Why do we change organizations?

In 1997 I was at the Kansas City Airport, I was getting ready to board a plane for a business trip and I needed something for the trip to read. I picked up the April/May issue of Fast Company magazine. On the front cover in big bold letters was the word, “Change.” I quickly identified with the content because I had just been promoted to manager and the company was experiencing explosive growth.

I can recall reading the entire magazine from cover to cover before I ever landed in Florida. There was a specific article called, “The 10 laws of Change” that seemed to describe what I was feeling about the changes personally and also what the company seemed to be experiencing. Also, in 1996 John Kotter published his book called “Leading Change” where he looked at several companies' efforts to transform their organizations. John concluded that there were eight steps to transform your organization:

1. Establish a sense of urgency

2. Forming a powerful guiding coalition

3. Creating a vision

4. Communicating the vision

5. Empowering others to act on the vision

6. Planning for and creating short-term wins

7. Consolidating improvements and producing still more change

8. Institutionalizing new approach

The question is not only how the transformation will work but a more basic question that I had was understanding why we needed to change the organization. If you look at what changes in our daily, monthly, and yearly lives and business you can look at these factors:

• Social-Demographics (People/Society)

• Competition/Substitutes

• Economics/Ecology

• Political/Regulatory

• Technology

• Industry/Suppliers

• Customers/Consumers

In Systems Thinking there is a concept called, “The Iceberg of Change" or "Theory of Change."

This concept explains that when you are going to change any system there are four elements that come into play. 0.1 Content. The content of the change; the change-related tasks and goals. 0.2 Processes. The process of change; is how we carry out tasks and meet our goals. 0.3 Structures. The structures or frameworks within the content and process operate; the arrangements we must set up to manage change. 0.4 Culture/Commitment. These are the values, assumptions, or beliefs that we have.

In most organizational change efforts we focus on the things that we can see which are those that are listed above the water line in the diagram below. The reality of what we should be focused on when changing organizations is that 87-90% of those factors/issues that are below the iceberg. The reality is that as organizations change and grow we should be focused on also building the appropriate amount of processes and structures necessary in order to make these changes. Additionally, we need to be listening to the organization to understand how these changes are impacting our beliefs, norms, and behaviors which make up our culture.

In the original Fast Company issue they talk about people being “Change Agents.” Over my career, I have never really viewed myself as a change agent but in the latter half of my career, I have found that most Entrepreneurs, Founders, and CEOs have hired me for that exact reason. They want my experience and expertise because they had a goal or mission to change their organization in some meaningful way. The change may come in the form of high performance, scaling the business, or using new technologies to create some optimization.

We naturally want to avoid change - we prefer the status quo, with its comfort and familiarity, and stability, rather than pursue change with its awkwardness, uncertainty, and ambiguity. However, we can increase our chances of transforming the organization if we have: (a) a clear understanding of why we need to change (b) a clear structure for change and (c) a framework that helps us manage the change

Why do we scale organizations?

I have always been fascinated by why Founders/Entrepreneurs/CEOs and/or leadership teams decide to scale organizations. A lot has been written about how to scale whether it be a product or service-based business, whether you want to scale slowly or super quickly but why do it in the first place? If revenues are good, the company is highly profitable, people are paid great and there is a great culture then why go changing any of that?

I have worked in various roles for three Founders/Entrepreneurs/CEOs who hired me (in part) to help them scale their organizations. In every instance the premise for scaling was the same:

• increase and/or diversify revenues

• improve or maintain healthy profit margins

• increase sales and customers

• create some economies of scale and

• increase market share

All three companies are still in existence and here is why they decided to scale:

• Clayton has successfully run his business for 20 years with about 60 employees, 6 million dollars in revenues pretty consistently for the last 10 years, and a profit margin between 10-20%. Clayton’s company provides professional services and charged those services on an hourly basis. His Why: Clayton in some ways was forced to scale his business based on two things: (1) The industry was moving away from fee for service model and towards a more flat rate, bundled model, and (2) His leadership team was highly successful in executing from a sales and operations perspective. In order for Clayton to stay competitive within his industry and to deliver all the new deals he was going to have to scale the organization to meet these demands.
  

• Norman has successfully run his business for 10 years with about 100 employees, 16 million dollars in revenues with steady growth year over year, and a 5-10% profit margin. Norman’s company provides technical services and products. His why: Norman wanted to grow the business so that his company would be viewed as a successful local business that might inspire other entrepreneurs. He also wanted to build a company where he could grow future leaders that would go out into the community and start other businesses. The one unexpected result of the successful scaling of his organization was when he was approached by a competitor to sell the business.
  

• Julie has successfully run her business for the last 7 years with about 50 employees, 5 million dollars in revenues with steady growth year over year, and a 3-4% profit margin. Julie’s company provides a technical service. Her why: Julie was a little unique in that she wanted to scale her organization in order to create more technical careers and opportunities for men and women from historically disadvantaged communities. She believed that by franchising her business all across the country that she would be able to maximize the impact she could have in different communities. She believes that teaching them these technical and business skills while she simultaneously expanded her own business was the best of both worlds.

In all three cases, there were numerous challenges in getting from their current state to their future “scaled” state. Below are just a few of the challenges that they faced and eventually overcame:

1. Their poor planning resulted in cash flow concerns specifically related to getting the product to the customers.

2. The inability of the Founder/Entrepreneur/CEO to delegate responsibilities as the company was growing.

3. The unwillingness to have an abundance mindset. This led to their inability to see the value in forming a joint industry partnership to leverage scale and size for marketing purposes.

4. Their lack of early investment in building systems, models, structures, and frameworks.

5. Their lack of clear communication with leaders, managers, team members, customers, and partners about why they were scaling the organization and how they will be impacted

6. They ignored early critical customer feedback related to the product and internal feedback around design and functionality which caused monthly new customers to plateau.
   

The bottom line: 1. If you are a Founder/Entrepreneur/CEO have a real honest conversation and collaboration with key stakeholders and team members about why you are thinking of scaling the organization. Discuss not only why you want to scale the organization but also how you plan to do that and what you are willing to do in order to achieve this goal. Listen to their feedback.

2. See above (1-6) and make sure to avoid those mistakes and pitfalls.

3. Talk to other Founders/Entrepreneurs/CEOs who have successfully scaled their organizations and how they overcame their challenges.

How mature is your organization?

Since I began my career in 1995, I have worked for 6 different entrepreneurs/founders. All of these individuals started these companies and have since either sold the company, closed the company or they still exist. I have kept a journal of all my observations of the organizations and the Entrepreneurs/Founders I have worked with. The majority of these notes were for me to be able to learn from the strategies that worked and to be able to learn from their failures or challenges. I recently went back through these notes to understand what some of the common themes were around their challenges. Here are my notes:

• The technical founder failed to acknowledge how his/her role needed to change for the long-term success of the company based on where he/she was at in the company maturity process. Over the course of time companies, leaders and team members go through a maturity process. Note: I created a maturity assessment checklist and matrix to understand a common way to understand where each company is within that maturity timeline.

• Entrepreneurs/Founders failed to acknowledge their lack of business acumen and waited too long to hire the necessary people or team. A relatively old book but still some relevant content around this topic can be found in the EMyth by Michael Gerber.

• Entrepreneurs/Founders failed to pay attention and respond to trends in the marketplace for their product or service and then lost their competitive advantage. Think of Polaroid not responding quickly enough to digital transformation. Note: Although there has been a resurgence as the old is now new again.
  

• Entrepreneurs/Founders lack the ability to leverage or learn from their network/community. When the business is struggling, his/her unwillingness to rely on their network or community for help. I think if you are willing you can find your community of executives who have already lived through some of the challenges you are facing. I always find it surprising when I still talk to CEOs who think they are the only ones that can solve their issues or problems. The organization and maybe your board may not tolerate this approach or attitude.

• Entrepreneurs/Founder's inability to think strategically about innovative ways to grow the business beyond traditional methods. (new markets or new applications of a product or service). I worked for this company that built software for the fintech world. They had one product that they kept iterating around but the idea of building anything else for a different industry or selling services around that product was just foreign to the leadership team.

• Entrepreneur/Founder failure to hire competent executives and leadership team members. Also, inability or unwillingness to fire incompetent executives or leadership team members. The old term is “hire slow, fire fast.” I have witnessed more damage done by CEOs to their own organization because they were unwilling to fire underperforming leaders. Conversely, I have observed senior leaders unwilling to pay top dollar to executives that could take their company to another level.

• Entrepreneurs/Founders ignored or did not understand how to build a culture of excellence. Yankees vs. Brewers. The Yankees have won 27 World Series titles. The Rangers, Padres, Brewers, Mariners, Rockies, and Rays have never won a world series. I have worked for companies that were considered the Yankees of their industry and the culture was so distinctly different, expectations were high from each other, and being really good was always a lot of fun.