How to Design an Organization That is Built for Success
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In-flight magazines and management bestsellers are all full of ideas and opinions on how to build an organization for long-lasting success. Best-selling authors and management gurus have made a handsome career talking about things that seem like a universal panacea for just about any kind of organization. Unfortunately, it is dangerous, even suicidal, to put your professional reputation at stake these days by calling out such fantastic organizations that achieve (or are preordained to achieve) long-lasting success - whatever that means!
What was once a hopeless laggard might unexpectedly hit the jackpot and become a smashing success tomorrow, and what is flying high today might suddenly get birdstruck and be biting the dust tomorrow. There are no one-size-fit-all prescriptions that fit all kinds of organizations. Organizations don’t come with a good user manual, and most certainly none of them come with a thirty-day no-questions-asked full-refund policy! So, how does one go about designing and building an organization for long-lasting success?
In my experience, there are three critical elements that need to be present in ‘interlocking proportions’ for any organization to truly achieve any sustainable long-term success. When I say ‘interlocking proportions’ I am implying two key things:
That there must be a natural and mutually complementary fit among all the components.
These components are in amounts that complement and, ideally, amplify each other, rather than canceling out one component at the cost of another component.
For example, we might have a developed a great car that delivers 100 MPG fuel efficiency, but it might compromise on the road safety aspects. Or if the safety standards are left uncompromised, then the passenger comfort leaves much to be desired. The iPhone 5 might be a great mobile device (a highly subjective statement, based on what camp you come from!) but its battery life sucks. In a way, this is similar to “integrative thinking” – Roger Martin’s term for the human brain’s ability “to hold two conflicting ideas in constructive tension“. However, it is hard to visualize integrative thinking for an organization that is constantly changing.
In the context of organizations, what this means is that as the team grows from a startup into its next phase of growth and eventually into a larger organization, its components also need to commensurately grow in tandem. I have seen this being the biggest bane of many growth-phase companies – they don't realize that the things that once made them successful might be impeding their further growth.
Today’s solutions are indeed tomorrow’s problems. Unfortunately, success is blinding, especially the kind that comes along with light flashes and glossy pictures! The approach and methods that led to the initial success become so sacrosanct that under no circumstances is the organization willing to question them, let alone adapt them. They become holy cows, and often after few repetitions, get set in stone. As a result, while the body has grown up, the mind is still taking the low aim. The result is friction in the system, leading to turf wars among otherwise well-meaning peers, eventually leading to poor performance in the system. This might manifest in lack of rapid innovation, bloated organizations, delays in decision making, poor customer service, or just about anything.
What is the solution? If someone has come this far, then you assume they probably have the fundamentals in place – like the right talent, leadership, and strategy. However over and above these hygiene factors, I believe these three core factors must be present in interlocking proportions at any stage of an organization's growth:
An organization thrives on its ability to make optimum usage of its shared, and usually scarce, resources. In a typical startup, the demand far outstrips supply of any kind of resources – be it real estate, computing resources, marketing dollars or even the people. The burn rate is a critical measure of efficiency, at least until the revenues have started kicking in. But the startup team often has a vision far more compelling than those ‘large-company perks’ that are nowhere to be seen and can only be read about in those glossy magazines.
These startups figure out a hungry, lean and mean organization structure where pretty much everyone operates as a multi-skilled expert, and wisdom of crowds is often the best way to find smart solutions to nasty problems quickly. Founders are often the decision-makers, partly because they are the subject matter experts and partly because that’s the way they want it to be. The process works very well for the initial ten- or even twenty-person startup.
Over time, unfortunately(!), success can happen and with it it comes growth. Anyone who has driven a car with manual shifting knows that you need to keep changing gears as you get on a gradient and as you pick up speed. However, our startup team often doesn’t want to give up control, and hence continues to stay involved in all those day-to-day discussions and decisions. They don't ever change gears.
Over time, it creates self-inflicted inefficiencies of scale – new players don’t know their property rights, and whether they are empowered to make those decisions, and hence they push it up for decisions, but since the guys at top are getting totally backlogged with so many things that they should have ideally delegated, they create avoidable delays, not to mention an organization that feels disempowered to act without adult supervision.
Clearly, as the company grows to a growth stage, there is need to redraw the boxes and arrows and constantly keep looking for opportunities to delegate and create leadership and accountability at each of these levels rather than keeping them all centralized. By decentralizing, I don’t mean abdicating the responsibilities but making sure everyone on the team has a fair opportunity to be a ‘part of it’ rather than simply being a bystander.
One more important but invisible and hence ill-understood connotation of efficiency is culture. If people are doing the right thing as per the organizational policies and procedures, then it is a good culture of ownership and compliance (some might agree if ‘compliance’ is still a good idea, but let’s suspend that judgment for now). However, if people are not doing the right thing because their organizational policies and procedures don’t explicitly let them take such initiatives even if they are on a burning platform, then such culture is fundamentally inefficient, even dysfunctional. So, the notion of efficiency shouldn’t be seen only in the context of how well a process uses time and resources to product its intended output, but should holistically factor-in people aspects as well.
The lure of the geese that lays golden eggs is so tempting, it clouds our ability to think next and take any amount of risks to find if the geese could do any better? No one wants to mess with products that are performing well in the field – sales doesn’t want disruptive changes that customers might not like, and in the age of quarterly guidance and micro-scrutiny, no one wants to stick their neck out and signup for a mission impossible project. As a result, new initiatives are never bold big bets, but end up being mostly cosmetic and ‘wall-street-safe’ initiatives that won’t kill the company (and the execs behind it!) if something were to backfire. Business books are littered with real-life case studies of such thinking that killed long-term disruptive innovation in favor of preserving short-term revenue thinking. Sony was so successful with its Trinitron technology that it never felt a threat from the newer flat TV technology, and as a result, lost out to newer and more nimble players (even though it managed to catch up with its Bravia series later). Similarly, Nokia’s success in a largely monopolistic and virtually unchallenged market led to it saying no to micro-trends in some of its ‘non-sexy’ markets, like China and India.
Many people confuse efficiency with speed or a maniacal focus on cost-optimization. Speed at any cost is an indicator of extremely myopic thinking that might lead to some nice results in the short-term, but is almost always guaranteed to misfire in the long run. Similarly, cost optimization (more crudely, cost cutting) is often used by organizations to hide or cover up years of neglect and mismanagement and please investors by firing innocent people who are more often than not, hapless victims of the very same policies themselves. I was recently reading that Infosys’ new (old?) chairman says it will take 36 months to stabilize or rejuvenate Infosys. How did a company built on such strong ethos and management, and which had strong of co-funders providing stable leadership suddenly find itself needing such a long lifeline? The rot that needs 36 months to clean-up couldn’t have happened overnight, could it? Perhaps playing it too safe turned out to be risky after all! Had Gerstner believed in playing safe, he perhaps would have never got the elephant to dance.
Key is to believe that innovation is not just a great thing to do in these modern times – it is already downgraded to being a bare necessity. What was great yesterday is not great enough today and most certainly won’t even be good by tomorrow. Your competition is outsprinting you, your investors are expecting that you can deliver better returns on their investments than the competition, and your employees expect to have a rewarding career with you and not do some derivative work.
Did you say innovation was all gas?
In today’s world, scaling up is not an available option. If you are successful by any means, your investors, employees and customers (and you too!) will want to scale up – be it the little florist round the corner serving its neighborhood and known for excellent customer service, or the software company that is able to offer innovative solutions to its customers twelve time zones away. In fact, refusal to scale up might eventually bring about your downfall.
However, the same agility and frugality that led to the initial success now stands firmly in the way to scaling up. If you are the supertechie founder-CEO who designed and developed the award-winning product, you probably were there at each step of the product development and your diligent involvement and ownership ensured such phenomenal success. Now imagine you have a team in another part of the world who owns another part of the complex software. How do you expect them to make technical decisions – should they keep calling you all the time (in the middle of your night?) or wait for you to get to office and reply to each of your mails? If you are the customer-facing founder-CEO who insists on being involved in all deals, how will your sales team make any serious progress if your presence starts becoming the rate-limiting step to their process?
I think scaling up is perhaps the most complex of these three pillars because it requires the founders and early-stage managers to accept an inevitable fact of life – that they alone can’t take the company to the next logical stage of its growth, and now must hire and depend on professional managers to help them achieve that. It also forces some of the tech-happy founders to become managers, thus making it extremely difficult, if not totally impossible, to write code or do some other technical stuff they enjoy doing (and was perhaps the reason in the first place they left their cushy corporate job to start a tech company). One of the reasons companies like Coca Cola, Pepsi, McDonalds and Pizza Hut have been so successful is because they figured out a model to scale up globally – despite having a heavy dependence on virtually all perishable raw materials to be sourced locally (and hence creating a wide variance in assuring quality). When Toyota developed Lean Production System, it was widely felt that Lean could not be replicated outside Japan. However, the success at NUMMI changed it all – and established beyond doubt that Lean was, after all, scaleable outside Japan.
A few years back, an independent portrait photographer from Pune came to Bangalore to set up his studio. He was a reasonably big name in Pune but struggled to establish himself in Bangalore. He wasn’t able to establish connections with the market of Bangalore, and as a result, packed up and headed back home after suffering losses after three months. I know this because we got a lovely family portrait done from him, before he moved back. Clearly, he did not have a process to scale up his operations to another city. So, what applied to large companies also applied very well to solopreuners too.
So, where does it all lead to? While there are probably hundreds of variable that need to be tuned properly for an organization to smoothly and successfully grow on a sustainable basis, obviously not all are critically important and hence one needs to focus on only a few key ones. In my experience, Execution, Innovation and Scaling up top the list. And more important than which factors does one consider, it is more important to recognize that these factors are needed in ‘interlocking proportions’ and lest we create a lop-sided organization that falls apart sooner than later because even though its engines made it run at 2x, its wheels were not strong enough to support traveling at such high speeds, or its braking system was not advanced enough to control such high power. In the end, people don’t buy cars because one of the experiences is better than others – they buy it for holistic experience. Such holistic experience is not an accidental outcome – it happens when the company’s foundations are created holistically.
How do design and build an organization for success?