5 obstacles to business growth and how to overcome them

Written by Keith Errington  |  4, February, 2022  |  0 Comments

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

In 1972, 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 stage triggering the jump into the next.

Greners-Model-of-Organisational-Growth

Here we are, five decades 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. Therefore, any company is forced 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 management complexity become magnified the larger a company becomes.

These two dimensions – the age and the size of a company- make up the Greiner Model of Growth axis.

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 company's growth, with one of the biggest influences being the industry's growth rate – it is much easier to grow your company at a fast pace in a fast-growing sector.

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

Faster growing companies are likely to experience shorter phases, with the turbulent transitions occurring more frequently and even in rapid succession. In contrast, slower-growing companies will share more extended periods of calm between crises.

These issues around rapid growth suggest that it is a perfectly valid strategy to go for slower, more controllable growth or even to keep a company small to keep growing pains to a minimum and provide a more stable working environment. However, the downside to this approach is that as markets, customers, and environments are constantly changing, this strategy runs the risk of failing to produce a sufficient return on investment or gradually becoming less effective at sustaining the business.

The Challenge

Therefore, the challenge for management is to identify when current practices need to change and how they need to change. The earlier they recognise an impending problem, the better they handle it, the less disruptive the crisis. This is why the model is so helpful – 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 growth crisis will be related to the next crisis. Every solution eventually becomes the root of the following problem.

So let's look at the five phases of the model and what they mean for healthy and sustainable growth.

First Phase – Creativity

This is the company's birth, where the founders' energies are going into creating a product or service and finding a market. Internal communication is frequent and informal. Company employees are probably few and typically work long hours.

Management tends to be highly reactive – responding quickly to the market's needs. This entrepreneurial style of management is essential to establishing the company.

As the company grows, it evolves into a different entity. One with increasingly more staff to manage and one that now requires systems to manage the production of the large number of products the company has sold or the services it provides and provide customer support to many clients that the company has acquired.

(Customer support is always easy at the beginning when a company has few clients – but once a company starts growing, it will need heavy investment, or the quality of that support will nosedive – along with the reputation of the business and its sales levels.)

The company needs accounting systems, financial management, human resources, and probably further capital. The creative founders might find themselves somewhat 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.

The company now needs a business manager rather than a creator/founder who can manage all aspects of the everyday business and work together to take the next growth step. Whether an existing founder can move into the role or you recruit for the position, growth will be stalled without this vital element of the business in place.

Second Phase – Direction

In this phase, companywide structures are put in place.

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

All of these developments help to create an operating company – one that functions effectively through a top-down, systems-led management style.

However, as the company grows, this rigid, top-down approach and its accompanying bureaucracy become increasingly inappropriate.

Lower-level managers and employees find their work is too regulated and may feel that they know how to run their area better than those above them.

This leads to the second crisis – a crisis of autonomy. At this point, circumstances require more delegation. Still, senior managers may find it difficult to relinquish responsibility to their subordinates – which in turn have had little experience in managing and making decisions. It may be necessary to recruit experienced managers from outside the business – which may cause resentment amongst employees who have been there since the beginning.

It is pretty common amongst small businesses for founders and creators to feel like they will lose control of their "baby" and resist even the idea of delegation.

This is the point at which many companies may 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 controlling every aspect of the business.

Directors of the company look at more strategic issues and long-term planning and communicate less frequently with staff.

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

As these delegated managers take more independent decisions, the next crisis emerges – a crisis of control. Top management realises 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 company's day-to-day business – 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 growth phase is coordination – introducing systems that give guidance and support rather than control. 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.

This phase is possibly the most difficult to manage and may well be a make or break for the future of the business. Introducing the right culture, motivation, and support systems is a long-term, highly complex, nuanced, sensitive process. If successful, it will eventually create a company where all are working together and where employees and management will go the extra mile. 

Within this business, employees are highly motivated, focussed and inspired. Perhaps more importantly than this, they are supported and encouraged. (Employee turnover, a vital key performance indicator during this phase and beyond, should be low.) This results in employees with excellent job satisfaction who are happy in their roles.

The company is an organisation of considerable size, and systems and programmes begin to proliferate at this stage. However, 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 focuses on evolving the company and its personnel to work collaboratively, reducing the required systems and increasing response speed to external factors.

Often, a matrix-like management structure is in place, allowing 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 are encouraged throughout the organisation.

(All of this is a natural development of introducing a companywide culture and employee support systems that should have started during the previous phase.)

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 revitalise themselves."

Some forward-thinking companies are already pushing into a sixth phase, exploring new ways of working with employees, new ways of working with clients, and even new ways of working with competitors.

What can we learn?

It's helpful to recognise where your company is in this model to prepare yourself for the future.

Your company's history of change is essential – only by looking at the management history of your company can you tell where you are, what issues you are likely to be facing and where the company might be going next.

After solving one set of issues, it is tempting to try more of the same when faced with another set of problems. But what this model teaches us is this approach is destined to fail. What you tried before will not work the next time. Each crisis requires a different solution. So understanding what you have done in the past will help you plot where you are on the model and guide you to select the right strategy in the future.

Lastly, companies need to realise that any solution will likely 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 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 SMEs deal with phases 1-3 to a lesser or greater extent. And although it may be challenging 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. Still, 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.