I’m often asked by business owners how they can grow their business and I always advise them that the first step, before I can answer that question is to understand just what phase they are in their business growth.
I almost always go back to a model I have used many times, and some of you will know. Greiner’s growth model. It is great if you use it to identify the root causes of the problems the business is going through. Not surprisingly I use the term ‘problems’ because that is usually when a company reaches out to ask for help. I explain that each phase of growth is characterised by a period of evolution, as the business grows and learns and towards the end of each phase there is almost always a period of turmoil and disagreement amongst the shareholders and the executive team which often spills down into the body of the business with lack of focus and direction being a couple of the accusations staff make of their senior team. How you handle this period dictates if you will move on to your next phase of growth.
Greiner identified five phases of growth originally and then with a later version of his model he introduced a sixth, around alliances.
Now, as with all things ‘management’ the tool is useful, but it is not a panacea. It implies that growth inside a phase is linear, and clearly it is not for most companies. It can be accused of being over simple, and the crises that it lists are not suffered by all companies in each phase of growth.
But it does have many advantages, which is why I use it with management teams. It is simple to understand, and it reinforces with the management team that change is needed to achieve growth. It clearly identifies the challenges faced by most businesses and in that respect, it allows a business to plan and anticipate what will happen in its lifetime. As I said right at the start it helps the business identify which phase of growth it is in and to understand the issues it is going through. Finally, it provides an excellent basis for discussion amongst the management team.
In this article I will identify and classify the phases that businesses go through and in a follow up article I will highlight the crises that the business encounters and suggest some remedies.
So just what are the six phases of growth and how are they characterised?
Phase 1 is termed ‘Creativity’. As it implies this is when the business starts, and the emphasis is firmly on creating a product and a market. The founders are solely in charge, and they are laser focussed on creating the product and selling it. Communications between the people inside the business are informal, no real job titles exist, and everybody is speaking to each other frequently. Everybody is working hard and taking little from the business in terms of salaries.
Phase 2 is termed ‘Direction’. At this point the organisation is taking on a more formal organisational structure with people having defined responsibilities. There is more emphasis being given to accounting and capital management. The business becomes more hierichail with more formal communications taking place and very often management starts to become more top-down in its nature.
Phase 3 is termed ‘Delegation’. The business has evolved by this time into a more decentralised organisation with functional heads. Operations and market-level responsibility are the norm with profit centres being created and financial incentives to operate these well are introduced. Decision making is less immediate and are based upon periodic reviews and formal meetings. The top-management of the business only acts by exception when the business reaches this phase of growth. Corporate communications are rare and tend to be around strategy or significant events and are supplemented by ‘field-visits’.
Phase 4 ‘Co-ordination’ happens when the crisis caused by the previous phase is managed. By this time typically local autonomous units have been merged into product groups, there has been a formal review of the business planning processes. Support functions inside the business are being centralised and co-ordinated efforts inside the business are being managed by senior corporate staff, as are capital investment decisions. Return on investment typically becomes a key measure and this is carried out at a product group level. Staff are motivated at the lowest level by some form of direct profit-sharing using bonus systems triggered by open and well documented measures of profitability and growth.
Phase 5 ‘Collaboration’ becomes essential if the business is going to grow further. Typically, cross functional teams are used, and these teams are employed to help with problem solving. Support staff are decentralised to consult and work with specific task teams and a matrix organisational structure is typically put in place. Control mechanisms are simplified, and more emphasis is placed on team level education and training, focussing on skills to introduce greater emotional intelligence inside the business. Information systems are upgraded to provide real-time intelligence and team incentives rather than just individual rewards are put in place.
Phase 6 ‘Alliances’. At this point businesses attempt to grow by making sales and product or R&D alliances outside of their own company. This can lead to mergers, acquisitions, and the management of the network of companies that make up your business.
In my next article I will highlight the things to look for inside your business that help you identify which of these six phases of growth you are going through. I will also suggest changes based upon Greiner’s model you can make that lead to the resolution of each set of crises and the movement on to the next phase of growth.
If you can’t wait, then you can read the revised paper that appeared in the Harvard Business Review.