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Growing May Require Organizational Change

on Wednesday, 02.05.2016

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)