Structuring a Company for Sustained Growth

Why delve into the topic?

As a Product Manager and future entrepreneur I strive to gather enough knowledge build products and eventual companies that can pass the test of time, relevancy and product life cycles. Time and again it’s said that companies that can manage to keep innovating and reinventing themselves via the product or services they provide, business model or growth capabilities will truly be able to sustain a continuous growth cycle.

Current technology trends lead us to believe that a new breed of corporations is here to supplant the incumbents across a multitude of industries. This new breed of corporations are efficient, fast-moving and “innovative”. But the argument truly becomes, are these growth phases expected to plateau and once the new companies mature become slow moving again?

Corporate Empires

Traditionally, corporations have followed a top down power structure where an executive guides the goals and mission and then these are disseminated through middle managers and lower managers. Even though now public corporations have board of directors that oversee the overall direction, in this model the CEO wields paramount power in decision making.

In political jargon, we can consider these type of corporations to be sort of empires. An empire could be defined as a powerful and important enterprise with a very large scope or domain that is controlled by a single person or group of individuals.

While central functions offer efficiency they often lead to communication issues due to the many layers a directive goes through and builds up decision bottle necks.

The Rise of Corporate Federations

Increasingly organizational structures have started to evolve into what could be considered corporate federations and more decentralized structures. Even the most innovative companies have noticed that traditional corporate structures do not allow them to pursue alternative businesses. In a recent announcement it was decided that Google as we knew it would cease to exist. In its place a holding company Alphabet would become the parent company of a number of different efforts that span multiple industries.

Google’s revenue came from a single division primarily.

Its new distributed autonomous structure promotes accountability and autonomy in addition to enabling faster decisions and better communication.

A question still outstanding is how large should these distributed companies become and how often should they be overseen to weed out the unsuccessful elements. Also to be determined is when these sub-companies or devisions should become separate entities themselves given their growth.

What are other roadblocks for growth?

Overtime companies have to battle internal protectionism.

Getting acquainted with the fact that a new product can cannibalize existing revenue is typically a hard proposition. Given the short-term strategy perspective influenced by public markets, sometimes corporate strategy cannot be executed effectively.As organizations grow, its leadership is less likely to be rewarded for taking risks and cultures become risk averse to a fault. The combination of short-term economic gains and the natural tendency to protect businesses that have been successful in the past prevents companies from making truly strategic decisions.

An example of a company that failed to capitalize on new technology fearing that its core business at the time would suffer is Eastman Kodak. While the company essentially pioneered digital photography its protectionism towards the film business did not allow the company to transition earlier to digital photography and seriously affecting its core revenue driver. In contrast, a company like Apple was able to see the future past an existing core revenue segment at the time (the Ipod).

Bringing it a level down

How does this affect you if you are not the CEO or a director of the board?

Teams often encounter similar problems to those of “corporate empires”. Reducing barriers that cause communication issues and enabled nimble decision making should be emphasized.

Improving the overall team and company culture (way problems are solved) and defining clear roles and responsibilities allow entrusting team members with making consistent and reliable decisions.

Establishing decision frameworks early on that focus on measurable objectives that tied to the business are a vital first step to appropriately defining culture.

This post was influenced by http://exponent.fm/

This post was originally published at www.fernandez.io

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