Change in Organizations

A company's past has clues for management that are critical to future success!

We have taken text from a Harvard Business Review article, "Evolution and Revolution as Organizations Grow," written in 1972 by Larry Greiner. It is as relevant today as it was then. This article outlines the stages that a company goes through from its inception to maturity, and it details each management crisis and the solutions that lead to the next phase of growth.

"A small research company chooses too complicated and formalized an organization structure for its young age and limited size. It flounders in rigidity and bureaucracy for several years and is finally acquired by a larger company.
"Key executives of a retail store chain hold on to an organization structure long after it has served its purpose, because their power is derived from this structure. The company eventually goes into bankruptcy.
"A large bank disciplines a "rebellious" manager who is blamed for current control problems, when the underlying cause is centralized procedures that are holding back expansion into new markets. Many younger managers subsequently leave the bank, competition moves in, and profits are still declining."

These problems are actually rooted in past decisions rather than present events or dynamic market dynamics. It is important for management to understand where the company is in its evolution, where it is coming from, and where it is going.

Key Forces in development

There are 5 key dimensions that are essential for building a model of organizational development:

  1. Age of the company 
  2. Size of the company
  3. Stages of evolution
  4. Stages of revolution
  5. Growth rate of industry

Phases of Growth

During its life, a company goes through well defined phases, each characterized by a gradual, evolutionary period followed by a shorter, revolutionary period. Greiner describes 5 such phases in the growth of a company. These are shwn graphically in the following diagram:

Click on "Crisis" to go to description.
Crisis phase1 phase2 phase3 phase4 phase5

Phase 1 - Creativity

The first phase is characterized by the following: 
  • Founders are technically or entrepreneurially oriented
  • Communication is frequent and informal
  • Long hours and modest salaries
  • Reactive to feedback from the marketplace

The Leadership Crisis

As the company grows, new systems are needed - manufacturing, accounting, personnel, etc. The founders usually do not have the expertise to manage this new set of systems nor can they motivate new employees. this is the Leadership Crisis. The company may bring in management who can manage in this new environment or may flounder as founders try to "maintain the old guard."

Phase 2 - Direction

This phase is characterized by: 
  • Functional organization structure
  • Accounting systems
  • Formal, impersonal communication
  • Direction centralized to the new, top managers

Autonomy Crisis

As the company grows further, centralized management is inappropriate. Lower level managers come to possess better knowledge of the marketplace but are unable to react quickly. The second revolution comes from a demand for greater autonomy. Thus, the solution to the first phase becomes the crisis for the second phase. The solution to this crisis is to push decision responsibility to lower levels. Managers who fail to do so will see their companies passed by quicker organizations.

Phase 3 - Delegation

This phase is characterized by:

  • Greater responsibility in the plant and field marketing managers
  • Use of profit sharing and bonuses for incentives
  • Top managers manage by exception
  • Management becomes active in acquisitions
  • Communication from the top is infrequent

Control Crisis

Field operations become diversified and inefficiencies creep into the system. Top management lose control over planning, money, technology, and manpower. Parochialism in field operations characterize this new revolution. Management must solve it by bringing in special coordination techniques.

Phase 4 - Coordination

This phase is characterized by: 
  • Decentralized units are merged into product groups
  • Formal planning procedures are established and reviewed
  • Staff is hired at headquarters to initiate company-wide programs
  • Capital expenditures are reviewed and distributed across the organization
  • Return-on-Capital becomes the criteria for measuring field operations
  • Certain technical functions, such as data processing, are centralized
  • Stock options and profit sharing are used to encourage identity with the firm

Red Tape Crisis

A lack of confidence gradually builds betwen the line and staff, and between headquarters and the field. Systems begin to outlive their usefulness and field managers begin to resent formalized control by staff managers who do not understand the local markets. Staff personnel resent the "uncooperative" line managers. The organization has become unwieldy and everyone resents the bureaucratic system that has evolved. A new crisis is underway.

Phase 5 - Collaboration

This phase is characterized by:

  • Focus on solving problems through team action
  • Teams are formed from across functions
  • Headquarters staff are reduced and reassigned to teams which consult with field units
  • A matrix organization structure often develops
  • Formal systems are simplified and combined
  • Conferences of key managers are held frequently
  • Educational programs are utilized to train managers
  • Real-time information systems are used in decision making
  • Economic rewards are geared to team performance
  • Experiments in new practices are encouraged

The ? Crisis

Here Greiner speculates about the solution to this new crisis that comes about from employees who become saturated emotionally and "who grow emotionally and physically exhausted by the intensity of teamwork and the heavy pressure for innovative solutions." He illustrates this with a European company that has created a structure which allows employees to include a "reflective" period in their daily activities.

He also cites the Chinese practice of requiring executives to spend time in lower-level jobs. This is interesting in light of the increased contact that our western and Pacific industrial complexes have with the Chinese.

Implications of History

There are specific management actions that characterize each growth phase. These actions are also the solutions which ended each preceding revolutionary period. They are shown in the following table:

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5
Management Focus Make & Sell Efficiency of operations Expansion of market Consolidation of organization Problem solving & innovation
Organization Structure Informal Centralized & functional DJecentralized & geographical Line-staff & product groups Matrix of teams
Top Management Style Individualistic & entrepreneurial Directive Delegative Watchdog Participative
Control System Market results Standards & cost centers Reports & profit centers Plans & investment centers Mutual goal setting
Management Reward Emphasis Ownership Salary & merit increases Individual bonus Profit sharing & stock options Team bonus

REM is ready to visit your company for a consultation about your company's structure. What stage of growth are you in? Are you making moves that are counter productive in the light of your evolutionary stage? Sometimes it takes an objective eye to see the solutions and to be able to facilitate change in organizations.

Call now for a consultation!