5 barriers to sustained business growth
Every business is different but more or less all of them, from the sole trader to the large multinational, share that same inherent drive to grow in size. While some businesses may naturally plateau earlier than others in terms of their size, many will continue to grow larger and, as a result, increasingly complex.
Dealing with the internal changes and challenges that business growth brings about is what I want to talk about in this article and to do this I want to start by discussing a model for business growth that was developed over forty years ago, but still holds true today.
The evolution/revolution cycle
In 1972, Larry Greiner published a model of business growth which proposed that businesses went through distinct and identifiable periods of stability and crisis as they grew in size and complexity, something he referred to as the evolution/revolution cycle. Underpinning his ideas is the fact that the management and organisational structures in place in a business will eventually become untenable as the business grows to a certain size and inevitably lead to a crisis. After a revolution -- the implementation of a new managerial structure and organisation -- this internal barrier to growth can be overcome, allowing the business to evolve into its next stage of growth.
In this sense, Greiner’s model sees a strong link between success and adaptability -- both in the ability for business leaders to roll out new internal processes and working practices, and also in their propensity for cultural and managerial adaptability and willingness to delegate responsibilities away from the center.
We find the "Greiner Curve" a useful way of thinking about the "pinch points" businesses experience with growth. Getting detailed research data from ambitious, fast-growing businesses, gaining a better understanding of the symptoms – the pains and challenges these companies are facing -- and thinking about them in the context of Greiner’s crises, has helped us to develop our HGKC Growth Model (see below).
Plotted on a graph, with the X-axis representing time and the Y-axis representing the size of the organisation, we can see how each crisis punctuates a period of stable growth. The faster the business grows (ie the more acute the trajectory of the curve) then the shorter the period of time between these crises appearing.
Let’s look at these evolution/revolution cycles in more detail and explore each crisis and how it can be overcome.
1. A crisis of leadership
The first crisis a business will encounter, usually at some point early on in their growth, is the crisis of leadership. This will be all too familiar to some and involves the owners or directors of a young and growing company struggling to balance their delivery and leadership roles with the rapidly increasing number of day-to-day administrative duties. The only way to truly overcome this crisis is to bring in a new tier of professional management who can give the business direction and formalize communication and business management tasks.
2. A crisis of autonomy
Eventually more formalized structures and systems will begin to hamper the ability for operational-level management to adapt and react to a variety of business challenges and opportunities. As businesses grow, lower-tier managers will inevitably grow more specialized and experienced in their respective areas but will be increasingly constricted in their ability to apply this knowledge. This is a crisis of autonomy and it is only overcome by senior managers delegating more responsibility downwards to their teams.
3. A crisis of control
Delegating responsibility downwards to experienced managers is crucial to growing any business. Many senior leaders and business owners often find it a difficult psychological barrier to overcome, as it may feel like they are losing control. It is perhaps not surprising then that the third crisis in our growth model is a crisis of control. As decentralisation becomes more pronounced, senior leaders may feel like they are losing control over their managers, who begin to develop what Greiner referred to as a "parochial attitude."
The answer here, though, is not to go into reverse and re-centralize. Instead, business leaders must look to implement a review of how the business is organised. Among other measures, capital expenditure should be rationed based on returns and parceled out across the business, while certain business units can be merged into new product or service line groups. Stability is therefore returned by engendering new growth through coordination.
4. A crisis of red tape
Tensions between senior leadership (usually by this point based in a central HQ) and lower-tier managers will eventually resurface in a different form, as a crisis of red tape presents itself. By regaining and restructuring business functions around capital expenditure and centralizing technical and accounting functions, businesses inevitably become more bureaucratic. To a large extent this is necessary as the need for compliance, both internal and external, becomes more marked. But the emergent business culture can lead to a watchdog mentality, and resentment can ferment if this isn’t dealt with head-on.
The only way a crisis of red tape can be handled is by challenging the predominant business culture. Where bureaucracy and box-ticking has become unnecessary and self-defeating, it should be trimmed back. Overly process-driven regimes should be supplanted by a problem-solving mentality. Cross-team collaboration should be encouraged and innovation promoted. HQ staff can also be reassigned to consult with individual business units. These and other collaborative measures will help usher in a new period of stable growth.
5. A crisis of identity
Eventually the business leadership will realize that they no longer have the resources to fuel further growth, and that their ambitions can only be achieved by going outside the company’s boundaries -- seeking external alliances, collaborations or merger/acquisition opportunities. This will lead to a crisis of identity, as inevitably the company’s systems and processes, not to mention personnel, will be exposed to external scrutiny. This can be overcome by effective change management, open employee communication and proper due diligence involving HR and senior managers.
Pre-deal due diligence and should always take into account company culture. If a merger or acquisition is international then respective national cultures, as well as more practical issues like language barriers and local market conditions and labor markets should also form part of due diligence.
Evergreen challenges to business growth
While Greiner’s model proves that internal challenges to business growth can be predicted, when they are the result of internal growth itself, there are a variety of entirely unpredictable challenges that business can, and invariably will, face in their lifetime.
In this sense, challenges to business growth are evergreen and can include market forces such as strong competition, external funding, changing consumer habits, technological innovation, recessions and economic slumps. Dealing with these challenges means having a robust and strong business model that starts by recognising and addressing the internal and entirely predictable challenges we’ve outlined in this article. Get this right and your business will have every chance of success and continued growth long into the future.
Kim Jones is director of UK-based management consultancy High Growth Knowledge Company. She has many years of experience working with established companies and organisations in a number of industry sectors, including health care, retail and higher education, helping directors and business leaders overcome the challenges of managing sustainable growth. You can connect with HGKC on Twitter, Google Plus and LinkedIn.
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