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Phases of Organizational Growth and Crisis

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Phase 1 | Phase 2 | Phase 3 | Phase 4 | Phase 5 | See also

There are five phases through which many companies (and parts of companies) pass as they grow. If you can spot where you are, then this can help you plan for the type of change you will meet. If you are consultant, then identifying the current phase can also help you choose an appropriate approach to help the company overcome its current crisis and move to the next stage.

Phase 1

Growth through creativity

When a successful company starts out, it is usually with a burst of ingenuity and enthusiasm that makes it stand out from the crowd. The founders are clever and passionate individuals who seek others who can join them in their quest.

The structure of the company at this time has been called a 'Garbage Can' model, where everyone is in the can together and each does whatever it takes to succeed.

Facilitating growth

To help the garbage can grow, a consultant can facilitate creative sessions to expand the product range and find ways to reach new customers on limited budgets. They may also practically help by 'mucking in' with whatever needs doing to help get to the end of each frantic week.

Crisis of leadership

The success of the small company can also be its downfall as new people join it and, not having experienced its evolution, find it chaotic. As opportunities abound and attention to an ever-wider product- and customer-base becomes spread even more, even the 'old-timers' can wonder which way to jump.

This is often exacerbated as the founders, who often are the inventors of the company's core products, are seldom natural leaders. And at a time when leadership is needed, the place feels more and more like a rudderless ship.

The question of who is going to lead the organization out of its state of confusion and solve management problems? The solution is to find a strong manager.

Phase 2

Growth through direction

In phase 2, a leader is found who can see the way forward and who re-shapes and reinvigorates the company. This may be the original founder. It may be somebody already in the company who has shown talent in this area or may be somebody brought in especially for the job.

This shaping also affects the senior managers of the organization who work together to clarify direction, decide what they will and (importantly) will not do and communicate this to everyone else.

Facilitating the change

To help this phase, a consultant will work with the founder and the senior team in their search for a leader. The first task is to determine whether the founder has the ability and motivation to lead and, if not, the whether there is someone else who can step up to the plate. Bringing in an outsider can be destabilizing, but can also be invigorating, so is done with great care.

The next step is to develop the leader, helping them understand the difference between leadership and management, identifying direction, making decisions and motivating people.

Crisis of autonomy

As the company grows further, extra departments and layers of management get added in order to handle the increasing complexity of the firm. However, this leads to a second management question, this time about who makes the decisions.

As creating a leader and leadership team pulled decision-making in to the core of the company, the local managers and individual professionals now start to feel stifled as they are not allowed to make their own choices. Growth can thus slow as people queue up for decisions whilst an increasing tension is felt as parts of the company try to pull away.

Phase 3

Growth through delegation

In contrast to the pulling in of control in Phase 2, the company now needs to loose the reins more, allocating authority where the responsibility lies in the departments and groups of the company.

With this new-found autonomy and feeling the responsibility to prove the decision as sound, operational managers now charge ahead with a new-found energy, fuelling greater growth.

Facilitating the change

Consultants can help this transition first by facilitating the decision to loose the reins of control. This can be difficult for a senior team used to total power, but it can also be a relief not to be constantly pestered with requests for decisions where the senior team actually know less and less about what the right thing is and are increasingly likely to accept recommendations anyway.

Having given up much control, the senior team can now be coached more in strategic decision-making and managing in a way that encourages and trusts decisions from lower down the hierarchy. It is also a good idea here to spend time with the operational managers to help them feel and effectively handle their responsibilities.

Crisis of control

Perhaps unsurprisingly, the loosing of control leads a certain amount of chaos, particularly as junior managers grab their new authority and make varying decisions that may be at odds with one another and with the central strategy.

This may make senior managers regret their decision to delegate, but the cat is now out of the bag and, with the increasing size of the company, a return to them making all the decisions is impractical.

Phase 4

Growth through coordination

In the now-familiar pattern of taking and loosing control, this phase pulls back towards the core, reining in some of the more wayward managers by establishing a more coordinated structure.

This is often done by divisionalizing, separating the company into semi-autonomous sub-companies which have their own mission but which also report into the central core. This is typically facilitated by adding corporate staff who shuttle between the divisions and the senior team, helping communicate direction and assessing how well strategy is being implemented.

Facilitating the change

Consultants can help the transition into Phase 4 by facilitating first the decision to form sub-groups and divisions and then in the creation and establishment of these organizations. They may also train people in the corporate organization in the new skills of communicating with and the delicate art of managing these new sub-companies.

Crisis of red tape

In building and maintaining this centralized control, many corporate policies and procedures are typically developed. Whilst individually sensible, these lead to another period of choking decisions lower down as divisions are confused by and rail against methods that do not seem to help them do their business in local conditions.

Phase 5

Growth through collaboration

In a final loosing of control, the company may well now dispense with, or at least significantly reduce, the structures of control. Communication improves and increases but with informal as well as formal methods as networking is enhanced, matrix forms are developed, cross-boundary teams reduce confusion and the company starts to feel like one company again.

Facilitating the change

By now the organization should be quite mature in its thinking and more a collective and subtle method can (and maybe must) be used to help it forward.

The transition to effective collaboration can be facilitated by such methods as large-group conferences and open dialogue, where the purpose of the whole company is re-examined and the future is challenged in an engaging process that encourages everyone to participate.

Crisis of ??

Beyond Phase 5 are structures such as open networks and loose groups of people who do not work for the same company but come together to work on projects.

There will of course be some crisis that causes the oscillation of contraction and expansion of control to continue, such as where collaboration becomes an end in itself and the people are too busy 'hugging one another' to pay close enough attention to customers and the marketplace.

See also

Facilitating change, Motivation, Control

Greinier, L. E. (1982). Evolution and revolution as organisations grow, Harvard Business Review, Jul-Aug