Management of Organizational Growth

Management of Organizational Growth

Organizational growth is not automatic. It does not follow from success. Of course, it needs organization to have the right products or services for the right markets at the right time. But this is a requirement for growth, a necessary condition, rather than growth itself. Growth of an organization is full of stress and strain. It causes discontinuity. It makes the organization to change itself. It can create identity crisis as there is transition from old stage to new stage. Even the ablest, the brightest, the most highly motivated organization can suffer the worst identity crisis.

For an organization to be able to grow smoothly and without trouble, it is to be carefully prepared for growth, trained for growth, and directed towards growth. The management can prepare the organization for growth by thinking big the way IBM has done it in the mid twentieth century. The IBM management adopted a impressive name,’ International Business Machines’, at a time when IBM was neither international nor truly business machines. IBM created an organizational image through distinctive design and distinctive typography for its products, its publications, and its communications inside and outside the organization. It invented the slogan ‘think’ and distributed hundreds of thousands of ‘think’ posters and stickers to its employees and customers.

From very early days IBM had developed and trained a human organization which was to look upon itself as select force and which was prepared to manage a very much bigger organization. The management had insisted that the employees take responsibility for their own work and thus trained a whole cadre of proud and competent workforce which became the skeleton around which the much bigger IBM workforce of later years was built. Above all, the management trained, and trained, and trained. All employees were expected to continue to learn while on the job. But for the workforce, continuous training was a way of life.

The district sales managers of IBM, in particular, were trained to be top executives. Not one of these men had technical education or technical background. Yet when in the fifties and sixties the organization switched to advanced electronics from a mechanical appliance, the punch-card sorter—in many cases still operated by hand or at the most by the simplest of electrical motors—these technically unschooled men became the management that built the world’s leading organization for computers. Having grown up in continuous training, they had learned to learn. Into the 1970s, IBM’s top management was primarily staffed with former punch-card district managers.

From early days, the management saw the future of IBM in what it may have been the first to call data processing. It was convinced all along that the day would come when a machine could take over the tedious job of handling large masses of data speedily, reliably, and at low cost. Hence, the IBM management saw at once what no one else at that time realized, that the computer market would be in demand. It saw that the key to the computer market was not technology but marketing. It saw that what mattered was not what the computer could do but what the user could get from it. On these basic insights IBM’s rise to dominance in the computer field essentially rested and these were the insights of the IBM management.

There is little doubt that the IBM management was functioning as autocrat. It had been harshly criticized for the conformity it imposed on the organization, for its heavy-handed paternalism, and for its narrow prejudices. Yet, as subsequent events showed, the management did not stifle, let alone break, the managerial people in the organization. Whatever the shortcomings, the management had, from early days, a clear vision of the goal, and the ability to think through what policies, what basic attitude, what strategy would be required.

And yet the IBM management almost destroyed the very opportunity it had waited for, worked for, and built for. However, when the computer had finally arrived, and with it the realization of the dreams of the management, the management suddenly did not want growth. It began to dither. It was afraid of doing anything which might hurt the organization’s punch-card business. And, of course, the computer really threatened the punch-card business altogether. The management began to sabotage manufacturing developments and selling efforts which might replace existing or potential punch-card installations, and that, of course, meant that it sabotaged all computer development and all computers selling. The management had been almost sinfully proud of its key people, and especially of its elite group, the district sales managers. Now it suddenly felt that not one of them was ready for a bigger or different job.

Above all, the management refused to change its own behavior. The top man of IBM did not want to become the top man of a big organization. The management was determined to remain satisfied with the small organization. It did not want to let other people, including the directors, to take on any responsibility of their own or make any decisions. The top man resisted anything which would have impaired in the slightest degree his direct control of every aspect of the organization, or that would have made it difficult for the management to know in great detail everything which was going on. He inflexibly and with great determination held on to a relationship to the organization as his child and as an extension of his thinking.

Judging by the experience of other organizations, the management would have destroyed IBM’s opportunity for growth had the then management remained at the helm of IBM much longer. Even a few years’ delay would have been fatal. By then, that is, in the mid twentieth century, the first important customers would have bought computers and would have thereby designated the leading organizations. The first major new technical developments would have had to be made beyond the early crude models. Considering how innocent of technology the IBM management was, the first engineer was not even hired then for production engineering and not for design, IBM could hardly have leap-frogged directly into the second generation computers of the early 1950s in which transistors replaced vacuum tubes and electronic switches replaced mechanical drives. If the management had been permitted to stay for a few years longer, IBM would at best have become an ‘also ran’ in the computer business, and maybe not even that. It surely would not have become the leader in data processing, for which the management had prepared the organization.

But then wisdom intervened in the highly improbable appearance of the Anti-Trust Division of the US department of Justice. At the very moment, when punch cards were losing their importance, the Anti-Trust division brought suit against IBM for allegedly monopolizing the punch-card field. The one thing of which the IBM management was mortally afraid was an antitrust suit. The panic made it possible a management change and the new management at once built a top management team. It concentrated the key resources, and especially the people the earlier management had trained, on the new business. And due to it, within three years IBM emerged as the leader.

The only thing that is uncharacteristic about the IBM story is the happy ending. In the great majority of cases, the growing organization which runs into an identity crisis yields to it. In the great majority of cases, it loses its opportunity, no matter how badly it wants to grow, or says it wants to grow. In the great majority of cases, the organization then remains underdeveloped. Money is spent. Plans are made. But there are no results. Instead of growth, there is frustration. Only few organizations manage to escape such an identity crisis.

In an another case, Ford Motor Company when it became the largest automobile company of USA, the partner and financial advisor of the company, advised Henry Ford, to change the structure of the company and the way in which he himself ran it. But Ford pushed both men out of the company. Almost immediately the Ford Motor Company began to decline. And within ten years it was first overtaken by Grand Motors, and then lost even its number two position to a hasty newcomer Chrysler.

Siemens went through a similar crisis after the death of the founder when the subsequent management refused to adopt the structure, management, and policies appropriate to the big organization, Siemens had become. Had they been allowed to go on, Siemens might well not have survived, at least not have survived as a major and important organization. There are several other organizations which went through a similar shock.

The most informative example for organizational growth is that of Sears, Roebuck. Richard Sears, the owner, had pioneered many of the fundamental policies on which the success of Sears is based to this day. But when the company grew from a very small to a fair-sized organization, Sears refused to change the company and to change himself. As a result, in the early years of the twentieth century, the company nearly went bankrupt and was forced to sell to a total outsider, Julius Rosenwald, a Chicago clothing merchant. Rosenwald immediately organized a top management team and structured the company into a big organization. And Sears, Roebuck, which was on the path of declining under its founder, started to grow. Twenty years later Rosenwald himself realized that the company and its management needed to make another quantum jump. Sears, already a big organization, had to be ready to become a very much bigger one. He turned to a total outsider, General Robert E. Wood, who had proven record of his administrative capacity.

In order to grow, as the above examples show, there is need for strategy. There is need for preparation. There is need for establishing an ideal of behaviour focused on what is the objective for growth. But these are of not much avail, unless top management is willing to make the change. Even great vision and high resolve can otherwise lead only to frustration and futility.

Necessity of growth

During the mid-twentieth century, there has been the craze of growth in the economy as well as in the organizations all over the world. Investors have looked for growth to put their money in the companies. Managements have been promising growth of the order of 10 % to make investors interested in their organizations. During the period, growth also has been the focus of economies, both in the developing as well as in the developed countries. In large measure, this was a reaction to the stagnation which had happened in the national economies and organizations during the first half of the twentieth century.

But the growth craze soon went too far. And where, earlier, people had believed the myth of stagnation, they soon began to believe myths about growth. It is simply not true that an exponential rate of growth can be maintained for long periods, let alone forever. An organization which grows at an exponential rate, let alone at so high a rate as the much proclaimed 10 % each year, would soon consume all the resources of the world.

Growth at a high rate and for an extended period is also anything but healthy. It makes an organization extremely susceptible. It makes it all but impossible to manage it properly. It creates stresses, weaknesses, and hidden defects which, at the first slight setback, become major crises. Even for the investors, who are interested in capital gains, the growth organizations are not a sound investment. Such organizations sooner or later run into real difficulties. Sooner or later they run into tremendous losses, have to write off vast sums, and become, in effect, unmanageable. It takes a long time then for such organizations to regain their health and their capacity to grow again and to produce profit. There are few exceptions to the rule that today’s growth organization is tomorrow’s problem.

The same susceptibility characterizes the growth in the industry. Indeed the dynamics of a growth in the industry are perfectly well known. These dynamics make the growth in the industry a poor investment except for the most knowledgeable. In the area of growth in industry, there is first the opening up of a new major area of economic activity which promises to offer tremendous opportunities. Any entrant into this new area of activity seems to be doing very well. As a result, a great many new entrants appear into the area. Soon the industry is overcrowded. And then there takes place a shake-out. Where there were a large number of entrants, only a few remains. Of these few, two or three assume leadership and retain it for a substantial time. Another two or three to become respectable fair sized organization, occupying small but distinct positions. The remaining entrants disappear soon.

But which of the organizations emerge as leaders in this process and which disappear cannot be predicted. No one can guess it correctly. The decisive factor is not known. It is, above all, the capacity of the organizational management to manage for growth and to develop the strategy which gives it leadership position in the shake-out.

The organizations which survive the growth have a strategy for growth, and have a management which is willing to structure the big organization and wiling to change its own behaviour. The growth of the organization is a risk. The impression that growth is by itself a goal is altogether a misconception. There is no advantage in an organization getting bigger. The right goal is to become better. Growth, to be sound, is needed to be the result of doing the right things. By itself, growth is only a fashion and little else.

Growth crazes in the organizations take place quite often. It is widespread and in certain category of organizations it is permanent. Often it is thought that growth of the organization is dependent on a budget which makes the large number of employees and the large budget the one generally accepted measurement of performance, success and importance. But bigger is also not necessarily better in such organizations since there is no correlation between size and performance in such organizations. Organization, which has a small budget and has lesser number of employees, can focus on the objectives easily. On the other hand big budget organizations often do not know where and how to spend the available funds. Often they spend on the projects which are controversial in nature.

Growth is also demanding and difficult in the above type of organizations. The larger budget may make possible taking on new and important tasks, though sometimes it means only doing more of the things which need not be done at all. It always, however, also means taking in people, who have to be trained, directed, supervised, and managed. It means additional complexities. Above all, growth in such organizations also means that top management has to change.

These categories of organizations need to pay the greatest attention to ‘weight control’ since they are particularly prone to mistake fat for muscle, weight for importance, and busyness for achievement. But it also needs to know how to manage growth. And the approaches to managing growth are essentially the same for all the types of organizations.  For any type of organization, managing growth is a top management challenge and a top management task and requires, therefore, top management strategy.

Growth as a survival need

Though the craze for growth craze is required to be tackled, yet organizational growth continues to be a desirable and indeed a necessary objective for any organization. Even if the national economy is stagnating, still there is a need for the management to understand how to manage growth. This is since the stagnation in any national economy is not one of stability, but one of turbulence.

In a growing economy there is plenty of room. Organizations which have passed their peak decline slowly and are being held up by the overall buoyancy of the economy. In the buoyant economies, new organizations can grow fast. But there is still room for those organizations which do not know how to grow well and grow more by accident than by management.

But when the economy as such does not grow, changes in the economy are bound to be abrupt and sharp. Then indeed the organization which does not grow, declines. Then there is even more need for a strategy which enables a management to plan for growth and to manage growth.

Then there can be the possibility that the economic growth period is moving towards its end and then the organization is to learn to live in a solid state economy. This may happen because of the limitations of the environment and of its resources. It is not the most probable forecast. But growth in the future can well mean different things. It can mean using fewer resources, that is, a shift to growth in knowledge industries rather than in manufacturing. Costs can be different. What is considered today as free or low cost resources, such as air and water, can have a high cost attached to them. The pattern of development in tomorrow’s fast developing environment can well differ significantly from the earlier pattern with its emphasis on steel, which still underlay the explosive growth of many national economies. Undoubtedly there is increasing need to guard and maintain the balance between what people take out of the environment and what they put back. This alone can make growth opportunities different in the future from what they have been in the past.

But there will also be new factors pressing for growth. One that is usually overlooked is the expectation of the young, educated people. The organization which is not able to attract, motivate, and hold people of talent end competence is not going to survive. Increasingly, this means attracting, motivating, and holding the knowledge worker. Unlike the manual worker of the past, the knowledge worker does not, however, look just for a job. He looks for a career. He looks for an opportunity. Even under conditions of zero population growth, that is, under conditions in which each age group in the population is of the same size, the pressure of the educated, young knowledge workers for career opportunities persists beyond what can be satisfied by the opportunities opened up by the retirement of older men. Even zero population growth demands opportunities for younger people to achieve. The advent of the knowledge worker creates pressure for at least some organizations, and in many cases, for considerable, growth.

Need for growth objectives

But the collapse of the growth craze of mid-twentieth century showed that it is not enough for a management to say that it wants growth. Today, the organizational management needs a rational growth policy. The management needs objectives which are based on more solid grounds than the desire to grow or the promise to grow.

Management needs to think through the minimum of growth which the organization needs. The minimum of growth is that growth without which the organization can actually lose strength, vigor, and ability to perform, if not to survive. The organization needs a viable market standing. Otherwise it soon becomes marginal. It soon becomes, in effect, the wrong size. And if the market expands, whether domestically or worldwide, the organization has to grow with the market to maintain its viability. Hence, at times the organization needs a very high minimum growth rate.

In the periods, when the total market expands at a fast rate, to stay in the market even means very fast growth. On the other hand when there is little net overall growth of the market, then the minimum growth consists of primarily of identifying the most promising market segments and of concentrating on them.

In an organization which has already grown to a large size, in its strategic business planning the first question is not that which markets have the greatest growth potential. It is rather what the minimum growth of each market is and whether the organization is expected to keep up to with the market growth. The organization needs to find out which market segments offer the best opportunities for the organization.

Growth in the context of an organization is an economic rather than a physical term. Volume, by itself, is irrelevant. What matters for an organization is the economic performance, as measured (i) by contribution to economy and society, (ii) by productivity of resources such as people, capital, and materials, and (iii) by profitability. The organization grows if it grows in economic performance and economic results (Fig 1). For example, to want to become an organization with 50 million tons of steel production is not a rational growth objective. Growth objectives have to be economic objectives rather than volume objectives.

Fig 1 Measurement of economic performance of the organization

This is particularly important as the most dangerous mistake is to confuse growth with putting on weight. The organization actually grows if it sheds off activities which do not contribute. Such activities only drain. They impede the true growth potential. The second step, therefore, in the organizations strategic business planning is to ask whether this or that activity of the organization is to be closed down, sold, or at least de-emphasized. When the organization begins to ask this question, it gains its capacity to grow even it is stagnating for a long time.

The second growth objective needed for the organization is an optimum objective. This objective is the combination of activities, products, and financials which promises to produce the best balance between the risk and return on resources. There is no point, in other words, at which increased market standing can be obtained only at a cost in productivity of every major resource and of all resources, altogether.  There is no point to obtain greater profitability only by a steep increase in risk. But also there is the point below which a decrease in risk is likely to sharply curtail productivity and profitability and also to endanger the market position.

It is this optimum point, rather than a maximum, which determines the upper range of the organizational growth goals. Growth is to be at least the minimum growth. But it is, as a rule, not to exceed the optimum. Indeed, growth which exceeds the optimum, that is, growth which purchases market position at the price of lower productivity, or growth which purchases higher productivity at a price in market position, is basically unsound and cannot be sustained. It is the growth which leads to the costly surprises in the growth organization. It is the growth which creates vulnerabilities, flaws, overextension, lack of control and, fairly soon, a major, if not a fatal, setback.

A growth policy, in other words, is a business policy. It does not differ from any other business policy. It requires objectives, it requires priorities, and it requires strategy. Above all, it requires that growth goals be rational and grounded in the objective reality of a business, of its markets, of its technologies, rather than in financial imaginations.

Necessity to prepare for growth

Growth needs internal preparation. When an organization has prepared itself for growth, it is able to take off as soon as it comes out of the past. Without such preparation even the desire to grow, even the understanding of what is needed for growth in the industry in which it is operating, cannot propel the organization towards growth. Further it cannot be predicted when the opportunity for rapid growth can come in the life of an organization. But still the organization is to be ready. If the organization is not ready, then the opportunity moves on and knocks the door of some other organization.

The organization to be able to grow is required to create within itself an atmosphere of continuous learning. It is to be managed in such manner that all its employees, down to the lowest-ranking employees, are willing and ready to take on new, different, and bigger responsibilities as a matter of course, and without fear. Any organization can grow only to the extent to which its people can grow. Of course, the organization can bring in this or that expert, this or that specialist, this or that capacity, competence, or talent. But fundamentally growth, even growth by acquisition has to come from within and has to be based on the strengths of the organization. A growth policy requires that a human organization establishes the environment of continuous learning and acquires the readiness to do different and bigger things.

Financial planning for the demands of bigger operations is also needed. Otherwise, when growth comes, the organization finds itself in a financial crisis which is likely to frustrate growth. This applies to the small, but also to the fair-sized, organization. If the financial planning is not done, then even the fairly moderate growth soon outruns the financial foundations of the organization. Soon the organization finds that financial demands have been crated in the areas to which no one, as a rule, has paid much attention. It soon makes obsolete the capital structure or existing arrangements for obtaining short-term loans and working capital. Financial strategy is as essential to growth as is the product strategy, technological strategy, or market strategy. But the key to the ability to grow in the organization is its capability to grow.

Controlling factor is the top management

The controlling factor in managing growth in an organization is the top management. For the organization to be able to grow, top management is to be willing and able to change itself, its role, its relationship, and its behaviour. But it is easily said and very hard to accomplish. The very management of whom such change is demanded are also as a rule the same management to whom the success of the organization so far can be attributed. Now, when success is within the grasp, the top management is asked to abandon the behaviour which has produced it. The top management is asked to give up the habits of a lifetime. It is asked, or so it seems to the top management, to relinquish their leadership position. The top management is asked, above all, to hand over the organization to others. The growth always requires that the management of one man or of a small handful of men to be replaced by another genuine top-management team.

Most top-management personnel in the growth organization somehow do not seem to be growing. In the majority of small and fair-sized organizations with growth potential, people know rationally what is needed. But they lack the will to change. Hence, the top management has to start preparing itself for growth at a very early stage. Specifically, it has to take three steps (Fig 2). These steps are (i) It has to define the key activities and build, in effect, a budding top management team to take care of them, (ii) It has to be aware of the symptoms of the need for change in basic policy, structure, and behaviour so that it knows when the time for change has arrived, and (iii) It has to be honest with itself and decide whether it really wants to change or not.

Fig 2 Three steps for top management to start for the organization growth

In case of IBM, the example taken up earlier in the article, it worked for long years on making itself look like a big organization, internally as well as externally. It worked on its appearance to the outside world, in the design of its products and in the design of all the graphics with which it communicated to its own employees and to the outside world. It did not spend a great deal of money on advertising and promotion. But when it did, it tried to make a ‘big splash’. But at the same time, IBM was run internally on a basis of managerial austerity. There were no staffs. There was no research and development. There were no vice-presidents of this and that. There was only one top man, the owner. There was a strong field sales organization. And there was, as the only staff officer, an educational director. Even engineering was unknown until the late thirties, which seems almost unbelievable today. IBM, in other words, had analyzed its key activities. It supplied them with resources far in excess of what seemed appropriate to the small organization which IBM was still in the late 1930s and early 1940s. But it did not do anything else.

There is a paradox to growth. If the organization wants to be a big organization tomorrow, it has to start acting like one today. This is said to have been the favourite saying of the owner of IBM. The organization which wants to be able to grow has to support the key activities or the level on which they will be needed after the growth has taken place. Otherwise it will lack competence, ability, and strength in the areas in which it needs them the most. But at the same time, such of the organization does not have the resources. Only by starving all but the truly essential can it balance the conflicting requirements of the present organization, i.e., an organization with very limited resources, and those of the organization of tomorrow, i.e., the organization which will demand fairly heavy support in major areas.

One way in which the chief executive of a small or fair-sized organization which has growth ambitions can prepare himself for the day when the organization will have outgrown management by one person is to build a top-management team at the earliest possible moment. The one way in which he himself can learn to be a true manager, rather than the boss, is by analyzing first the key activities the organization needs and his own personality. There will always be key activities which do not fit the top man, key activities which others can do better, and then others should do them.

In case of Sears, the owner analyzed the key activities and built a top management team of three people. As long as the owner stayed in the organization, he was the undisputed leader and chief executive. He was close to every decision. He did not hesitate to express his opinion and occasionally to overrule his associates in the top management. But these top management men were associates and not subordinates.

The top person or the top persons in an organization which has ambitions to grow has to know when the time for a change has come. The top persons have to know the symptoms which indicate that the organization has outgrown its traditional structure, its traditional management behaviour, and, above all, the traditional role of the top person. There is one reliable symptom. The top person in an organization, especially in a small or fair-sized organization which has been growing fast, is typically exceedingly proud of the persons who work with him. Yet this is the infallible symptom of the need for change since not one of the persons is quite ready yet. When the time for change comes, the top person always finds good reasons for not moving this man to that bigger responsibility, for not turning over a key area to another man, and so on. He always says that so and so is the best man, but he is not quite ready. This is a clear indication that the top man himself is not ready. The chief executive, the top person, in the small and fair-sized, but also in the big, organization which wants to grow has to impose on himself a change in his own role, behaviour, and relationships.

Often, the resistance of the top person to change is often blamed on his age. But the resistance to the change in behaviour, goal, and relationship which growth elicits from the top man can be just as great among younger men. There are cases where young men blocked the organizational changes. On the other hand, many older men have shown capabilities of imposing change on them. An organization is even fortunate to have an old or aging chief executive when the time for change in his role and behaviour arrives. It is much easier to get an elderly man to step down gracefully than to force out a man in his prime who is unwilling to change.

What is demanded of the top man is indeed a great deal. He has to accept that he no longer can be the skillful performer. Instead he has to become the conductor. He need not know everyone in the organization, on knowing every customer, on knowing everything which went on, and on making every decision and solving every problem, he now has to manage by objectives for managers and through their self-control. There is need of a management structure, where people are free to do the things in their own way.

To expect of anybody that he can make such a change suddenly is to expect the miracle of conversion. And even conversions in retrospect always have a long history of preparation. The top man who wants his organization to grow has to accept the role which he will have to play in the bigger organization long before it becomes a necessity. First, he has to think through whether he really wants the organization to grow, and whether it is really capable of growth. It is not necessary that for the top people, to be in a big organization is often more enjoyment, more satisfaction, and certainly a great deal more personal achievement and personal freedom. There is no reason to believe that top people in smaller organization are less happy, less achieving, or less valuable to the organization than the big organizations.

No organization needs to strive to be bigger beyond the minimum growth needed to stay abreast of its market. Growth beyond this must be based on capacity to contribute. But an organization which decides that it is happy in its position, satisfied with the contribution it makes and the market it serves, and content with doing a good job is not, by this token, a ‘less good’ or a ‘less valuable’ organization. In economic terms it may well be a far more productive organization than the giant organization. Growth as a goal, to repeat, is misconception.

But even if the top man decides that his organization needs growth, he still has a difficult second question to answer whether he wants the growth of the organization for himself. The top man who concludes that his organization needs to grow but who also then realizes that he does not want to change himself and his behaviour has, in conscience, only one line of action open to him. He has to step aside. The top-management man who realizes that he does not want to change also realizes that he will stifle, stunt, and throttle the very thing he has loved and built, his organization. If he cannot face up to the demands of his own achievement, he owes it to himself and to his organization to step aside.