Company Growth

I have founded or co-founded a number of startups, worked as a consultant for Fortune 100 companies, and been an executive in large corporations. What I’ve come to hold true is that as a company grows it experiences what Dr. Larry E. Greiner calls “growth phases.” Dr. Greiner postulated the existence of these phases in a 1972 paper titled “Evolutions and Revolutions as Organizations Grow.” These growth phases are characterized by certain periods of growth ending in a crisis. The duration of the crisis period can lead to what I call “growth plateaus” resulting in stalled or declining revenues. The phases and associated crisis are as follows:

Greiner Phase/Crisis	Behavior
P1. Creativity	Creative “start-up” atmosphere. Everyone can where any hat. Very agile and reactive to client demands. Co-founders motivated by partial ownership.
C1. Leadership Crisis	Managers need to begin specializing. New employees not motivated by ownership. Need for process and controls resisted. Co-founders still want to do everything.
P2. Direction	Functional organization structure is established. New employee incentives introduced. More formalized communications. First step of separating strategic and functional specialists.
C2. Autonomy Crisis	Organizational structure inappropriate. Lower level employees feel “disconnected” from senior management. mid-level managers start taking initiative on their own instead of following the process. Senior managers feel that they are losing power.
P3. Delegation	Concept of more autonomous business units. Senior leadership more vision based. Profit centers, bonuses and incentive programs used to stimulate motivation.
C3. Control Crisis	Senior management seeks to regain control of autonomous business units. Possible attempts to centralize control.
P4. Coordination	Autonomous business units merged into groups. ROI becomes an important metric in measuring a units success. Redundant cost centers centralized. (IT, accounting, etc.)
C4. Red Tape Crisis	Programs and process begin to limit business unit’s ability to generate revenue. Innovation is dampened. Organization is now to large for formal programs and rigid systems.
P5. Collaboration	More flexibility in management. Skilled managers effective at intrapersonal management. Teams exhibit more self-discipline. Focus on problem solving. Rewards are team based instead of individual based.
C5. Internal Growth Crisis	Problem solvers exhausted from intensity of the work. Effectiveness becomes unsustainable and cyclic.
P6. Extra-Organizational	Use of mergers, holding companies, networks of companies to sustain growth.

From the above, can you fit the company you are working for into any of the phases? Are you in a crisis? The funny thing is that employees usually seem to know if they are in a growth phase or experiencing a crisis. Depending on the quality of the management team the crisis may be temporary or may last for years. If you are stuck in a crisis for years, you will usually see a high volume of management turnover and hear phrases like “This has worked for us before. It will work for us now!” Then the revenue begins to slide. If senior management sticks to their guns, this is the beginning of the end.

What does the flipside look like? Good leaders embrace the ability to change processes and practices if they are no longer working. (Agile Management) Some, feeling they are only an effective as a Phase 2 manager, may choose to remove themselves from the organization completely. According to Dr. Greiner, organizations should not attempt to bypass phases or their associated crises. Instead he recommends a few tools to managers to help them move to the next step.