Chapter 9 Keeping the Focus on Growth How to measure growth Why growth stops Success sets up failure What is organization? 1. DIRECTION Samsung's CEO school 2. PROPULSION Vision Compensation What really counts? 3. STABILITY What about culture? Never change just one thing
Organization is the vehicle for a businesses' growth ambitions.
Keeping the Focus on Growth
Excerpt from Go For Growth
By Robert M. Tomasko
A few years ago bread lines were common in a well-off Washington D.C. neighborhood. But they had nothing to do with the recession or cutbacks in federal jobs. Politicians, bureaucrats, lawyers and the occasional media celebrity lined up daily outside a small store on Connecticut Avenue, a few miles north of the White House. On Sundays the crowds would reach 250-300, and Art Buchwald was known to stop by and entertain the patient shoppers.
The store was called Marvelous Market, and the wait was for an opportunity to purchase one of its speciality breads. Its baguettes, boules and sourdough loaves were the talk of the city. Made from a special, time consuming process involving fermented dough paste starter and imported ovens, the store's products were praised by every Washington food critic. The town's then-top chief, Jean-Louis Palladin, allowed only Marvelous Market breads to be served in his elite Watergate restaurant. Demand was so strong that customers were rationed, Soviet Moscow-style, to no more than two loaves a visit.
The bakery was the dream-come-true of its owner, Mark Furstenberg, but its rapid growth was to become his worst nightmare.
Meeting high demand with high capacity
In 1993 Game Player Starbucks began to saturate the Washington area with coffee shops and, naturally, wanted Marvelous Market to supply all their breads and pastries. A million dollar plus deal was signed that, in retrospect, was probably the straw that broke the camel's back. Furstenberg was initially skeptical, but the Starbucks business proved necessary to provide the level of sales needed to keep the central production facility running economically. Growth tends to breed the need for more growth. Soon Furstenberg started feeling as though he was running a trucking company, not a bakery, and began worrying about the vast quantities of cash all this growth was consuming.
In addition to managing a mini-logistical empire, Furstenberg - a stickler for total quality - spent every available hour in the centralized bakery, brooding over the vagaries of his customized baking processes. The result of these preoccupations, no time to visit stores or keep in direct contact with customers (the original store featured ovens just behind the sales counter). Furstenberg once wrote a chatty, recipe-filled newsletter welcomed by his customers almost as much as his bread. But the demands of growth left no time for it, either.
A "marvelous bankruptcy"
Furstenberg has no illusions about his situation. In a mea culpa newsletter to customers, he confessed to being drawn-in to premature expansion. What was not realized, he admitted, was how much that growth would change the character of the company. "Business failure," he wrote, "is a powerful teacher. Nothing succeeds like failure." Now Furstenberg's efforts are directed "to the principles on which we started this business." He calls it "a great step backward." I call it real growth.
Four growth paths in five years!
· Rule Breaker (no bread anything like their bread existed east of California), to
· Expansion-driven Game Player, to
· Improvising survivor.
And, most recently, the business is showing signs of settling down as a Specialist, focusing on selling a limited range of breads and (higher margin) prepared foods to eat with them. Had it started on this path to growth originally it most likely would have met escalating demand with higher prices and only gradually expanded its scope, probably including bread baking ovens in each new store, paid for out of the increased margins.
Marvelous Market's experience is a near classic example of growth getting out of hand, which is probably why so many other businesses have had similar rapid expansions followed by even more abrupt declines. An almost identical story could be told of People Express airline, with a less hopeful ending. It was merged out of existence into Improviser Continental Airlines, never making it to the Specialist stage.
No path goes on forever
Similar dynamics characterize business growth strategies. Some end because they are successful: companies following them reach their growth objective, and need to find another. In other situations the path is less fruitful because of an unexpected shift in market dynamics, or the business lacks the requisite skills to successfully continue in that direction.
How do you measure growth?
· For Rule Breakers, growth is measured in revenue increases from new products. These businesses take an "us against them" approach to their markets, with success frequently defined as how big a mark they leave, how much new demand they create.
· Game Players are more straightforward: growth implies market share gains, relative success against like competitors. Game Players grow in turbulent, high growth markets. Absolute targets mean less than ones that reflect relative standing.
· Rule Makers - the undisputed industry leaders - focus on a range of objectives, especially profit growth and expansion of their dominion. But often their most important goals are defensive: success at fending off rivals who want to destabilize or dominate the market.
· Some Specialists are like mini-Rule Makers in their particular domain, and have similar performance measures. Many more are concerned about the extent they have penetrated their particular niche. Most Specialists judge themselves through a rear view mirror: doing better than they did last year is what counts most.
· Most Improvisers are just glad to be able to wake up each morning and find themselves still alive. Positive cash flow bears heavily on the minds of some, while all should be equally concerned about their performance in learning and generating new insights about rapidly changing customer needs.
No single measure of growth is appropriate for all businesses. Growth in size can be counterproductive for Improvisers, some of the most successful are ones that have cut revenues. Large sales increases can give false comfort to a Game Player if its peers are enjoying even larger revenue growth. Obsessive attention to profitability can easily stunt a Rule Breaker's growth. Considering this need for variable measures of success, what can be safely said to apply across all growth paths about why some companies fail to thrive?
· A company's outside world changes in ways that what the business is especially good at no longer provides significant advantage.
· A company's inner world, its organization, looses its sharp external focus.
Both reasons go back to the relation between a business and its environment, its customers, suppliers, technologies and competitors. Thinking about a company without simultaneously examining its surroundings is pointless.
Growth stumbles when companies become over adapted, either to yesterday's market realities or to the internal struggles that take place within every organization. In the words of Canadian business professor Danny Miller:
"Organizations lapse into decline precisely because they have developed too sharp an edge. They amplify and extend a single strength or function while neglecting most others. Ultimately a rich and complex organization becomes excessively simple - it turns into a monolithic, narrowly focused version of its former self, converting a formula for success into a path toward failure.
"Firms whose performances are poor or whose intervals
Success sets up failure
· a "culture of busyness" not open to distraction and new inputs,
· ego-centric managers, only able to see the world through their own perspective, and
· programmed behaviors, the ability to shock a competitor with surprise is lost.
Eventually companies with these "early warning signs" become rigid and myopic. They gravitate to market segments where they are most comfortable, not necessarily the segments riches in growth opportunities.
Both Furstenberg and Miller have the right diagnosis. The important issue, though, is what to do about it.
Anticipating, and then avoiding, growth stoppage requires a degree of courage, and the foresight and strength to know when to stop plunging ahead with the success formula of the past. Instead the particular bottlenecks or limiting factors to growth must be identified early, company-by-company, situation-by-situation. These are the points of greatest leverage in the business.
Growth is a juggling act
The purpose of the descriptions in the past five chapters was to lay out alternative paths to growth, ways to expand in place. Each has pros and cons, each requires certain kinds of people and organization, and each is best in differing types of markets. After a path is chosen, the issue becomes how to run with it. For this, the business organization has to be internally aligned with the growth strategy.
Some markets situations do not fit neatly into one of the five paths, and some individuals are able to contribute to more than one growth strategy. For these companies a blending of paths provides the best match to reality.
Eventually, with either a "pure" or "hybrid" strategy, - for the reasons outlined earlier - growth slows. This is a signal that either the elements of the "blend" need adjustment, or the time to change course completely is at hand. Skill at managing on a hybrid path can be very useful when the time comes for a complete change of direction. This is how seeds for renewed growth are planted.
Growth failures frequently occur when rather than moving toward other paths, a company meets adversity with a renewed commitment to do more of the same. Short term growth can also cover up serious underlying weaknesses. Many companies have multiplied their size and earnings through aggressive acquisitions, while at the same time allowing these new streams of profits mask management's inability to continue growing the core business. These situations ultimately unravel, but often not until serious damage has already been done to the company's capacity for continued growth.
Sustaining growth over the long haul, across decades for example, requires skill at changing course. The company's structure will most likely go through several transformations to keep pace with its markets. Growth during the medium term, a stretch of time ranging from three to seven years, can be accomplished for many companies through a combining of paths. In the short run, over the next year or two, assuming a good match has been made between path and situation, the primary growth issue is one of focus. Here is when it pays to ignore Danny Miller's advice and get simple.
All three of these times frames must be managed simultaneously if future growth is to be assured. This is a difficult juggling act. The ability to pull it off is what has made "built to last" companies like 3M, Hewlett Packard, Joihnson & Johnson, and Proctor & Gamble a breed apart from their competitors.
Keeping the eye on the ball
A company's growth path is largely shaped by market demands. Employees - the only real driver of growth a company has - are a product of genetic make-up, past experiences, current knowledge and skills, social environment, and ability to adapt as circumstances change. In the short run, neither path nor people are easily changeable.
What can more easily be manipulated is the link between the two, a company's organization.
Talk to a more perceptive manager and she might try to describe the rich array of informal relationships within every company: who talks to whom, who likes whom, who trusts whom. These are the all-important "glue" that really holds a business together, and often determines what can or can not happen.
Or meet with a leading edge academic, like University of Chicago's Ron Burt. He is likely to quickly engage you in a discussion of "social capital." This is his unique way of measuring the ability employees have, through the networks they belong to, to get real leverage from the "human capital" they represent.
More cynical business observers see organization as what gets in the way of people otherwise trying hard to do their jobs. Organization, they feel, is an overhead cost, something to be minimized. It reflects history more than promise, and showcases past strategies instead of today's basis of competition. Organization, according to some wags, is what blinds a company's to its future opportunities. Few structures seem to be effective power bases for the capabilities critical to future growth.
Organization is a vehicle for business growth
Organization is the vehicle for a businesses' growth ambitions.
It is a vehicle that travels somewhere, not a machine that runs. When it works, it focuses everyone's efforts toward growth. Organization is what links employees with the company's growth path.
An organization works the same way a vehicle does. It perform three critical functions:
· sets a direction,
· has a means of propulsion, and
· provides a sense of stability.
There are many kinds of vehicles, just as there are many types of companies. But they all have these three attributes. Reduced to its simplest from, a sail boat has a sail for propulsion, a rudder for steering and a hull and keel for stability. Planes and autos have their counterparts to these: steering wheels, engines, fuselages and the like. What about businesses....
1. Organization provides direction
One leader is not enough
The best defense against myopia is diversity. Systems theorists have developed what they call "the law of requisite variety " to explain why this is so important. This principle implies that, if a company is to grow in anything but a monolithic marketplace, there must be at least as great a variety of perspectives inside the organization as there are a variety of complications in the market.
A few doors down from Mark Furstenberg's Marvelous Market on Connecticut Avenue is another Washington institution, the Politics and Prose Bookstore. This store, founded by his sister, celebrated its tenth anniversary the year the bakery declared bankruptcy. Politics and Prose has had a less meteoric path to growth, but it is nonetheless a business that has thrived with a history of near-steady progress. And it has done so in the face of strong challenges to the ongoing existence of other independent bookstores, the rise of the Game Playing superstore chains likes K-Mart's Borders Books and Barnes & Noble.
Cultivate diversity of opinion
The bookstores' growth direction is set by a team of two, founder Carla Cohen (nee Furstenberg) and store manager Barbara Meade. Together they model the blending of perspectives that is just as essential in a growth-minded Fortune 500 company as in their 30 person business. They are both very different, and they know how to use these differences to the store's best advantage. Barbara is a morning person, coming in before the store opens to review the previous day's sales and process book reorders. Carla comes in later, and stays in the evening to host the store's frequent author talks and readings.
This team does not quarrel, but they frequently disagree. Business issues are seldom left unaddressed, according to Barbara. Their personalities complement each other in ways that contribute to each other's growth as well as the businesses. Barbara likes being an expert, and is an experienced avoider. Carla is more direct, and a skilled confronter. In spite of contrasting styles their staff seem to continually call each by each other's name. They have no visible physical resemblance, so this is most likely a symptom of the cohesion their skill at diversity management has brought to the store. (Both Coca-Cola and Disney's greatest growth periods also occurred when these companies were led by similarly complementing duets)
As in businesses of any size, the personal values of top management play a big part in direction setting. When the large chain booksellers refused to carry Salman Rushdie, Politics and Prose's owners put a big poster of Satanic Verses in the front window, reminding customers what an independent book store is really all about.
Laying the groundwork for growth
Korea's $54 billion growth giant Samsung is led by a chief executive with a strong sense of personal direction and a keen ability help his top managers develop their own. Lee Kun-Hee knows how to encourage individuality in a culture rife with Asian consensus and conformity. When he became aware of how many American retailers were not taking Samsung's products seriously - something only vaguely appreciated by his inward-looking management team - he flew the entire group to Los Angeles so they could see for themselves how poorly the products were positioned. Then the group returned to Seoul to debate a problem they all now knew first hand, rather than meeting to devise a strategy to respond to their "bosses' problem."
Samsung's CEO School
Why is Lee going to so much trouble to "organize" the experiences of his management team? He wants Samsung to grow, and he knows - traditional Oriental logic aside - that growth has little to do with chance or luck. "Any attempt to strength one's competitiveness," he says, "by making temporary adjustments without having the fundamental in place is similar to building castles in the sand."
2. Organization provides propulsion
· Appeal to employees sense of identity and idealism by using a widely shared common vision of where the business is and is going.
· Select appropriate growth-oriented performance measures and couple them tightly to the incentive and reward programs that are in place. Managers who enjoy making things happen through carrots and sticks tend to like this approach.
· Ensure the "rules of the game," both written and unwritten, are in accord with the business' growth plan. This approach works for both managers that are comfortable with the more Machiavellian side of organizations, as well as those who believe that most employees want to do what is expected of them but often find expectations unclear or conflicting.
The vision thing
In 1991 Prudential stressed to employees and customers alike that it was the strongest insurance company in the U.S. The Moody's rating service disagreed, taking Prudential's top rating away because of too many investments in junk bonds and real estate.
The next year the company promulgated an update of company values. Topping the list was the importance of the Pru being "worthy of trust." Within months the securities arm of the company found itself embroiled in its worst-ever scandal involving sales of oil, gas and real estate limited partnerships. And to add insult to injury, the company's symbolic logo, featuring the "rock," was revealed to be a sketch of an outcropping in the Jersey Meadowlands, not the Mediterranean's famous Rock of Gibraltar.
Vision statements should be aspirational, but they also need to be strongly grounded in current reality. Consider the zig-zags Xerox took to become more realistic about its corporate identity.
From "designing the information age" to "processing
Xerox initial response, a new mission statement. The company would become, CEO Peter McCullough declared, a business built around a vision of "the architecture of information," a company dedicated to providing products for the vaguely-defined "office of the future." Catchy phrases, but only loosely linked to Xerox's market reality. McCullough launched a Rule Breaker-like attempt to invent new technologies in a Silicon Valley-based R&D center. To fund the effort, several cash-rich insurance businesses, with minimal relationship to Xerox's core operations, were purchased.
Soon bad turned to worse. The ideas Xerox's collection of brilliant researchers developed found easier expression in other company's products, especially Apple Computer's Macintosh. The financial service companies ate more cash than they threw-off.
Several reorganizations and two chief executives later, Xerox narrowed its focus to a more achievable mission: "to be the preeminent document company," signaling that a heavy dose of reality had returned.
Stirring people to action
When a business is able to couple employees' personal values with those of the company, an incredibly strong motivator is created (and a very cost effective one, also, considering all the money wasted on expensive executive compensation programs that provide generous rewards for middling, dispirited performance). Employees are much more willing to give up some of their autonomy, and make some personal sacrifices, when they feel bound through a leader in a shared enterprise. The less this is felt, the more concerns about individual welfare and personal entitlements become paramount.
Put missions in writing only when it's time to change them
Never carve a mission statement in stone. Companies that have made especially effective use of these tools, Hewlett Packard and Johnson & Johnson for example, have reviewed and revised them many times. The J.& J. "credo" is subject ot periodic "challenges" by thousands of J.& J. managers. The statement of the "HP Way" originally penned by the company's founders has been revised at least four times. The purpose of these confrontations and changes is not so much to craft an "optimum" statement (words seldom get a business anywhere), but to generate energy and excitement about the course revision the company is about to take.
Making visions work
The best time to draft a corporate mission is immediately after a major business victory. Significant growth-inducing events - the launch of a new product, the upset of a longtime rival, the receipt of a sought-after quality certification from a big customer - can anchor the aspirational tone of the vision to a concrete reality experienced throughout the company. Write the mission when the taste of victory is still fresh. The mission-setting process can then foster learning aimed at discovering:
· what was done right and how can the company keep doing this,
· what went wrong, and what can be learned from that.
Missions don't set direction, people do
Visions come alive the easiest when they reflect an emerging or existing consensus throughout the company. Mission statements can be most effective for communicating and reinforcing a direction already chosen. Even more effective, in many circumstances, can be a company's compensation system.
Compensation is too important
to be left to experts
· How much is appropriate - an issue on which many hours and dollars are spent in exhaustive surveys (the net result of which is to drive industry pay levels higher - few companies want to pay at or below "average."
· How fairly it is it being doled out - an important concern that if not addressed will lead to internal dissension and distraction from the real purpose of the business. Establishing pay equity, a threshold requirement for every company, however will not by itself drive growth.
· What forms of pay are best - an issue that can never finally be resolved, but leads to countless study as innovative forms of compensation keyed to the latest tax law changes or newest management fads.
Unfortunately, from a growth perspective, all the heated debate that has gone into issues like these has distracted attention from a more strategic concern - what is the tangible impact of compensation on the people the business depends on for grow? Managers have for too long become the prisoners of their compensation experts.
Look at the impact of incentives, not the techniques
· What are they actually encouraging people to pay attention to?
· What are they actually encouraging people to do?
Keep the technical experts far away until managers are comfortable with their understanding of these issues, and can also clearly articulate:
· What will the business need attention directed toward if it is to grow?
· What actions will growth require on the part of employees and managers that are not currently happening?
The gap between answers to these sets of issues should, then, set the agenda for the most productive use of compensation professionals.
What really counts?
After a few months in a new job most alert, career-minded people have some fairly good idea of what it takes to survive, get things accomplished, and gain - should they want it - influence or advancement within their new employer. This understanding may be based on what is read in the company's official policy statements or what is heard in orientation and management development programs. But it is more likely gleaned informally from personal experiences and interactions with new colleagues and friends.
These "are the secrets that everybody knows." Decoding them is the first step to any successful change effort. This involves talking with the people most essential to the businesses growth plan, and understanding:
· What is most important to each,
· How do they feel they need to behave to get what they want.
Propel growth by changing the unwritten rules
Samsung changed the official rules to deal with an unwritten rule that limited its employees ability to be productive and grow. As in Japan, typical office work hours in Korea are from nine in the morning to eight at night, followed by the unofficial practice of rounds of late-night drinking with work colleagues. Now employees start work at 7 a.m. and must finish by 4 p.m. Morning productivity has soared, and employees looking for early-evening activities are "informally" expected to spend their freeded-up time in foreign language or self-improvement courses.
3. Organization provides stability
Businesses derive their stability from the ways jobs, teams and departments are structured. This is usually a process of dividing the labor.
Pulling the business together
· Cross-functional teams and special coordinating groups
· Permanent brand or project manager jobs
· Temporary trouble shooter or "czar" positions
· The management structure itself
Other forms are "organizational glue" are less obvious, but just as effective:
· Training and other forms of managed socialization - especially effective when customized and done internally, with "role model" managers as the faculty.
· Shared incentives and bonus pools between employees, members of functional departments that need to collaborate, or among team members.
· Information networks (interconnected personal computers are one approach, traditional bulletin boards and large charts indicating progress toward goals can also serve this purpose well)
· Planned rotation of key employees to spread new techniques and perspectives.
None of these structures and techniques will, by themselves, promote growth. For that to happen, programs must be in place to invest in people.
Invest in growth by investing in people
Many companies talk about preparing employees for globalization, and the challenges of find future growth in off-shore markets. Samsung is one that is doing something about it. This company knows what many other growth-minded businesses keenly appreciate: the more people there are in a company who can imagine what it can become, the more likely it is to get there.
Eskimos seldom buy refrigerators
Most of the best business growers recognize the vital importance of people in the growth mix. Some, like Federal Express and Southwest Airlines, go so far as to make sure management recognizes that most of its time, after setting a direction, is to be spent supporting the development of human resources. This is another job that in growth-companies is too important to be left to the experts. Herbert Kelleher, Southwest's CEO, says his philosophy is that "our employees are the customers of our management, and that we are here to serve them," not the, too common, other way around. Managers need to behave more like coaches if the quarterbacks are to do their quarter backing.
What about culture?
Recall business meeting of a decade or two ago. Most likely, more than half of those attending were smokers. By the meeting's midpoint, a cloud of smoke filled the conference room. The cloud was real. It was visible, it could be smelled (and inhaled). But it was not something anyone could directly manipulate, or "get their hands around." Its nature was do elusive for direct management. But it could be changed. Windows and doors could be opened, an exhaust fan turned on. But these, like many contemporary change management programs, were only temporary in effect. Turn off the fan and the cloud quickly returns.
The only way to change, in a lasting way, the nature of the smoke cloud is to change the nature of what is being smoked. Substitute, say, pipes for cigarettes and cigars. Ban Gaulois and issue sweeter smelling Kentucky tobacco. Or, prohibit smoking all together.
The same is true with corporate culture. Its nature is like a cloud that surrounds a business. It is real. It does effect behavior. Corporate culture is a good indicator of the inner working of the business. But it seldom succombs to a frontal assult. Changing culture, in a lasting way, requires changing the nature of what produces it - the structures and managemnet practices that direct, motivate and stabilize the business.
Get your ducks in order
A ompany is positioned for growth when its people are. A growth-oriented organization is one in which its three functions are working in tandem to focus employee's attention on and direct actions toward the requirements of the path it has chosen.
Half a century ago, during the company's first golden age, the founder of Chrysler commented on the nature of the company he created. He thought first of the people that worked with him, not his cars: "When all these minds, through organization, are made to function as a single intelligence, each member of which is a special gifted part, why then you can expect to produce magic." That is a loft aspiration for any organization - all its minds functioning as a single intelligence - but it is a target worthy of a business searching for growth.
Identify the disconnects
It is very common to find a tightly focused executive team is trying to move a business in one direction, but the performance measures and incentives motivating employee behavior along a different path. Or, the company's staff share a common vision of growth through global expansion, but its structure dictates functional autonomy and few of the employees have had experience working anywhere outside the U.S. Common visions only come to life when a structure is present to support them. Otherwise they are mere day dreams. Structures alone are confining prisons of daily drudgery when they lack a source of direction and energy to bring them to life.
A phone company with all the wrong numbers
Following a good hunch, she had the assistants collect copies of all the management-by-objectives targets each member of the senior executive team was expected to be working toward. When she examined them it was quickly obvious this group was a "team" in name only. The executives as a whole had 58 MBOs. Of this only 6 objectives were shared among the top managers. The remaining 90% were keyed to specific departmental or divisional goals. And, to make a bad situation worse, when the vice president talked to the other officers about the six common targets, she discovered the interpretation of these goals varied widely. When the focus of the group at the top of the hierarchy is this diffuse, it is unlikely those in the middle and bottom will be able to find much in the way of common ground.
You can never change just one
Imagine a house renovation. The master plan may call for a wall to be removed, but before the demolition crew arrives blueprints must be carefully studied, lest the wall be load bearing or contain wiring to be rerouted or plumbing than cannot. Good architects and builders do this instinctively, but many organization change programs are guided more by a narrow engineering mentality. Architects are big picture, master plan-oriented thinkers. Engineers focus on change on component at a time. Architects make the best use they can of the materials they have at hand. Engineers are more attuned to imposing the 'right answer" on the immediate problem. Often, in organization change, the best answer is the one that results in the "best fit" among Direction, Propulsion and Stability.
Building an organization to serve as a growth vehicle starts with an appreciation of the organic, system-like nature of how many effect the people working in it. Create a blueprint first, map out the nature of and the interaction among the businesses' "rudder," "sails," and "hull" as they are now. Then move forward on several change fronts simultaneously.
Marching in lockstep off a cliff
© Robert M. Tomasko 2002