Insights for Scaling Companies
Lawrence E. Greiner’s seminal work has shown that, as companies evolve, they go through similar stages of development and predictable crisis. These stages need to be managed correctly for any company to continue growing.
In the first stage, a company enters a marked and start developing. Soon, an expanding headcount demands new processes to avoid chaos. At Crossmodalism (a community and events organization) the turning point came when it started running more than four parallel projects. It became necessary to create roles, define (and enforce) channels of communication, and adapt the decision-making process. At this stage, a new organization design saves a company from being overwhelmed in a constant flow of emails, endless meetings, and general lack of coordination.
If a company overcomes the first transition, it will experience a period of sustained growth. However, the expanding complexity of the operation eventually leads to the creation of too many rules, bureaucratic processes, and micromanagement.
If processes are not adapted quickly, a second crisis often happens when headcount reaches between 25 and 60 employees (as a ballpark). Employees often start feeling disengaged, management frustrated with the lack of responsiveness, and a zombiesque 9 to 5 routine can creep in some parts of the organization. If left unchecked, more agile and customer focus competitors can quickly drive them out of business.
To survive the second crisis, management must quickly change the structure, delegate and build processes that don’t require their direct involvement. Managers who used to lead by giving directions can find themselves holding back their companies. It is not uncommon for VCs or Investors to replace CEOs who fail to recognize and fix the problem.
The following stages are also marked by back and forths between new organization designs being implemented and, eventually, outlived.
The need to adapt the structure for the different stages and crisis can only be avoided by not growing (itself a risk). A poorly designed organization will finish projects over budget 22% more often and 25% later that an agile counterpart according to the Project Management Institute report (2015). Companies with a high ratio of engaged employees earn 147% more per share than its competitors according to Gallup global survey (2012). Yet, incautious CEOs and founders often use inappropriate off-the-shelf processes and end up spending too much time fire fighting.
Counterproductively, most founders have limited knowledge of organization design and have rarely seen firsthand how a high-performing company should operate in the later stages. Moreover, since industries focus in some aspects but not in others, founders can rarely excel across the board. Alan, a founder with a background in IT/engineering, was well prepared to design manufacturing processes but didn’t know how to add a human touch to reward and motivate employees. Sarah, a CEO founder with a background in the art world, had learned a process to encourage creativity and experimentation but didn’t know how to organize quality controls. Without having access to a wider frame of references, organization design is a daunting challenge.
Reading a range of case studies helps gain perspective. Spotify’s case is a well known starting point, and helps to gain some perspective. However, one must be wary of pre-made solutions. Several packages of organizational processes have appeared over the last few years, but they are far from perfect. Medium famously dropped Holacracy (one of the most well-known and extensively tested of this packages) after finding it ill-suited for its operation, so did Buffer. Pre-made solutions offer interesting ideas, but do not guarantee success and are not necessarily suited for individual cases.
As organizations grow, it is necessary to change the systems used to pass on key information, motivate members, and coordinate. In our experience, Greiner’s framework helps founders and CEOs to make sense of the situation, and the best way to find if a certain structure or process is right for your company, is to first understand the needs of your particular situation.
At Conductal, we invest in conversations and can help you figure out what sort of process would be right for you. We focus on increasing our client’s’ ability to design and redesign their own organization, lending a helping hand when needed. We facilitate a learning process and offer our experience and tools to help you find the best pieces of the puzzle, preempting crisis and increasing your capacity to thrive, scale, and innovate.
Director at Conductal
Co-Founder and Steering Group lead Crossmodalism
Associate Fellow at CenSes, Institute of Philosophy, University of London
Experience Designer in Residence, Crossmodal Research Laboratory, University of Oxford.