Every organization goes through a life cycle that consists of different developmental stages, just as in the human life cycle we experience different stages - from infancy to childhood to adolescence to adulthood, to midlife, and so on. Along with each of these stages, there are unique challenges, common modes of operations, threats and opportunities for growth.
Some or all these questions are pondered by many without real clarity to the causes. Although surely there is no one answer to any of these questions, there are definitely explanations for each. They lie in understanding that for every developmental stage in the organizational life cycle there is a sequential and predictable phase for all organizations.
Being a consultant for over 20 years working with many businesses ranging from start-ups to Fortune 100, I've had the opportunity to experience many different types of organizations, how they operate and how people within the organizations behave as a result. We call these many times the organizational culture. This organizational culture comes from the leadership that has been put in place to run the organization and is a result of the development stage of the life cycle the organization is in. The more you understand how the leadership and these stages impact the organization as a whole, the more in control you feel about your own destiny as a leader and professional within the organization.
Typically, when the going gets tough in business, tradition dictates that the first reaction is to push, discipline, push harder, patch, fix, fix some more, figure out where to stop the bleeding.
These fixes come in many forms such as restructuring people’s jobs, terminating people, hiring new recruits, “oiling” the squeakiest wheels, putting out fires, creating more processes and controls, increasing workload, taking away authority from people, paying less and reducing perks.
However, like certain medications that cure the primary symptom, many times the side effects are of larger proportion. Fixers often solve one problem only to bring out other challenges somewhere else. Unless the root cause of the problem is being addressed, the company will continually be faced with having to remedy one challenge after another without awareness that there is something deeper driving these problems.
After such attempts, it begins to become apparent that the problems just keep shifting and recurring in some other way and the challenge becomes how to figure out what to do while having to compete at the speed of business. Many experience frustration and fear that there may not actually be a solution. However what actually is true, is that an organization’s problems are predictable – and the types of problems an organization experiences relate to the phase of the life cycle the organization is in.
In fact, most of the issues that organizations face are not unique. They can either be a result of growth or lack of growth in an organization. In both cases, they can be a result related to internal factors within the operation and the people, or they are a result of external factors like market changes, competitors, technology or the political or global business environment.
When the leadership team share that common understanding of what the issues are and can align them to the stage of the lifecycle of the organization, they will know what they need to do to transition from one stage to the next. Proactively it is then possible to address problems before they arise to avoid chaos, control and an aging stage that could lead the organization in some cases to die.
At a high level, there are growing phases and aging phases that organizations go through.The growing phases are what I'll refer to here as the Determined and Dynamic Phases and the aging phases are the Controlled and Administrative Phase.
In the Determined Phase, the initial growth begins with the birth of an idea that launches the journey to building a new product, service and new offering to the market. This can be an entrepreneurial start-up that is the beginning of a small business, or it could be an entrepreneurial endeavor by a larger business.
The leader in this phase is entrepreneurial, creative problem-solver, a doer, task-oriented go-getter that is focused outwardly to grow the business. The leader tends to be directive and does not effectively delegate, which ends up creating an organization where the leader and the organization are one in the same.
The initial goal in this phase is to meet market need and penetrate niche markets. Once the decision is made to invest through loans, capital, add shareholders and investors, the organization matures into the next stage of the Determined Phase. The financial goal in this phase is primarily cash flow and sales, until the organization has enough success to start focusing on profit.
Employees are caught up in activities that set everyone on their own direction to meet the demands of their daily operation. With no history of organizational values, this creates a culture where people become more autonomous than collaborative. “Heroes” appear and become the “go-to” people that everyone depend on heavily. The business becomes highly dependent on single individuals for its success.
The threat to the organization in this phase is the high dependence on a few customers and a non-diversified customer base. Since knowledge is with a few people in the organization and repeatable processes are not in place to transfer knowledge, people issues and conflicts are prevalent, burnout is expected and risks increase as a result.
The only time an organization in this stage can transition into the next phase, which is the Dynamic Phase, is when the leader can make the transition to give up control to institutionalize and professionalize the business. Many organizations cannot make that transition and either end up dealing with their repeatable struggles in the Determined Phase for an extended period of time, sell the organization, or the organization eventually dies. Many small businesses never make it out of this phase and if they don't die, they make the decision to downgrade to either becoming a sole entrepreneur or limit the growth of the organization for good.
When an organization makes it into the Dynamic Phase, the organization goes through a second birth and a full transformation. The leaders or shareholders have made the decision to take the organization to the next level and have to undergo change either through infusing more capital to invest in new leadership or to invest in growth through acquisition.
Either way a change in leadership is required to look inside to put in structure, systems, and to focus more on profits and detail. However, this typically causes conflicts and power struggles amongst the leadership with the original leader trying to maintain as much control as possible, while the new leaders are trying to build their own at the same time. The outcome of those turf wars begins to create a new culture in the organization.
The financial goal in this phase is primarily to increase profit, while keeping the entrepreneurial energy and the balance between inward and outward focus. However, many times those two goals are in conflict, which begins to send mixed messages to the people in the organization. Organizations in this phase are in a very dangerous stage, and many fall back into the Determined Phase or go into premature aging and lose their entrepreneurial spirit.
The transition into a healthy stage is the ability to make this transformational leadership shift, increase the mix and volume of customers, and decrease the internal demands and politics. The internal focus is typically done by the President and COO role, who drive change and create the supporting structure related to efficiency, effectiveness and profitability. When an organization addresses these needs, it rises to the next level and goes into a stage that is referred to as "Prime" or the optimal stage for a healthy ever-thriving organization.
When an organization is in Prime, the focus is on its customer satisfaction, and the healthy balance of revenue generation and cost reduction. It measures the health of the organization not only through financial, but also non-financial indicators and also focuses internally on employee satisfaction, innovation and true partnerships. The leaders drive the culture with a strong value system that includes creativity, high energy, team orientation, and an entrepreneurial spirit. It regenerates the entrepreneurial spirit through decentralization.
People in an organization that is in the Dynamic Prime stage are considered the organization's assets and are empowered to be autonomous and compensated on results. The organization is in perfect balance of being entrepreneurial yet organized and systematized. People love working in the environment, feel very rewarded and valued. Turnover is low and energy is high. Unfortunately and fortunately, when the organization is in prime profitability it is very sellable. However when it is sellable, it is typically acquired by an organization that is in the Controlled Phase. So very quickly the culture can change from people feeling they are in an entrepreneurial empowering environment to a controlled bureaucratic one.
Depending on the degree and balance of control and flexibility that the Prime organization establishes will determine whether the leaders can keep it in Prime, sell it to make their money and move on, or mature it into a more systematized machine, which then takes it into the Controlled Phase.
When an organization goes into the Controlled Phase, it enters into the initial aging phase and begins to lose that dynamic entrepreneurial spirit. An aging organization can still be profitable, cash rich and have strong financial earnings. In fact most organizations in the Controlled Phase are cash rich.
The goals of the organization are very focused on the financials and running an efficient and effective operation. The deeper the organization gets into the Controlled Phase, the less and less the people matter. In fact, the more mature the organization is in the Controlled Phase, the more process-oriented and bureaucratic it becomes. The organization loses its flexibility and people's discretion and autonomy is slowly taken away by the process. The organization does not bend much - even for its customers. It controls its processes, its people and its leaders through a centralized structure. The more aging the organization, the shorter-term view it has and the less longer-term innovative opportunities it pursues.
The leaders that are in an organization that is in a Controlled Phase begin to become complacent and eventually embrace the status-quo. They develop an "older/aging" mentality and give up their dynamic youthful innovative thinking. The culture becomes political because people strive to protect turf and secure their jobs. The focus is on their next position that promises more power and control, rather than on outwardly growth. They build their "good-old-boys-and-girls-club" and protect one another regardless of performance.
The workforce slowly also becomes more and more complacent and understands it has to abide by the “system”. The bureaucratic nature of the business makes it difficult for leaders or anyone to effect any real change. The organization becomes highly matrixed and accountability becomes more and more difficult to enforce. People have different responsibilities through dotted lines, projects, and frequent restructuring of leaders trying to shuffle power from the top. Collaboration goes to a new level where everything is done by concensus with layers of approvals needed making decision-making very slow and ineffective.
The Controlled organization slowly begins to feel like chaotic control. Everyone does what they can with no one really being in charge. The organization and the processes take over with only a few leaders manipulating it at the top. The focus turns mostly internal and the culture slowly shifts away from making the paying customers the priority.
Leaders who save the organization that is in a declining Controlled Phase many times are brought in from the outside to shake up the company to revive it, create a vision for the future with strategies that transform it to compete innovatively with a predominant outward focus.
The Controlled organizations that do not push themselves to get back into the dynamic phase, slowly become a house of cards. The organization becomes about manipulation and control. The leaders gradually lose actual power because committees tend to manage the organization. As flexibility is all but gone, and success becomes about who you know in the organization and not necessarily how well you perform, the signs are that the organization is entering into the Administrative Phase.
When an organization enters into the Administrative Phase, it enters into the crawling process. It is an artificial resemblance of business. An organization in the Administrative Phase is a paradox. On the outside it appears to be solid and steady, but on the inside it is suffocating from the weight of its own rules and regulations. It is like an elderly person who looks young for their age, but who is dying on the inside from emphysema. Only the minimum gets done in an organization in this phase, everything is slow and the organization is not hungry or motivated to ensure it meets its goals.
According to Adizes, "monopolies and government agencies that are quarantined from competitive pressure and provide a large employment base, often live long and very expensive artificially prolonged lives in this Administrative Phase. It is only when no one remains committed to keeping the organization alive, final death occurs."
As a leader, you will find that the lifecycle phases and stages of the organization you work in will affect your leadership effectiveness if you do not recognize it. The more you deepen your understanding of the issues, threats and opportunities for each phase and stage, the more you can create strategies for addressing them.
If similarly you educate your team on the lifecycle, you can build a cohesive innovative team that collaboratively decides what issues have the highest impact for you to address and what the consequences are for those you do not address. The more insight you gain on how these stages and phases also impact your values, results and behaviors, the better of a leader you can be.
Rania Kort is an Independent Management Consultant and Business Advisor with more than 20 years’ experience helping Fortune 100 companies successfully implement strategic initiatives. Rania has managed large-scale programs and programs, established and run PMO's and implemented process improvement in many different industries. She ran and grew an IT Management Practice for PricewaterhouseCoopers for more than seven years managing over 300 consultants. Currently, she serves as an independent consultant focusing on achieving results through collaboration and a team leadership approach that ensures alignment, accountability and trust to develop high-performance teams.