Do you know what stage of the organization life cycle your business is currently in?
Most business managers understand product seasonality or product life cycles but do not consider the organization life cycle.
In simplest terms, the five stages are:
- Startup
- Growth
- Maturity
- Decline
- End of business
Many businesses fail in the first stage of business startup. Consider these findings from StatisticBrain.com, that show the success rates for companies remaining in business after their initial inception.
- 25 percent fail in the first year
- 36 percent fail within the first two years
- 44 percent fail within the first three years
- 50 percent fail within the first four years
- 71 percent fail within the first 10 years
With these failure rates, it’s difficult to advance far beyond the startup phase. To understand what is happening at various stages of an organization’s life, use the Greiner Growth Model. It contrasts the size of the company with the age of the company.
The Greiner Growth Model has five stages. Each culminates in a significant hurdle. If the company is to continue growing, change is needed to move to the next level.
Stage 1: Growth through Creativity
This is a classic entrepreneurial stage. The business is driven by the entrepreneur who is passionate for a particular product or service. The entrepreneur’s main objective is to increase sales. This stage can also be chaotic because the success of the company is based on opportunistic initiatives.
In this early stage, the company will grow to the limit of the entrepreneur. This constraint might be the total hours that the entrepreneur can commit, or that the entrepreneur does not have the management skills to lead the organization beyond its opportunistic nature. Stage 1 usually ends in a crisis of leadership.
Stage 2: Growth through Direction
In this second stage, either the existing entrepreneur or a new leader creates a vision for the organization and directs resources to accomplish the vision. This stage has the power and decision-making at the top of the organization.
Other employees might see this model as stifling because the leaders retain all the authority and decision-making powers. This stage typically ends in a crisis of autonomy.
Stage 3: Growth through Delegation
Senior managers understand that they cannot continue to make all the decisions. They expand the decision-making authority to middle managers. Empowered managers begin to make good and bad decisions. The bad decisions get the leadership’s attention.
The top leaders wonder how they can enforce uniformity and standards in this newly delegated decision-making process. This stage ends with a resulting crisis of control.
Stage 4: Growth through Coordination
Leadership implements policies and procedures, coordination of resources and standardization of practices. Initially, the standardization allows consistency in products and services. As the organization grows, the result is bureaucracy. The stumbling point for this stage is a crisis of red tape.
Stage 5: Growth through Collaboration
Leadership has recognized that the business model has become too constraining. As a result, the organization evolves with cross department or divisional matrices to accomplish project goals.
The organization also tones down its formal nature and inserts informal processes to speed up the decision-making or to streamline the bureaucratic practices. Leaders understand that they must relax control to allow managers to execute appropriately.
The organization can use the stages to best determine how to grow the company. Since each of the stages ends in a particular crisis; you only need to identify the crisis and then take the appropriate action to reach its desired goals.
It may also be necessary to ask difficult questions that go below the surface of a presenting issue. For example, a company may be having difficulty increasing revenue. On the face of the issue, we might conclude that the company needs to: decrease prices, extend more credit, become more efficient, find more customers, etc.
When we delve beneath the surface issues, we may find that there are cumbersome approval processes, lack of a unified approach to targeting customers, wasteful procedures, etc. The trouble that an organization is having will align fairly closely with the individual organizational stages.
If an organization can successfully identify where it is in the Greiner Growth Model, then it can move all the way back to either Stage 1 creativity or Stage 2 vision and jumpstart growth. Lessons learned in previous stage experiences may allow the business to skip the stumbling blocks the second time through.
Jim Lindell is president of Thorsten Consulting Group Inc., a Wisconsin-based provider of strategic and financial consulting, professional speaking, training and executive coaching. He has worked with a variety of industries including manufacturing, health care, not for profit, distribution and food processing. He chairs two groups for TEC Wisconsin.
