Pitfalls of rapid growth

PITFALLS OF RAPID GROWTH

PITFALLS OF RAPID GROWTH IT LOOKS LIKE GROWTH IS BACK ON THE AGENDA. WE EXPLORE WHAT IT MIGHT DO TO YOU, YOUR CLIENTS AND YOUR ORGANISATION AS YOU TAKE A TRIP ON ITS ROLLERCOASTER, AND EXPLAIN HOW TO PROTECT AGAINST ITS MORE NEGATIVE EFFECTS. Many of the organisations we work with are planning for growth, or have experienced periods of incredibly rapid growth in their history. They each have a unique story to tell about their journey. Much is positive (new clients, new territories, more capable people, greater profitability); some is less so. There are some common growth hangovers that present across most contexts over time which can eventually manifest as potential roadblocks to ongoing success.

Nice pitfalls to have…..

Let’s be clear, growth is one of the nicer problems to have. But, left to its own devices it can create some less desirable side-effects; all of which are manageable if the appropriate focus is placed upon them. The fact is that all systems are prone to entropy and an organisation is no exception - entropic tendencies of the organisational system can increase through a period of unbridled growth.

ENTROPY - LACK OF ORDER OR PREDICTABILITY; GRADUAL DECLINE INTO DISORDER. WITHOUT CARE AND ATTENTION EVERYTHING WILL TURN INTO CHAOS. Growth tends to generate greater complexity and risk. The systems, processes, capabilities and funding required after a period of growth, and indeed to enable it, are often markedly different from the ones that sufficed at the start of the curve.

Growth typically creates major change across all areas of an organisation and some degree of imbalance is to be expected, and perhaps welcomed – disruptive change is the bedrock of innovation after all.

Our work with organisations who have experienced high growth reveal 10 common pitfalls. Each organisation is different and therefore experiences a different combination; some organisations navigate the growth well and emerge with few areas of concern whilst others encounter potentially disruptive problems.

LEADERSHIP CAPABILITY Probably the biggest risk factor in a growing organisation is leadership capability. Its impact is often unclear until part-way through the growth journey. Existing leaders need to adapt to a fast-changing environment, learning to lead larger and less connected teams across new sectors and geographies, to think strategically and make sound and timely decisions in an ambiguous environment where there are no ‘right’ answers, to deal with increased complexity and conflicting data, and to make the most of the team around them through effective engagement and delegation. Growth also demands a greater number of high calibre leaders – the future leader dynamo needs to be established to ensure the right capacity and capability levels for the future organisation. Growth can be thwarted where skilled leaders are not readily available and it is often just when an organisation needs strong leadership most that it finds it in short supply.

ORGANISATION STRUCTURE Even planned growth tends to occur in a non-linear way. Strategic plans make way for opportunistic moves and the organisation moulds itself to the decisions made along the way. This approach works well to a point – that point being when cracks start to appear in the value chain and the configuration of the organisation creates unhelpful bottle necks, blockages, silos and ivory towers. Fast growth can lead to a confused structure 0203 751 6345

with a lack of clarity around capabilities, accountabilities and reporting line.

INFRASTRUCTURE & BUSINESS PROCESSES The resources required for infrastructure development and business process capture and re-engineering is underestimated in nearly every organisation, whatever its life-stage.

As a result, the infrastructure and processes that served the organisation well earlier in its life are left to carry the burden created by growth and at some point hold the power to bring it to its knees. It may seem superfluous to map processes and create more sophisticated infrastructure just at the point where resources are stretched in every direction; but ignore this area at the future organisation’s peril. Spreadsheets and manual data processes for back office systems may cope, to a point, but they will become unwieldy and highly ineffective and inefficient over time. The costs involved in the workarounds to keep them ‘fit for purpose’ typically outweigh the investment required to re-engineer.

BUSINESS CAPABILITY Growth often alters the business capabilities that drive an organisation’s success. Growth organically re-configures the value chain and the Target Operating Model; demanding new capabilities and devaluing others. As business capabilities change and growth becomes established, enabling capabilities

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GALLUS CONSULTING become ever more important. Where organisations have not established the new order of importance of business capabilities and the enabling capabilities required to support these, focus can be placed on recruiting for and developing those with less impact on organisational success.

CULTURAL CONSISTENCY Growth via acquisition creates some well-recognised cultural challenges; the pulling together of two relatively established cultures typically results in the dilution of both or one culture taking a dominant role. What is less obvious is the impact on culture of organic growth. Organisations sometimes naively expect that organic growth into new geographies and sectors, and the related recruitment of new people, will have little or no effect on culture. However, in hindsight, this is often not the case. In periods of fast growth organisations often have little choice other than to recruit for the capabilities they need. This is particularly true when entering new territories or sectors as the existing workforce may have insufficient experience. Imagine opening a new office in a country where your organisation is not yet represented.

You go to market and find the most respected and capable person, possibly from a competitor organisation, to lead your new endeavour. Your new leader needs a team and their first port of call is often people they have worked with previously.

Before long another company’s culture is more established within the new area of your organisation than your own. In a growth environment being clear about the critical pillars of the organisation’s culture is not optional but it often gets forgotten.

CLIENT EXPERIENCE The complexity, risk and additional activity created as an organisation grows often leads to a degree of fire-fighting and inward looking behaviour. The very people on whom the growth relies, clients, can be forgotten in amongst this melee. The critical triangle of Quality, Service and Price become disaggregated as quality and service suffer and prices come under pressure due to the funding that growth often demands. Some organisations look back after a period of growth to find that they have unconsciously entirely realigned their market position – and not always in a way they would have liked to or that will support the future success of the organisation.

MAINTAINING MARGINS Growth can mean many things to many people but, ultimately, it is a project and needs to be managed as such. One of the greatest causes attributed to failed projects is a loss of focus on the business benefits. Growth excites people and creates a more optimistic approach. Focus tends to be on the top line, increasing revenue, which is exhilarating for

many people. Inevitably costs rise as the foundations are put in place and activity is ramped up and, without clarity of purpose, organisations can find that their headcount grows significantly reducing the margins achieved through any increases in revenue.

If managed poorly, a growth in revenue can ultimately lead to a reduction in profitability beyond that which supports the original business case for growth. Badly managed growth can lead to inefficient organisations that suddenly find themselves in an uphill battle to re-establish a sensible financial balance that will sustain them over the longer-term.

COMMUNICATION, TRUST & ENGAGEMENT As organisations grow and teams disperse, communication becomes more challenging. Interpretations of communications start to differ wildly, driving actions and decisions that are perhaps counter to the desired direction and approach. Messages penetrate the organisation less effectively and take longer to reach every outpost; the organisation becomes more difficult to control and therefore less agile towards opportunities, obligations and risks. Duplication prevails in some areas whilst important activities fall between the cracks, often only to be caught later when their impact has been felt by a client. People are busy and trying to ‘do the right thing’ and so, just when more communication is really needed, people concentrate on their own specific area even more intently. As a result, over time, the organisation becomes less joined-up, silos and ivory towers develop and misunderstandings abound. Trust and engagement suffer as it becomes more difficult for people to see how they fit, what they contribute and who the true leaders are.

RISK As an organisation grows, investors and other stakeholders will want assurance that it understands the key risks facing it and that these are under control. Familiar risks may manifest themselves in different ways and the organisation may encounter new kinds of risk for the first time. Organisations who make it through a growth curve have usually managed their risks effectively, or been very lucky. Some organisations don’t make it and others become something they did not anticipate or indeed want to be.

FUNDING A growth agenda demands investment, often of a greater magnitude than is originally anticipated. At some point in the curve many organisations need to refinance or re-configure their funding arrangements. Those with a solid plan, robust approach to risk and detailed budget, all supported with high levels of leadership capability, will always find funding more readily available and easier to manage than those who do not.

‘Revenue is vanity, Profit is Sanity, Cashflow is Reality’ really comes into its own when embarking on a growth journey!

IT’S ALWAYS EASIER TO IDENTIFY POTENTIAL ISSUES WHEN LOOKING BACK IN THE REAR-VIEW MIRROR. WITH THE BENEFIT OF HINDSIGHT MANY LEADERS AND ORGANISATIONS WOULD HAVE DONE AT LEAST SOME THINGS DIFFERENTLY. HOWEVER, ALL REALLY SUCCESSFUL ORGANISATIONS HAVE ONE CRITICAL THING IN COMMON - THEY ARE AGILE TO CHANGE.

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PITFALLS OF RAPID GROWTH AGILE ORGANISATIONS...

Agility isn’t usually spontaneous in the corporate world – it is planned! Organisations that want to build a sustainable growth engine have to do so consciously and systemically, building in time to think, debate, decide and agree. Feedback loops from the external environment, internal environment, clients, suppliers and financial backers need to provide the data to inform decisions and re-calculate along the way.

‘ IT’S NOT THE STRONGEST OF THE SPECIES THAT SURVIVES, NOR THE MOST INTELLIGENT, BUT THE ONE MOST RESPONSIVE TO CHANGE’ Charles Darwin

ORGANISATIONS THAT WANT TO GROW A SUSTAINABLE GROWTH ENGINE SHOULD FOCUS ON THE 10 ELEMENTS BELOW...

DESTINATION (Define It) EVOLUTION (Revise It)

OPPORTUNITIES, OBLIGATIONS & RISKS (Identify Them)

PATH (Map It)

LEADERSHIP (Model It) FOCUS (Make it happen)

PRIORITIES (Align It)

CULTURE (Cultivate It)

METRICS (Measure It)

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CAPABILITY (Master It) CAPACITY (Manage It)

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GALLUS CONSULTING DESTINATION DEFINE IT

Be clear about what growth means and what it does not mean in the context of your organisation. At what cost are you willing to pursue growth; what are the non-negotiable factors and how can you make sure that everyone fully understands where the organisation is heading and how they can help. Clarity of purpose increases the likelihood of a successful outcome!

OPPORTUNITIES, OBLIGATIONS & RISKS TEST IT

Growth presents new opportunities, obligations and risks. Can you confidently identify these and make sure that you make the most of opportunities, fully meet obligations and mitigate risks in the best way possible. Opportunities, obligations and risks manifest at both the organisational level and the individual level – be sure to tackle both! Where risks emerge, seek measures to prevent and limit impact, prepare for, respond to and recover…..

PATH MAP IT

Create road-maps of the route you expect to take. These will change, but it’s far easier to change course from charted territory or to find your way back to the path following an unexpected deviation than it is with a blank sheet. Road-maps encourage discussion and debate and can be a core tool in driving alignment and engagement – people can see where they fit, what they contribute and how they can make a real difference!

PRIORITIES ALIGN IT

Alignment is critical. Where a leadership team demonstrates a lack of alignment the path is far harder to navigate. With a clear destination and understanding of opportunities, obligations and threats, a charted road-map and agreed priorities, decisions regarding resources and activities become less complex and easily agreed to. Superficial alignment is not enough – a deep understanding of the journey and a willingness and ability to engage in regular reviews and re-alignment of priorities make for greater acceleration…

CAPABILITIES MASTER IT

Know the business capabilities required for the growth you anticipate and when you need these to be fully operational. Understand the enabling capabilities (knowledge, skills, behaviours that will support the business capabilities) and plan for their development. In short, know what you need and when you need it (in terms of people, systems, infrastructure and products) well before you need to deploy it!

CAPACITY MANAGE IT

Create space for growth through the generation of capacity. It may seem counter-intuitive but driving efficiencies and pursuing growth simultaneously can create a dynamic that maintains margins, supports growth funding and also creates greater capacity for growth at just the time it is needed. Infrastructure, data, processes, critical decisions and workforce all have a major impact upon the organisation’s capacity for growth….

METRICS MEASURE IT

CULTURE CULTIVATE IT

LEADERSHIP MODEL IT

Identify the Metrics that Matter. Create a system for managing these and a dashboard that provides you with information relating to the most appropriate leading indicators.

Make sure everyone understands their accountabilities and has the autonomy and capability to alter their course!

Capture the core pillars of the organisation’s culture and agree the elements that must remain no matter what. Create mechanisms to accelerate the cultural integration of new people and teams and build recruitment and development activities to strengthen this. Know what you want to be known for and encourage the right myths, legends and heroes across the organisation….

Be clear about the demands growth will place upon your leaders in terms of capability, capacity and behaviour. Define the organisation’s expectations of leaders so that there is a framework from which to develop existing leaders and identify leaders of the future.

Set up the future leader dynamo to facilitate sustainable growth!

EVOLUTION REVISE IT

Things change and plans are made to be revised. Make evolution a systemic habit and drive the constant scanning of the context and situation. Create valuable feedback loops from the external environment, internal environment, clients, suppliers and financial backers to provide the data to inform decisions and re-calculate along the way. Embed strategic loops and scenario planning exercises into leadership team discussions...

FOCUS MAKE IT HAPPEN

Make it happen by focusing on the right things and creating space to think, share ideas and challenge assumptions!

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PITFALLS OF RAPID GROWTH IT’S NOT EASY BUT IT’S WORTH IT Growth is a challenging and satisfying journey for most organisations. By creating a conscious FOCUS upon some core enablers the journey can be all the more enjoyable and rewarding. Looking back you will most likely find that there are some areas that need attention – that’s to be expected – the sustainable success comes from identifying them and tackling them.

BELIEF ENABLERS Focus on creating FOCUS Clarity of destination, path, priorities and approach Alignment behind priorities, decisions and agreed actions Penetration of the message across and through the organisation Engagement through involvement and space to think, share ideas and challenge assumptions

TOXIC Forgetting the outside world - clients, suppliers and financial backers Confused messages and lack of clarity Insufficient planning Divergent leadership teams and open conflicts based upon personal agendas Over-reliance on existing infrastructure, systems and processes Shallow leadership pipeline

Empowerment of all to make decisions and take actions in line with agreed strategy

Unreliable data and poor MI (management information)

AGILITY through planning

Undefined culture and unconscious cultural creep

Gallus build sustainable, high performance environments that everybody can believe in. With particular expertise in leadership capability and alignment, organisation design, business transformation and enterprise risk management, Gallus challenge assumptions, cultivate belief and drive positive change by making performance excellence systemic.

An established business with Headquarters in Northampton, UK and offices in London, Manchester and Aberdeen, Gallus work with ambitious organisations across the world from a wide range of sectors.

Find us at www.gallusconsulting.com or call +44(0)20 3751 6345.

0203 751 6345

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