.)
• The delegation stage proves useful for gaining expansion through heightened motivation at lower levels. Decentralized managers with greater authority and incentive are able to penetrate larger markets and niches, responding faster to customers and develop new products.

And the control crisis: A serious problem eventually evolves, however, as to executive sense that they are losing control over highly diversified field operation. Autonomous field managers prefer to run their own shows without coordinating plans, money, technology, and manpower with the rest of the organization. Freedom breeds a parochial attitude.

The phase 3 crisis is under way when top management seeks to regain control over the total company. Some top management attempt a return to centralized management, which usually fails because of the vast scope of the operations. Those companies that move ahead find a new solution in the use of special coordination techniques.

Phase 4: Coordination.

This phase is characterized by the use of formal systems for achieving greater coordination and by top executives taking responsibility for the initiation and administration of these new systems.

• Decentralized units are merged into product groups.
• Formal planning procedures are established and intensively reviewed.
• Numerous staff personnel are hired and located at headquarters to initiate company-wide programs of control and review for line managers.
• Capital expenditures are carefully weighed and parceled out across the organization.
• Each product group is treated as an investment center where return on invested capital is an important criterion used in allocating funds.
• Certain technical functions, such as data processing are centralized at headquarters, while daily operations remain decentralized.
• Stock options and company-wide profit sharing are used to encourage identity with the firm as a whole.

And the red-tape crisis:

A lack of confidence gradually builds between line and staff, and between headquarters and the field. The proliferation of systems and programs begins to exceed its utility; a red-tape crisis is created. Line managers, for example, increasingly resent heave staff direction from those who are not familiar with local conditions. Staff people, on the other hand, complain about uncooperative and uninformed line managers. Together, both groups criticize the bureaucratic paper system that has evolved. Procedures take precedence over problem solving, and innovation is dampened. The organization has become too large and complex to be managed through formal programs and rigid systems.

Phase 5: Collaboration.

This phase emphasizes strong interpersonal collaboration in an attempt to overcome the red-tape crisis. Phase 5 has greater spontaneity in management action thorugh teams and the skillful confrontation of interpersonal differences This phase builds around a more flexible and behavioral approach to management.

• Focus is solving problems through teams
• Teams are combined across functions for tasking activities.
• Headquarters staff experts are reduced in number, reassigned, and combined in interdisciplinary teams to consult with, not to direct, field units.
• A matrix-type structure is frequently used to assemble the right teams .
• Previous formal systems are simplified and combined into single multipurpose systems.
• Conferences of key managers are held frequently to focus on major problem issues
• Educational programs are utilized to train managers in behavioral skills for achieving better teamwork and conflict resolution.
• Real-time information systems are integrated into daily decision making.
• Experiments in new practices are encouraged throughout the organization.

6. The Extra-Organizational Solutions Phase. This phase which was added by Greiner laters, attempts to capture external opportunities via mergers, holdings or networking. (Editors note: This phase could be ended by a break-down between organizations, cultural or other).

So What’s The Point? What are the implications for us?

l. Know where you are in the development sequence.

Every organization and its component parts are at different stages of development. The task of top management is to be aware of these stages. They should be ready to work with the flow of the tide rather than against it.

2. Recognize the limited range of solutions.

Management must be prepared to dismantle currents structures. Top managers, realizing that their own managerial styles are no longer appropriate, may even have to take themselves out of the leadership positions. (Ed note: That’s Greiner the academic talking.

3. (Editors addition) Creation of a feedback loop is critical. It must be outside – in.

It is Lighthouse 360’s contention that top management can not determine their position accurately without outside – in feedback. There is a strong need for the enlightened organization to create checkpoints, to take a picture of one’s organization from time to time from an external perspective. It’s usually the case that the individual or organization when dealing with issues of perception is the last to know. Asking and receiving and acting on candid, third party feedback is the strongest predictor of success in moving from one phase to another along the growth continuum.

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