5 obstacles to business growth and how to overcome them

Written by Keith Errington  |  26, June, 2018  |  0 Comments  Subscribe

shutterstock_114318994

Despite the huge variation in companies, their people, products and services, almost all go through five phases of growth, facing four crises along the way, as depicted in a classic model – the Greiner Model of Growth.

It was back in 1972 that Larry Greiner of the Harvard Business School published a paper; ‘Evolution and Revolution as Organisations Grow’. The original model proposed five phases of growth with a crisis at the end of each phase triggering the jump into the next.

 

equinet_media_homepage

 

Here we are, 46 years later, and the model is still relevant to any company planning for high growth. Understanding the phases and recognising the challenges a company faces at the end of each one, will enable your company to keep on growing.

The dimensions of change

One of the key lessons of the model is that the kind of problems a growing company faces, will change over time. Any company is therefore forced to change to adapt to new circumstances and issues, or it will fail to maintain growth, or worse, fail altogether. This is a particular problem as time goes on and managers and employees become set in their ways, making innovation and change to meet circumstances more difficult.

As the size of the company grows, so too will its management issues. Problems in communication, coordination, control, and complexity of management all become magnified the larger a company becomes.

So it is these two dimensions – the age of a company, and the size of a company, that make up the axis of the Greiner Model of Growth model.

Speed of growth

Another lesson from the model is that growth is far from linear, and the steps between phases do not happen at regular intervals. Many factors affect the speed of a companies growth, with one of the biggest influences being the growth rate of the industry they are in – it is much easier to grow your company at a fast rate in a fast-growing industry.

Phases can be short or long, and typically take the form of a smooth, quiet period – where management practices and strategies are fairly constant with seemingly little effort needed to keep the company on course for growth – followed by a period of upheaval, where radical change is necessary to keep growing or even to stay in business.

Faster growing companies are likely to experience much shorter phases with the troubling transitions occurring more frequently and even in rapid succession, whereas slower growing companies will experience longer periods of calm.

In fact it is a perfectly valid strategy to go for slower, more controllable growth or even to keep a company small, so as to keep growing pains to a minimum and provide a more stable working environment. Although, as markets, customers and environments are always changing, this strategy runs the risk of becoming obsolete or failing to produce sufficient return on investment.

The Challenge

The challenge for management is to identify when current practices need to change, and how they need to change. The earlier they recognise the problem and the better they handle it, the less disruptive the crisis will be. This is why the model is so useful – it predicts the next challenge and even suggests ways to tackle it.

One thing leads to another

Another interesting aspect of the model is that the solution to each crisis of growth will be related to the next crisis. So each solution eventually becomes the root of the next problem.

First Phase – Creativity

This is the birth of the company, where the founders energies are going into creating a product or service and a market. Internal communication is frequent and informal. Company employees are typically working long hours. Management tends to be highly reactive – responding quickly to the needs of the market. This entrepreneurial style of management is essential to establishing the company.

However, as the company grows, it turns into a different entity – one with more staff to manage and one that requires systems to produce the large number of products the company has sold or service the large number of clients that the company has acquired.

The company needs accounting systems, financial management, and most likely, further capital at this point. The creative founders might find themselves reluctantly having to spend more time on management and administrative tasks. Conflicts inevitably occur and all this builds to the first crisis – a crisis of leadership.

To take the next growth step a company now needs a business manager rather than a creator/founder – someone who can manage all aspects of the everyday business and get the whole company working together.

Second Phase – Direction

In this phase, structures are put in place.

Departments are created along with the associated systems for accounting, production, sales and marketing. Standards are introduced and jobs ratified. The organisation becomes more hierarchical and communication more formal.

All of these helps to create a working company – one that functions well and has a top-down, systems-led, management style.

However, as the company continues to grow, this more rigid, top-down approach becomes increasingly inappropriate.

Lower-level managers and employees find their work is more regulated and feel that they know better how to manage their area.

This leads to the second crisis – a crisis of autonomy. The circumstances require more delegation, but senior managers may find it difficult to relinquish responsibility to their subordinates – who in turn have had little experience in managing and making decisions.

This is the point at which many companies can stagnate, with talented staff leaving for better, more exciting opportunities elsewhere.

Third Phase – Delegation

If a company successfully de-centralises then it moves into the next phase. Greater responsibility is given to team leaders. Senior managers tend to manage by exception – looking at the areas or details where things are not going well, rather than managing every aspect of the business.

Management looks at more strategic issues and long term planning, and communicates less frequently with staff.

As individual team managers are motivated and independent – growth is created by a more rapid response to the market and by more closely meeting the needs of customers.

As these delegated managers take more independent decisions the next crisis emerges – a crisis of control. Top management begins to realise that the company is evolving of its own accord in many different directions, losing its focus and diversifying without direction. Some companies attempt to deal with this by returning to the second phase – getting senior managers more involved in controlling the day to day business of the company – but this will fail due to the size and scope of the company at this point.

Fourth Phase – Coordination

The key to moving into the next phase of growth is coordination – introducing systems that give guidance and support rather than control absolutely. Some technical functions may be centralised but daily operating procedures will remain local.

Planning procedures and strategic direction are introduced along with cultural changes – these bring the company together, inspire staff and ensure all are working towards a common goal.

By this stage the company is an organisation of considerable size and systems and programmes begin to proliferate. Despite the best intentions, there is a crisis of red tape approaching. Local managers begin to resent control from remote superiors unfamiliar with their situation and circumstances. Staff see their line managers as uninformed and uncooperative. Bureaucracy reaches the point where it takes over from problem solving. The organisation is now too large to be governed by formal programmes and rigid systems.

Fifth Phase – Collaboration

This phase really focuses on evolving the company and its personnel to work collaboratively – reducing the systems required and increasing its speed of response to external factors.

Often a matrix like management structure is in place allowing for the formation of cross-disciplinary teams to tackle specific projects. Control systems are simplified and there is greater reliance on individual self discipline and social control.

Training programmes are in place to improve behavioural skills, teamwork and conflict resolution. Real-time data is increasingly used to inform decisions. Experimentation and innovation is encouraged throughout the organisation.

The next crisis and the sixth phase?

Many large global companies are well into phase five – so the question could be asked what’s next? What new crisis might they face and what would be the way forward? In 1998 Greiner revisited his model and suggested that the next crisis would “centre around the psychological saturation of employees who grow emotionally and physically exhausted from the intensity of teamwork and the heavy pressure for innovative solutions.“  He has some interesting suggestions for how this might be dealt with – citing real examples from innovative companies that have programmes to allow employees to “periodically rest, reflect, and revitalize themselves.”

So what can we learn?

It’s useful to recognise where your company is in this model, so that you can prepare yourself for the future.

The company’s history of change is important – only by looking at the management history of the company can you tell where they are, what issues they are likely to be facing and where they might be going next.

What you tried before will not work the next time. It is tempting after solving one set of issues, to try more of the same when faced with another set of issues. But what this model teaches us is this approach is destined to fail. Each crisis requires a different solution.

Lastly, companies need to realise that any solution is likely to set up new problems further down the line. As Greiner says: “An awareness of this effect should help managers evaluate company problems with a historical understanding instead of pinning the blame on a current development. Better yet, it should place managers in a position to predict problems and thereby to prepare solutions and coping strategies before a revolution gets out of hand.”

Most small to medium companies are dealing with phases 1-3 to a lesser or greater extent, and although it may be difficult to spend time analysing where they are in this model – the benefits to tackling the issues early and smoothly are huge – allowing for continued rapid growth, rather than stumbling and potentially failing or losing momentum.

Like any other business model – it might not always fit your experience or your particular situation, but the reason it has stood the test of time is that it has proved incredibly useful to a vast range of businesses aiming for high growth.

What is Inbound Marketing

Topics: Business Growth

Keith Errington

Written by Keith Errington

Keith has a unique mix of talents and experience in marketing and communications. He writes regularly for the Equinet blog on marketing, social media, and strategy.