ORGANIZATIONAL GROWTH & CRISIS

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Size of
Organization 4. Crisis of ?

Evaluation Stages
5. Crisis of
RED TAPE
Large Revolution Stages

5. Growth through
3. Crisis of COLLABORATION
CONTROL

4. Growth through
COORDINATION
2. Crisis of
AUTONOMY

3. Growth through
DELEGATION
1. Crisis of
LEADERSHIP

2. Growth through
DIRECTION

1. Growth through
CREATIVITY

Small
Young Mature
Age of Organization

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 ORGANIZATIONAL GROWTH CYCLES
A organization developmental theory developed by Larry E. Greiner is helpful when examining
the problems associated with growth on organizations and the impact of change on employees.

It can be argued that growing organizations move through five relatively calm periods of
evolution, each of which ends with a period of crisis and revolution.

Each evolutionary period is characterized by the dominant management style used to

achieve growth, while
Each revolutionary period is characterized by the dominant management problem that
must be solved before growth will continue.

Growth through Creativity / Crisis of Leadership

As illustrated above, the first stage of organizational growth is called creativity. This stage is
dominated by the founders of the organization, and the emphasis is on creating both a product
and a market.

These "founders are usually technically or entrepreneurially oriented, and they disdain
management activities; their physical and mental energies are absorbed entirely in making and
selling a new product."

But as the organization grows, management problems occur that cannot be handled through
informal communication and dedication. Thus the founders find themselves burdened with
unwanted management responsibilities and conflicts between the harried leaders grow more
intense.

Growth through Direction / Crisis of Autonomy

It is at this point that the crisis of leadership occurs and the first revolutionary period begins.
"Who is going to lead the organization out of confusion and solve the management problems
confronting the organization?" The solution is to locate and install a strong manager "who is
acceptable to the founders and who can pull the organization together." This leads to the next
evolutionary period-growth through direction.

During this phase the new manager and key staff "take most of the responsibility for instituting
direction, while lower level supervisors are treated more as functional specialists than
autonomous decision-making managers." As lower level managers demand more autonomy, this
eventually leads to the next revolutionary period-the crisis of autonomy. The solution to this
crisis is usually greater delegation.

Growth through Delegation / Crisis of Control

Yet it is difficult for top managers who were previously successful at being directive to give up
responsibility. Moreover, lower level managers are not accustomed to making decisions for

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themselves. As a result numerous organizations flounder during this revolutionary period,
adhering to centralized methods, while lower level employees grow more disenchanted and leave
the organization.

When an organization gets to the growth stage of delegation, it usually begins to develop a
decentralized organization structure, which heightens motivation at the lower levels. Yet,
eventually, the next crisis begins to evolve as the top managers "sense that they are losing control
over a highly diversified field operation? freedom breeds a parochial attitude."

The crisis of control often results in a return to centralization, which is now inappropriate and
creates resentment and hostility among those who had been given freedom.

Growth through Coordination / Crisis of Red Tape

A more effective solution tends to initiate the next evolutionary periodthe coordination stage.
This period is characterized by the use of formal systems for achieving greater coordination with
top management as the "watch dog."

Yet most coordination systems eventually get carried away and result in the next revolutionary
period-the crisis of red tape. This crisis most often occurs when "the organization has become
too large and complex to be managed through formal programs and rigid systems."

Growth through Collaboration / Crisis of ?

If the crisis of red tape is to be overcome, the organization must move to the next evolutionary
period-the phase of collaboration. While the coordination phase was managed through formal
systems and procedures, the collaboration phase "emphasizes greater spontaneity in management
action through teams and the skillful confrontation of interpersonal differences. Social control
and self-discipline take over from formal control."

Greiner is not certain what the next revolution will be, but he anticipates that it will "center
around the 'psychological saturation' of employees who grow emotionally and physically
exhausted by the intensity of teamwork and the heavy pressure for innovative solutions."

It is felt that to overcome and even avoid the various crises managers could attempt to move
through the evolutionary periods more consistently with the sequencing -direction to
coordination to collaboration to delegation-rather than the ordering depicted by Greiner.

http://www.accel-team.com/techniques/orgGrowth.html

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 USING THE GREINER CURVE
Surviving the crises that come with growth

Fast growing companies can often be chaotic places to work. As workloads increase
exponentially, approaches which have worked well in the past start failing. Teams and people get
overwhelmed with work. Previously-effective managers start making mistakes as their span of
control expands. And systems start to buckle under increased load.

While growth is fun when things are going well, when things go wrong, this chaos can be
intensely stressful. More than this, these problems can be damaging (or even fatal) to the
organization.

The "Greiner Curve" is a useful way of thinking about the crises that organizations experience as
they grow. By understanding it, you can quickly understand the root cause of many of the
problems you're likely to experience in a fast growing business. More than this, you can
anticipate problems before they occur, so that you can meet them with pre-prepared solutions.

Understanding the Theory

Greiner's Growth Model describes phases that organizations go through as they grow. All kinds
of organizations from design shops to manufacturers, construction companies to professional
service firms experience these. Each growth phase is made up of a period of relatively stable
growth, followed by a "crisis" when major organizational change is needed if the company is to
carry on growing.

Dictionaries define the word "crisis" as a "turning point", but for many of us it has a negative
meaning to do with panic. While companies certainly have to change at each of these points, if
they properly plan for there is no need for panic and so we will call them "transitions".

Larry E. Greiner originally proposed this model in 1972 with five phases of growth. Later, he
added a sixth phase (Harvard Business Review, May 1998). The six growth phases are described
below:

Phase 1: Growth Through Creativity

Here, the entrepreneurs who founded the firm are busy creating products and opening up
markets. There aren't many staff, so informal communication works fine, and rewards for long
hours are probably through profit share or stock options. However, as more staff join, production
expands and capital is injected, there's a need for more formal communication.

This phase ends with a Leadership Crisis, where professional management is needed. The
founders may change their style and take on this role, but often someone new will be brought in.

Phase 2: Growth Through Direction

Growth continues in an environment of more formal communications, budgets and focus on
separate activities like marketing and production. Incentive schemes replace stock as a financial
reward.
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However, there comes a point when the products and processes become so numerous that there
are not enough hours in the day for one person to manage them all, and he or she can't possibly
know as much about all these products or services as those lower down the hierarchy.

This phase ends with an Control Crisis: New structures based on delegation are called for.

Phase 3: Growth Through Delegation

With mid-level managers freed up to react fast to opportunities for new products or in new
markets, the organization continues to grow, with top management just monitoring and dealing
with the big issues (perhaps starting to look at merger or acquisition opportunities). Many
businesses flounder at this stage, as the manager whose directive approach solved the problems
at the end of Phase 1 finds it hard to let go, yet the mid-level managers struggle with their new
roles as leaders.

This phase ends with a Autonomy Crisis: A much more sophisticated head office function is
required, and the separate parts of the business need to work together.

Phase 4: Growth Through Coordination and Monitoring

Growth continues with the previously isolated business units re-organized into product groups or
service practices. Investment finance is allocated centrally and managed according to Return on
Investment (ROI) and not just profits. Incentives are shared through company-wide profit share
schemes aligned to corporate goals. Eventually, though, work becomes submerged under
increasing amounts of bureaucracy, and growth may become stifled.

This phase ends on a Red-Tape Crisis: A new culture and structure must be introduced.

Phase 5: Growth Through Collaboration

The formal controls of phases 2-4 are replaced by professional good sense as staff group and re-
group flexibly in teams to deliver projects in a matrix structure supported by sophisticated
information systems and team-based financial rewards.

This phase ends with a crisis of Internal Growth: Further growth can only come by developing
partnerships with complementary organizations.

Phase 6: Growth Through Extra-Organizational Solutions

Greiner's recently added sixth phase suggests that growth may continue through merger,
outsourcing, networks and other solutions involving other companies.

Growth rates will vary between and even within phases. The duration of each phase depends
almost totally on the rate of growth of the market in which the organization operates. The longer
a phase lasts, though, the harder it will be to implement a transition.

Tip: This is a useful model, however not all businesses will go through these crises in this order.
Use this as a starting point for thinking about business growth, and adapt it to your
circumstances.

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Using the Tool

The Greiner Growth Model helps you think about the growth for your organization, and
therefore better plan for and cope with the next growth transitions. To apply the model, use the
following steps:
1. Based on the descriptions above, think about where your organization is now.

2. Think about whether the organization is reaching the end of a stable period of growth,
and nearing a crisis' or transition. Some of the signs of crisis' include:
People feel that managers and company procedures are getting in the way of them
doing their jobs.
People feel that they are not fairly rewarded for the effort they put in.
People seem unhappy, and there is a higher staff turnover than usual.
3. Ask yourself what the transition will mean for you personally and your team. Will you
have to:
Delegate more?
Take on more responsibilities?
Specialize more in a specific product or market?
Change the way you communicate with others?
Incentivize and reward you team differently?

By thinking this through, you can start to plan and prepare yourself for the inevitable
changes, and perhaps help other to do the same.

4. Plan and take preparatory actions that will make the transition as smooth as possible for
you and your team.

5. Revisit Greiner's model for growth again every 6-12 months, and think about how the
current stage of growth affects you and others around you.

Mr. Greiner is associate professor of organizational behavior at the Harvard Business School and
the author of several Harvard Business Review articles on organization development. The
original article appeared in the Harvard Business Review in 1972

This author maintains that growing organizations move through five distinguishable phases of
development, each of which contains a relatively calm period of growth that ends with a
management crisis. He argues, moreover, that since each phase is strongly influenced by the
previous one, a management with a sense of its own organization's history can anticipate and
prepare for the next developmental crisis. This article provides a prescription for appropriate
management action in each of the five phases, and it shows how companies can turn
organizational crises into opportunities for the future growth.

http://www.mindtools.com/pages/article/newLDR_87.htm

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 STAGES OF ORGANIZATIONAL GROWTH
Crisis of Crisis of Crisis of Crisis
Leadership Autonomy Control Bureaucracy
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Creativity Direction Delegation Coordination Collaboration
Problem
Management Produce and Operational Market Organizational
Solving
Focus Sell Efficiency Expansion Consolidation
and Innovation
Top Individualistic
Management and Directive Delegative Monitoring Participative
Style Entrepreneurial
Centralizated Decentralizated Line-Staff and
Organizational Matrix of
Informal and and Product
Structure Teams
Functional Geographical Groups
Standards Plans and
Control Market Reports and Mutual Goal
and Investment
System Results Profits Centers Setting
Cost Centers Centers
Management Salary and Profit Sharing
Individual
Reward Ownership Merit and Team Bonus
Bonus
Emphasis Increases Stock Options

http://www.bli-inc.com/exhibit2.html

THE S CURVE
The "S" Curve
by Will Phillips

Causality and Viscosity: Concepts For Understanding Your Organization

One of the most widespread assumptions humans make about the world around them is the
linkage between cause and effect. This enables us to explore and understand galaxies,
organizations and people. Stuff just does not happen spontaneously. There are always antecedent
causes and by discovering these we gain increased understanding and more control. When you
know that bacteria causes disease, you can control the disease by controlling the bacteria.

A second assumption is how hysteresis mediates cause and effect relationships. Hysteresis is any
delay between the cause and the effect. It describes the viscosity or friction in the system. Put
water in the freezer and it takes time to freeze. Announce a new strategic plan and it takes time to
go into effect. See a change in the economy and it may take a business years to react.

When an organization is young, it does not always respond well or fully to its environment
(customers, competitors, regulators, technology, etc.). There is a lag as the organization 'gets its

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act together'. This shows up as slow growth, errors and confused focus. With time and
experience the organization learns how to get in synch with its environment. At this time the
hysteresis shrinks , and the organization grows. Just when the organization thinks it has things
figured out, change creeps back in often as a result of the organization's success.

For example the business grows to multiple locations and these multiple locations become a
change that now impacts the organization with communication delays and coordination
problems. Even if the business and markets are stable, success is likely to attract competitors.
The business that learned to set prices based on cost plus or what the market would bear now
finds it self competing with businesses who are satisfying the market at a lower price. This
change demands a response. Yet the most likely response is to complain about the competitor,
believe the competitors low prices will put them out of business shortly and do nothing else. This
failure to detect, then respect then respond to the change adds viscosity of hysteresis to the
change process. It shows up in declining performance in market share, growth and profits. This
delaying of detection, respect and response is the underlying force that creates the 'S' Curve.

The "S" curve depicts a paradox of growth. A paradox which sets a trap for the unwary.

The dynamics of the "S" curve are as follows. In the beginning of growth (A) the growth is slow
because that which is growing is unsure of itself and its relationship to the environment which
supports it. When this relationship matures, the growth is fast (B).

The very phenomena of growth now leads the growing entity into a new world which has new
operating principles, new problems and new opportunities. The skills and knowledge which led
to the growth (B) are now inappropriate for continued growth (success) (C). But the growing
entity finds it difficult to let go of the old skills, concepts and knowledge which led to its former
success (B).

Like the successful fish which learned to move out of the water onto land, it must give up its old
ways in order to further succeed on land. Failure to do so leads to decline (D).

Transition to a new set of knowledge and skills is necessary for further success. This transition
requires letting go of the past and learning new ways. Although this is effective in enabling the
transition, it is inefficient. This inefficiency shows up as confusion, frustration, demand for
increased energy, time and other resources.

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This inefficiency is symbolically shown as a descent from the top of the first growth curve at (C)
to the second growth curve labeled (E). The hesitancy or fear of dropping down in order to go
forward often prevents the transition which then leads to (D). While on the dotted line of decline
towards (D), the natural strategy is to resist change and support the status quo.

The skilled organization detects change faster, respects it in stead of dismissing or belittling it,
and finally responds faster. It does not get stuck wondering if the change is real or dismissing it
because it is different. This tightening of the Detection-Respect-Response cycle enables the
skilled organization to avoid the terrible price of not changing fast enough, soon enough or deep
enough. As the DRR cycle increases in viscosity , it drains the organizations reserves. It will
have less money, less time, less energy and fewer of the right people to make the changes
needed.

The "S" curve appears to describe a paradox of growth in physical systems like the hysterises
curve explaining why magnets and electrical coils behave, to biological systems of population
growth, to the nature of organizations and interpersonal relationships.

Ichak Adizes book "Corporate LifeCycles" expands the "S" curve concept into a series of five
curves in the successful growth of any organization-corporate, non-profit or government. A
parallel set of pathological or declining parts of the "S" curve are also described. Qm has
developed a methodology for assessing where you organization falls on this model the
implications for the future of your organization.

Michael Gurian in his book "Love's Journey-The Seasons and Stages of Relationship" has written
a parallel description of the various stages and transitions in a marriage.

Determining Inflection:
Knowing When Your Organization Needs to Rethink Itself

All organizations plateau. Operating the organization well causes it to plateau. Plateauing is the
normal, natural result of growth. Inflection is the point in an organization's life cycle when it
begins to move from growing to aging; the point at which the graph of growth begins to bend.

Plateaus can be avoided by innovation, by rethinking your enterprise or business model. This
requires energy and honesty and results in ideas and the ability to assume higher levels of risk.
Ultimately moving forward requires a carefully examination of assumptions and letting go some
of your closely held methods, products, or processes. Choosing what to keep and what to release
is the essence of strategic thinking.

Innovating too early in your grow curve hampers growth. The growing organization needs focus
not innovation. The aging or plateauing organization needs innovation. How do you tell when to
innovate? Review the twelve pairs of statements below and distribute 100% between each item
to reflect your view of your organization. For example:

60% 1. Building momentum 40% 1. Running by inertia

80% 2. Management in control of 20% 2. System in control of
system management

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You can distribute 0%/100% or 100%/0% or any other way as long as the item totals 100%.

1. Building momentum 1. Running by inertia

2. Management in control of 2. System in control of

system
3. Everything is permitted
unless expressly forbidden
4. Emphasis on content (what
we do)
5. "Get what we want" attitude
management
3. Everything is forbidden
unless expressly permitted
4. Emphasis on package (how
we do)
5. "Want what we get" attitude.

6. Marketing and sales 6. Power transferred to

departments carry power accounting and
7. Age of intuition 7. Age of judgment

8. Function more important than 8. Form more important than

form function
9. Problems are opportunities 9. Opportunities are problems

10. People are kept for their 10. People are kept for their
contribution despite their personality despite their
personality contribution.
11. Cash poor 11. Cash heavy

12. Success comes from seeking 12. Success comes from avoiding
risk risk.

Although there are no hard and fast rules on how to evaluate your totals, when the right hand
Aging column reaches 20% or more, the growth curve is plateauing. 50%-50% probably means
you are at the top of the plateau.

http://www.qm2.org/mbriefs/scurve.html

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 S CURVE ILLUSTRATION

new life
RESULTS

Decline
death

Entrepreneurial

TIME, ENERGY, RECOURSES

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