Category: Organizational

Congratulations! You conceived of a business, started it and grew it. The business is continuing to grow in size and complexity.

Question: Are you still the appropriate person to lead it?

Leadership skills can grow with a business, or not, and in dealing with growing companies, this is one of the most personally difficult challenges that I help clients face. While this topic is important, broad and deep, I will point out a few aspects of leadership that repeatedly come up with growing middle-market businesses.

The tendency is for a leader to assume that he or she can continue to lead a growing company, even though the skills required might be very different from those required to start or initially grow the business. In trying to summarize some of the behavioral factors that relate to being an effective leader, I came across a very insightful, recent article that presents four factors in effective leadership for companies that are growing and becoming more complex:

• Solving problems effectively. The process that precedes decision making is problem solving, which is when information is gathered, analyzed and considered. This is difficult to get right, as companies grow and the scope of responsibilities of managers narrows, yet leaders’ scopes remain broad. Resisting being over-influenced by a manager with a narrower scope by putting decision making into a larger company context requires discipline.
• Operating with a strong orientation toward attaining results. Leadership is not only about developing and communicating a vision and setting objectives, but also following through to achieve results. Leaders with a strong orientation toward attaining results tend to emphasize the importance of efficiency and productivity and to prioritize the highest-value work. Simply put, if an approach does not affect results over the short or long term, get it off the leader’s agenda.
• Seeking different perspectives. This trait is conspicuous in managers who monitor trends affecting organizations, grasp changes in the environment, encourage employees to contribute ideas that could improve performance, accurately differentiate between important and unimportant issues and give the appropriate weight to stakeholders’ concerns. Leaders who do well on this dimension typically base their decisions on sound analysis and avoid the many biases to which decision-making is prone.
• Supporting others. Leaders who are supportive understand, even sense, how colleagues feel. By showing authenticity and a sincere interest in those around them, they build trust and inspire and help colleagues to overcome challenges. They intervene in the group’s work not to meddle but to promote organizational efficiency, allay unwarranted fears about external threats and prevent the energy of employees from dissipating into internal conflict.

 

This is not to say that different business situations don’t require different styles of leadership, but core leadership behavior that will be relevant for most growing companies include the four factors listed above. These four are not the be-all and end-all, but if you want to cultivate leadership skills, these four are a good place to start.

It May Not Be You!

More than once, I have hinted to a company that its leaders might be ill-suited to lead in the evolving organization. I then delicately suggested that different leadership would be needed for the greater good of the company. Sometimes, the hint was taken; sometimes, it was not taken until I very explicitly uttered these words or a variation thereof: “Leadership is required but is lacking – and you suck at it.” That did the job of impressing upon clients that they were the problem. There is nothing to be embarrassed or ashamed about; not everyone is good at everything,  and very few people are good at leading an evolving organization. Once they accept that they are inadequate to lead, leaders may need to get some training or must step aside in favor of someone with the temperament and skills to lead the organization.

Besides the direct benefits of improved leadership, a secondary benefit is that this change would allow the former leaders to focus on areas where they are skilled and experienced and their value to the organization is greatest. Leadership training generally has mixed results unless it is taken seriously. My experience is that leaders almost always knew this already deep down, but needed someone to be blunt to consider making a change.

Some content for this article was taken from “Decoding Leadership: What Really Matters,” McKinsey Quarterly, January 2015.

 

 

One of the most vexing challenges for growing companies is how to deal with people – both current and new employees. While some of the former have the skills and are ready to increase or change their scope of responsibilities, others may resist. Reassigning existing employees who are not up to the task is only part of the problem. Another challenge is this: setting expectations for new employees.

Let’s say that the manager determines that a new employee needs to be hired. The relationship of that new employee to the company might need to have a different understanding than the employee-employer relationship which has historically been in in place. This is especially true when hiring young employees who have different expectations of what the employer-employee relationship should be, as will be highlighted below.

In the books The Startup of You and The Alliance, Reid Hoffman, the founder of Linkedin, demonstrates clearly that while the actual relationship of employees to companies has changed dramatically, the legalistic and transactional nature of the relationship generally has not. Whether regarding the idea of lifetime employment, the expectation of moving up within a company (the corporate escalator) and providing training to the employee in exchange for loyalty, both employers and employees know full well that in the new economy, neither party is really that invested in the other – no matter what each says. Employers have short-term horizons that might mean dramatic and rapid changes to the current business, including altering the staff and eliminating positions. Knowing this, employees, if they know what is good for them, are in a constant “scouting mode,” seeking the next, better opportunity because they never feel secure. This is really a “lose-lose” situation..

So what should the relationship be between a no-longer paternalistic company and the employee, not wanting to make a full commitment for fear of being jilted down the road? In The Alliance, Hoffman and his co-author argue that the relationship should be similar to a “tour-of-duty”: a relatively short-term assignment that gets the employee to focus and support the company’s goals for a defined period of time, in exchange providing the employee with additional skills and experiences that make them more valuable at the company or with a new employer. It is also a way to build trust incrementally and bi-laterally so that the most valuable employees have a path to longer-term retention if they want to make a commitment to the company.

Implementing a tour-of-duty relationship requires moving past the lifetime employment expectation framework. For example, employers operating in the paternalistic mode once viewed job hopping as negative, demonstrating either a performance or commitment issues. Presently however, job hopping may signal something very positive – that the individual is constantly pursuing new challenges and could be a short-term asset, which might indeed grow into a longer term asset after their tour-of-duty is completed. Human resource departments need not have a largely obsolete discussion that uses terms like “team” and “family” when doing so is disingenuous.

 

 

Gathering information and making quick decisions are at the core of management. Entrepreneurial companies welcome new ideas. But as the companies grow, they may be less accepting of initiatives that challenge the status-quo thinking. Status-quo thinking, also called a “company culture,” can be harmful. That’s because it’s really “groupthink,” a barrier to new and better ideas.

Groupthink occurs when the desire for harmony or conformity in the group results in dysfunctional decision-making. Group members try to minimize conflict and reach consensus without critically evaluating alternative viewpoints. Indeed, they can actively suppress dissenting viewpoints and isolate themselves from outside influences.

Avoiding groupthink is especially critical during periods of growth, when parts of the company are evolving at different rates and when lost opportunities or missteps can be devastating.

A cautionary example comes from a source we in business wouldn’t expect: the U.S. national-security apparatus.

I have studied how national intelligence-gathering and military and security decision-making have evolved in the past 15 years. I came to understand that flaws in making rapid decisions are applicable to businesses that are growing and changing.

In his book The Head Game: High Efficiency Analytic Decision-making and the Art of Solving Complex Problems Quickly, ex-CIA official Philip Mudd discusses failures in the agency related to information-gathering and decision-making. He cites as an example the agency’s seeing fundraising as a pretty good indication of a terrorist group’s likelihood of carrying out future attacks. However, by focusing primarily on fundraising, the CIA ignored a more acute problem of fighters being recruited. Fundraising and recruitment were not closely related at all, he writes. Making poor assumptions or asking the wrong questions narrowed the agency’s understanding of a situation and left it unprepared to detect activity that indicated a terrorist attack being planned against a government target abroad – one that was carried out but could have been prevented.

When faced with an ocean of information or apparently conflicting data, he writes, several key questions need to be asked:

• What is the problem?
• What are the “drivers” − the important characteristics that define the problem?
• How will performance be measured?
• What data will be collected in relation to the defined problem?
• What important information is missing?

The last question is most important. It’s the one managers tend to ignore, but it’s crucial because 1) we tend to overestimate what we know and 2) we often weigh information based on “availability bias”, that is we tend to consider information we know and weight it heavily, as opposed to leaving room in the decision process for what we do not know. The notion of asking oneself what is not known about a problem can lead to a completely different decision-making path. This was articulated a decade ago by then-Secretary of Defense Donald Rumsfeld as “unknown unknowns,” which I believe poses the biggest challenge for decision makers in many company situations, including growth.

Mudd’s remedy is to bring in a fresh team of renegade thinkers (or a reputable consultant – hint, hint) who will purposefully challenge prevailing ideas. To get to “unknown unknowns” (assuming that they are knowable in principle, if not in practice), thinking needs to come from outside conventional boundaries. This means listening carefully to the outsiders’ questions and challenges, and probing their thoughts instead of defending one’s own point of view. I would go a step further and say that after bringing in fresh eyes, a company should prove the outsiders’ challenge to be correct, instead of attempting to refute it.

Admitting that your assumptions may not be appropriate – and especially saying, “I don’t know” – are first steps in correcting the decision-making process. I implemented this in the 1990s when I hired new staff. I told them, “I am the boss, but I am wrong at least half of the time – but I don’t know which half! It is your job to tell me when I am right and wrong.” I did that to prevent their descent into groupthink in which everyone becomes conditioned to think the same way and not let creative thinking influence group decision-making.

That approach didn’t always work, but it was a start. Would you like an outsider to help challenge what you assume to be true? If so, call me.

 

 

I like retelling the story of my conversation with the head of a marketing group for MCI, the long-distance telephone carrier. (Remember those?) Before embarking on a project, I asked to see an organizational chart. The response: “We have not updated it since the last reorganization.”

Undaunted, I asked for an old organizational chart. The person came clean, saying that the company did not have one because it was considered futile. She explained that competition with AT&T and Sprint involved almost-weekly promotions, requiring the marketing staff to reorganize that often to either respond to an attack or preemptively attack to capture market share. MCI, at that time, was an extreme, atypical case of being willing to organize to take advantage of a current or a future situation.

Generally, management, in its haste to grow, overlooks critical organizational and developmental challenges to growth, and instead anchors its thinking in the past business environment. Instead of asking what the organization should look like to accommodate impending growth, there is a bias to focus on where the organization has been and holding on to that.

That’s human nature. Psychologists have long stressed that current behavior is driven by past experience more than by what lies ahead. This gets some companies in trouble if they need to change to accommodate growth, but ignore it. Larry Grenier, Professor of Organizational Management at Harvard, in what has become the classic paradigm for organization development, identified generalized developmental phases through which companies tend to pass as they grow. Each development growth phase begins with a period of evolution, with steady growth and stability where the organization grows with only limited organizational change, and then moves to a revolutionary period of substantial organizational turmoil and re-adjustment. For example,

• In startup mode, a company’s founder singlehandedly makes every major decision, and is focused primarily on listening to the market and adjusting the offering – and, less so (and appropriately so), on operations. Beyond the initial startup phase, operations need to be more closely focused upon to generate profitable growth. Without reorganization of staff under a professional operations manager, steady state growth would not be able to be accomplished.
• Similarly, when the company becomes more complex it can outgrow the skills of a single operations manager who has broad general operations skills, but not necessarily depth of skill in some required areas. With growth, responsibility would need to be spread to department heads with deeper expertise in narrower functional areas, and they would need to operate more autonomously.

In my “Growth Readiness” seminars, I expand on this paradigm to include more phases of organizational development to accommodate growth. Readers will get a general sense of this idea from the graph below, which depicts a period of evolutionary growth (smooth upward sloping line), followed by a revolutionary change (jagged portion of the line), which then leads to another stage of stability, followed by another stage of change.

 

When an organization plans for growth, it needs to assess its current development stage and determine if it can grow incrementally (Evolution) as currently structured, or if profitable growth is impeded by the current structure and more fundamental changes are required. This is not to say that drastic organizational changes are required in all cases as a prerequisite for growth – but it might be, and leaders may have a bias against it and be reluctant to disrupt the status quo.

Returning to the lesson from my MCI experience, a willingness to reorganize, and especially to develop the organization, if necessary, is a critical attitude to possess – one that can enable profitable growth, even if it is unsettling in the short term.

(This analysis is primarily based on the article “Evolution and Revolution as Organizations Grow” by Larry Grenier, Harvard Business Review, May 1998)