This article was written by our late mentor, Larry Wilson, Founder of Wilson Learning. To learn more about how Larry inspired our business, read our article The Story Behind Above + Beyond.
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According to George Land, author of Breakpoint and Beyond: Mastering the Future Today, and a former colleague at Wilson Learning, every business grows in the same way. Understanding George’s growth model gives us an excellent foundation for a discussion of transformational change.
Using this model, you can quickly identify what stage of growth your company is in and where it’s headed. The model can apply to any change – in life or nature. By studying the predictable processes, a leader or a leadership team can begin to develop strategies to be ready for it.
George labeled the vertical axis of his graph Increasingly Complex Connections, which is how he describes growth – from a single cell dividing into two; to a company growing in customers, locations, and products; to something like the Internet, which was anybody’s guess as to how much impact it would have on the world. The bottom line is that any growth brings about a new series of complicated challenges.
The horizontal access measures Passing of Time. Inside is the standard S curve, divided into three parts: Phase 1, Phase 2 and Phase 3.
The Growth Model
Phase one:
The entrepreneurial stage
Phase one is characterized by trial and error (basic learning) because everything is new. The culture is very informal, and everyone is willing to do whatever it takes to make things happen. There are very few rules, procedures or specialized functions, and certainly very little ‘turfdom’ exists. In this phase, there is no need to talk about being close to ‘the customer’, because the company is probably falling all over itself to please each customer.
If you were part of your company when it first opened, you probably remember the first customer – here was the moment you’d been waiting for, your first chance at a sale. Every customer ignited a sense of urgency to do whatever you could to make his or her experience memorable. Every customer was special and every sale exciting.
In a phase-one company, people are typically figuring things out but usually not writing them down. Phase one is formative, and the goal is to get out of it. In nature, most life forms don’t make it out of phase one – most tadpoles don’t become frogs, most acorns don’t become trees and most new businesses fail in their first few years.
Phase two:
The systems efficiency stage
Any business that grows beyond phase one has identified what George Land calls a ‘replicatable process’ – RP. That means the entrepreneur, team or company has decided what it’s going to be and what it’s not going to be. In phase one, any idea or anything new was welcomed, but in moving into phase two, the only welcomed ideas are those that focus on improving the efficiency or effectiveness of the RP. (We already know what to do, let’s just do it better.) In phase one, you trust the entrepreneur; in phase two, you start to trust the systems and structures that are finally in place. As the RPs becomes highly systematized, the norm is for the company to experience rapid growth and profitability.
The downside is that, over time, functional fiefdoms develop and silos get built. The focus and energy often shift from satisfying the customer to satisfying the boss. The focus moves from external to internal, and the company is less and less sensitive to the outside world. This phenomenon, called ‘organizational drift,’ often causes the company to miss emerging trends.
If your company is in phase two, you may find policies and procedures beginning to take precedence over staying close to the customer. For example, you might be experiencing an increase in returns, so you create a policy on how they are handled, which includes getting the approval of a manager on each exchange. By taking the decision-making out of the employees’ hands, you’ve added control, but now it might be the customer who ends up being inconvenienced.
There are always early warning signals of organizational drift – a slight fall in market share, lower than usual customer service ratings, higher product returns, increased turnover, declining profits. The first response to these signs is typically denial, but eventually there is a call to action. Unfortunately, the usual response is to ‘go back to basics’ (doing more of what we did in the past). The goal becomes to rediscover the old RP. While this flurry of activity may produce a short-term gain, it is a faithful predictor of a steeper slope to failure.
Phase three:
A new beginning…or else
In the natural life cycle as a company moves into phase three, death is imminent. In nature however, there is a phenomenon that occurs called ‘bifurcation’ – a new road, a new beginning. This can happen at any point in phase two, but as a strategy, the earlier, the better.
This strategy is a clear example of trading the normal, short-term gain for the more enlightened long-term advantage that benefits all stakeholders. It flies in the face of the ‘if it ain’t broke, don’t fix it’ philosophy and ‘let’s milk this cow ‘til she runs dry.’
Although this new path represents an opportunity for a new beginning, it also represents the difficulty of letting go of things that produced successes in the past. Because the old process was the dominant way of doing business, there is often a tremendous tension between the “old line” (vested people, vested processes, vested products) and the “new line” (different, different, different).
The requirements to complete this transition will be:
- Superior leadership
- Clear, open communication
- Shared values and vision
- An environment that allows everyone to compromise and win simultaneously
The old systems and structures are just not sufficient to deal with the magnitude of this change. Phase-two systems are mostly about reducing variability and maintaining standards. But there is a law, second only to the Law of Gravity, which is often disobeyed or ignored as the ship gets tightened up and the systems reign supreme. This is the Law of Unintended Consequences.
Certainly no one would suggest that systems are designed to reduce creativity or commitment. Yet, taken to extremes, like the uncontrolled bureaucrat, the pressure is to conform to standards, to stay within the lines, follow the rules and not rock the boat. My computer tried to finish that last sentence by adding, ‘and you’ll have a job for life’. That was the old contract. But we all know that the old contract is dead, don’t we? The real question is: Do the systems know they’re dead? Some things die hard, and phase-two systems have more lives than a yellow-tailed cat.
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Click here to read Part 2 of Grow or Die: Four Stages of Transformation