StratChat 10 December 2020: Organisational Lifecycles

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StratChat is conducted under Chatham House Rules. Consequently, the summary below is presented without any attribution of who said what. As such, it is an agglomerate of views - not necessarily just those of the writer or indeed of any one individual.

On 10 December 2020, we talked about the Organisational Lifecycles.

Organisations change over time. They start out as plucky startups. If they are successful and grow, they inevitably need more rigorous management practices. Eventually bureaucracy sets in. And if they are unable to sustain and reinvent themselves, they fall into decline.

How can we better understand these changes? What implications do they have for organisations' business strategies?

The Models

There are numerous models of organisational lifecycles to choose from. For example:

1. The Adizes Organisation Lifecycle Model plots an organisation from courtship through to death.
2. The Greiner Growth Model identifies 6 stages of growth and the crises organisations must navigate to move between them.
3. The Weitzel and Jonsson Model of Organisational Decline plots 5 stages of decline and suggests the remedy for each.
4. The Tuckman Stages of Group Development Model, which many may know by its 4 phases: forming, storming, forming and performing. This can be applied to groups within an organisation as well as to organisations as a whole.
5. Product and Industry Analyses can be used to supplement these organisational lifecycles.
6. Wardley Maps go a step further and consider where each component part of a product, service or organisation sits in terms of both maturity and value to the customer.
7. The BCG Matrix, whilst not necessarily assuming a lifecycle, also suggests different strategic treatments for organisations or components of organisations depending on their market positioning.

The first 4 of these models are similar in that they focus on the "soft" aspects of organisations. These included leadership, culture and decision-making. Although the final 3 do try to balance this out, more work is required to understand the "hard" impacts of these models. For example, on finance and systems.

Strategic coach Dan Sullivan calls the transition from one growth phase to the next 'ceilings of complexity'. As organisations grow, they become more complex. At points, the organisation must adopt new thinking and systems to break through the ceilings this creates.

The 'going concern' concern

Organisations can have many aims. Once they're through the startup phase, and a going concern, one underlying aim is to remain a going concern.

The first 3 of the models listed above all imply that growth is inextricably linked to organisational evolution and survival.

There are perhaps three different types of organisations in this regard:

1. Many organisations must continue to grow and evolve in order to survive. This is because their environment is constantly changing around them. If they don't 'keep up' they will get 'left behind' and eventually fade away. These are most characteristic of the models described.
   
   An analogy that is sometimes used is that many sharks must keep swimming to survive. This is because they need to keep water moving over their gills.
   
   
2. Some organisations, such as insurance and pensions companies build up large assets. The can continue to generate cash long after they stop growing, changing or even selling new business. They survive by relying on their scale and cost leadership. Eventually, however, the asset is depleted, and that advantage is lost.
   
   
3. Life-style business, such as mom-and-pop businesses or family restaurants don't need to grow. Whilst they do need to keep up with evolving tastes, they don't really need to innovate either. They exist to pay their owner-operators bills, and possibly to pass on a legacy to their children.

What causes decline?

There are two main causes of decline:

1. Organisations lose the ability to sense changes in their environment.
2. They lose the ability to change quickly enough.

Both of these result in a loss of product-market fit.

'Death' for many organisations is no a complete end. They may, for example, be acquired by or merge with another organisation.

How strategy evolves

When most people talk about strategy, they are probably thinking about the later stages of growth on the Adizes model.

The earlier stages are the realm of startups. Although strategy is obviously still important, the organisation and its strategy tend to be dominated by the original idea and founders. Organisations are more likely to start thinking about strategy as a separate thing, and to engage strategists, once the momentum from the initial idea and founders starts to wane.

Once organisations start to decline, strategy is against still important. But turnaround strategy is a distinct and specialised area.

Reinvigorating

There are many things that organisations can do to stave off decline. They can break up, combine or restructure in other ways. They can create skunk works to foster innovation.

Another approach is to develop a portfolio of products or services.  The BCG Matrix useful in understanding how each product or service within a portfolio can be at different stages of development. As long as the organisation maintains a balance within the portfolio, and introduces new products and services at at least the same rate as old ones fade away, it can, in theory at least, survive indefinitely.

Product versus organisational lifecycles

What is the relationship between the lifecycle of the products and services and organisation delivers and the lifecycle of the organisation itself?

For an organisation with one (or very few products) the two may be tightly linked. But for an organisation with a large portfolio of products and services, the strategy and operating model of the organisation can be more independent of the product or service lifecycles.

In fact, such organisations need a strategy and business model which manages products or services through that lifecycle.

Organisations usually start out as single product/service organisations, and may mature into organisations with a large portfolio of products/services. The types of people and processes required at the beginning of that journey will be very different to the types of people and processes at the end. The organisation must evolve from the one to the other.

Wardley maps

Wardley Maps provide a systemic way of looking at an organisation, product or service not as a single entity but as a combination of parts.

They then plot each part on:

• the x-axis depending on how far through the life-cycle from genesis to commoditisation it is, and
• the y-axis depending on how close to the customer it is.

This allows you to make different judgement and decision about each part within the context of the whole. For example, what kind of team and processes should you have to manage it. Should you insource or outsource it.

What's the best approach?

Wardley Maps can be quite complicated. Too complicated for many audiences, perhaps.

This led us on to a conversation about tools and methodologies in general.

Organisations don't need tools and methodologies. They need results. There have been many stories of organisations who spent significant amounts of money training people in the latest methodology, only to find that after a long period of time, the results were no different. Usually, the old, tried and tested tools a methodologies (SWOT, Pareto Analysis, BCG, etc.) produce great results if used well.

It's like what they say - the best diet/exercise plan is... the one you stick to!

One of the keys to success in business strategy is basic discipline. That is, the ability to decide to do something and then do it.

It (whatever it is) is seldom as easy to do as you think it will be. Many times a decision is made and a review date is set. Comes time for the review date and the discussion is about why it wasn't/couldn't/shouldn't have been done. But nothing can be achieved unless you actually just do it. Even if it doesn't work out the way you intended, you will have learned something.

Next week

This brought us to agree on our topic for next week on: what is it that stops organisations from doing what they decided to do?

There are always two forces that need to be overcome:

1. Inertia: the force that stops organisations for doing something new or different.
2. Friction: the force that slows organisations down until they grind back to a halt.

So please join us next week on Thursday 16/12/2020 at 14h00 UK time for our last #StratChat of 2020 as we discuss Inertia and Friction in business strategy.

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Participants: Chris Fox (host), David Winders, Demilade Onajobi, Jerald Welch, Mark Cardwell and Philip Hodges.