Analysis of a company’s life cycle shows the need to shift priorities as the company develops. The experience of successful companies demonstrates that such changes usually happen under the pressure of predominantly negative circumstances. The experience of unsuccessful companies, on the other hand, shows that such a shift does not occur for them. What is the reason for this? Why do companies in one case wait for problems to arise before launching long-overdue changes, while in the other case they perish without ever understanding the true cause?
Adizes management theory provides an answer to this question. The currently accepted hierarchical model of building companies brings to the top those leaders whose management style and combination of competencies predominantly match one (at best, two) out of the four management styles (PEAI). For such a leader, endowed with sole decision-making authority and full responsibility, who has achieved the highest level of success in their organization, it is virtually impossible to restructure themselves into a different management style, let alone quickly supplement their competencies and skills with new ones. This is understandable. If my previous experience shows that I achieved success by following this path, then what should motivate me to make such radical changes?
Only a severe crisis situation, forcing movement in a new direction despite all previous experience. For example, a leader reached the corporate ‘Olympus’ thanks to their exceptional organization, attention to detail, deep understanding of all ongoing processes, and strict control over subordinates fulfilling their duties.
It all seems right, everything is fine. Can you picture such a leader? Suit, tie, neat haircut, perfect order on the desk, a familiar image? Now let’s try to guess how this leader will act when it’s necessary to come up with a new business idea, when change is needed, when creativity and risk are required.
Something tells me that everything will be done to avoid disrupting the established order. This is neither good nor bad. That’s just how it is. It’s a pity that a company led by such a boss is unlikely to last long. The opposite scenario is also possible. When a company is run by an owner who came up with the very idea for the business, who risked everything they had for the sake of starting up.
What will he be able to do at the stage when formalization of business processes, development of the organizational structure, outlining job responsibilities, and implementing detailed management accounting are required? When a certain level of formalization will become as necessary to the company as air? Most likely, all actions related to formalization will be postponed as much as possible, because it’s so boring, it takes so long, all the documents written will end up gathering dust on the shelves anyway, etc. Does this sound familiar? Have you encountered this?
I think it goes without saying what delays in making necessary company decisions can lead to. It’s clear enough as it is. There are countless examples.
So what should be done in this situation, what is the right approach? How can you encourage the owner or CEO to make those much-needed changes? What tools or methods will allow the company to stay flexible and quickly adapt to changing external and internal conditions? And do such tools and methods even exist?
Of course, they do, since many companies have existed for many years and continue to develop successfully. They find timely and correct solutions to all kinds of emerging problems and effectively manage necessary changes. How do they manage to detect emerging problems in time, identify needed changes, and implement them in the organization promptly?
To understand this, we need to delve a bit into the management theory developed by I. Adizes. According to his observations, for a company to function successfully, it must have a certain balance of four key components:
P – Performance, or the organization’s ability to achieve results
E – Entrepreneurship, or the ability to find unconventional solutions and new directions for development
I – Integration, communication, or the organization’s ability to engage and inspire employees
A – Administration, or the organization’s ability to properly organize and formalize its work processes.
The way these four elements are combined determines where the company is in its development today and where it could be tomorrow. I. Adizes has given us the opportunity to use a sort of time machine to see where our next step will lead if we continue on as we always have. And where we might go if we are able to change in time.
| Company Life Cycle (I. Adizes) |
Each stage of a company’s development can be assigned a four-letter code that quite accurately describes the corresponding management style and the company’s level of development.
The birth of a business is raEi, or in other words, an IDEA. The future owner is so inspired by the business idea that they took the risk and created a company intended to realize that idea. In other words, picture an enthusiastic person, eyes shining, passionately wishing to bring their business idea (E) to life. However, if this person only has the ability to come up with a new idea and has none of the other necessary skills (_ _ E _), they won’t be able to implement the idea or start their own business.
The company will not be born. Only if this person also personally possesses the abilities for realization (r), administration (a), and integration (i), will the company be created. Thus, if at the origins of a company’s creation is a person who embodies all four components with an emphasis on entrepreneurship, the likelihood of the company being established is quite high.
The same is likely when a team of like-minded people comes together, collectively covering all four components in the raEi proportion, with entrepreneurship dominating. The ideal case is when, for example, two future partners join forces—one corresponding to raEI, and the other corresponding to RAEi.
Accordingly, if their interaction is organized properly during decision-making, they have everything necessary for the successful development of the company. It’s worse when one of the elements is missing. Something might be overlooked. The challenge is that such different people can only work together if they have a high level of mutual trust and respect (MT&R).
I have dwelled in such detail on the first phase solely to engage the reader’s interest and encourage independent study of this approach. From here on, I will simply provide the four-letter code corresponding to each phase.
So:
1. Courtship – raEi
2. Infancy – Raei
3. Go-Go (Active Entrepreneurship) – RaEi
4. Adolescence – rAEi
5. Prime – RAEi
6. Stability – RaeI
7. Aristocracy – rAeI
8. Early Bureaucracy – rA_i
9. Bureaucracy – _A__
10. Death – ____
I hope you noticed how the letter code changes from phase to phase. The code shows what currently dominates in the organization—what management style is needed, which strategies are chosen, and in what direction decisions are made. Imagine for a moment what happens to a company that should transition from the ‘Courtship’ phase to the ‘Infancy’ phase, given that its owner (manager) matched the first phase 100%, i.e., was creative, developed new approaches and ideas, and implemented them.
Will he be able to shift his focus and direct his efforts in a different direction during this transition? That is, to pause his flow of new ideas and fully immerse himself in achieving results and operations, which at this stage should yield maximum outcomes. If yes, then such a company continues to move forward; if not, then most likely, it won’t be able to get out of the first phase and progress further. Everything will end badly. How easy is it to reconfigure an Idea Generator into a Tough Implementer? Admit it, it’s not easy!
I’ve come to the conclusion that the much-hyped single leadership and command style, as implemented in most companies, often becomes a restraining factor when change is necessary. Strong leaders who do not tolerate deviations from their vision of the situation are often closed off to feedback and truthful information about problems.
The more of a leadership position a single manager acquires, the harder it will be to replace that person when the situation requires a change of style. Yes, of course, a strong leader emerges in an organization when his qualities (management style) match the requirements of the moment.
A leader with a PAEI style who joined the company before the ‘Infancy’ phase will be most authentic in the following phase. They will gain the reputation of a successful manager who led the company to success; however, when transitioning to the next phase, where it is necessary to find new market opportunities and implement unconventional tools and solutions, they will cease to be as authentic as before and will no longer meet the new requirements.
The same situation continues further. So, what should be done?
I have developed a method that allows any company that integrates it into its operations to avoid mistakes in its development, at least regarding the necessary change in management style and areas of focus.
Stage 1. Company diagnostics at least once a year. The result of the diagnostics should be to determine the company’s position on the company life cycle curve.
Stage 2. Diagnosis of management style and direction of implemented strategies for compliance with the company’s position on the life cycle curve.
Stage 3. Formation of a collective management body that brings together managers whose superposition of competencies and personal qualities includes all four necessary styles.
Stage 4. Development of a model for changing the distribution of responsibility between management and the sequence of decision-making, in order to best correspond to the phase of the life cycle.
Stage 5. Development of changes to the organizational structure to adapt to the current phase of the life cycle.
Stage 6. Development (modification of the existing) BSC and personnel motivation model.
If we try to allocate the standard set of functions in a production and trading company, the following picture emerges:
Production – relies on “R” and “A”
Sales – relies on “P” and “E”
Marketing – relies on “E” and “I”
HR management – relies on “I” and “A”
Information support – relies on “A” and “R”
Legal support – relies on “A”
Logistics – relies on “A” and “R”
Financial management – relies on “A” and “E”
Accounting – relies on “A”
Security service – relies on “A”
Thus, assuming that management is selected in accordance with the requirements of their function, at different stages of organizational development, the interests of different functions should acquire additional weight and concentration.
That is, if the organization has successfully passed the ‘Birth’ phase, then for an organic transition to the next phase, the focus in management and goal setting should shift from Entrepreneurship to Achievement of Results, or from ‘E’ to ‘R’. From seeking new opportunities to fully implementing already discovered ones.
Usually, the owner who starts a business is a distinctly entrepreneurial type or an ‘E’, which is ideally suited for the ‘Birth’ phase of a business. How can the ‘E’ be replaced with an ‘R’ to move to the next phase—the ‘Infancy’? Obviously, the same person cannot completely reinvent themselves so drastically.
There arises a need to change the management model. Specifically, the owner with their dominant ‘E’ should step back from overall management, take responsibility for Marketing, for example, and hire a professional ‘R’-type manager, delegating operational management of the company to them at this stage. Depending on the organization’s core function, this manager could be your commercial director or production director.
It may sound heretical, but those owners who have done this continue to enjoy the growth of their business, while those who couldn’t find the strength to make such changes go on about how the aggressive market, tough competitors, and a typhoon in the Atlantic destroyed their ‘perfect’ business model. There are many legal structures that allow an owner, even after handing over operational management to someone else, to protect themselves from potential ownership issues. It is important to restrain yourself from interfering in operational management during this phase.
To move on to the next phase, “GO-GO”, it is necessary to return “E” without losing “P”. Now is the time to create a collective management body. For example, an Executive Committee. Both “E” (the owner) and “P” (the commercial director) will join with equal weight, at minimum.
Now, if desired, the owner can reclaim the position of General Manager and, over the course of the three phases, remain at the helm, controlling the distribution of authority and responsibility in the collective management body. In the “GO-GO” phase, it is already possible to include representatives of “A” and “I” in the Executive Committee, with advisory (or expert opinion) voting rights—for example, the head of the finance function and the head of HR management. They will be needed later.
To implement the 4th phase, “Adolescence”, administration “A” must be strengthened. In other words, instead of “P” (results at any cost), “A” should be introduced (everything must go according to plan and follow procedures). Now we already know how to achieve this. In the Executive Committee, the manager representing “P” (the commercial director) receives an advisory vote, and instead, the representative of “A” (the finance director) receives full voting rights.
It seems simple enough, sounds easy, but try telling a full member of the Executive Committee (the Commercial Director) that they will now become an observer and expert during strategic decision-making about the company’s operations and development. Can you imagine? That’s when an independent audit comes in handy, along with the top management’s understanding of the company’s life cycle.
At the 5th phase, ‘Flourishing’, you’ll need to decide whether to restore the ‘P’ representative’s full voting rights in the Executive Committee. This is because the company needs to turn into real achievements the advantages gained from standardizing procedures, detailed planning, and optimizing business processes. At the same time, it’s important not to let the company get bogged down in paperwork and endless approvals.
To comply with the 6th phase, ‘Stability’, it’s necessary to reduce the number of innovations and changes ‘E’ being implemented and focus on developing internal communication and integration. In this phase, the main task for management is to make maximum use of the competitive advantages created and ensure the stability of the business. Thus, once again, it’s time for the ‘E’ owner to step back, passing their authority, for example, to the financial director, while not forgetting to grant the HR director full voting rights.
At this stage, the owner gets the opportunity to “give birth” to a new business that will replace the old one. Typically, the “Stability” phase lasts for quite a long time—just enough to nurture and develop a new direction, a new business.
I intentionally do not describe the changes required for the subsequent phases. They will occur regardless of your wishes or understanding. During the aging phases (6, 7, 8, 9, 10), the business dies. In my opinion, these phases should be consciously accelerated by shifting focus to new directions.
Everything described above from the owner’s perspective is also applicable to the General Manager, for example, in the case of a joint-stock company. A wise parent knows when direct intervention is required and when it is better to simply be nearby and observe their child, ensuring their safety and protection.
| Sequence of Life Cycles |
While writing this article, an interesting idea came up. If an owner has a management style that combines both Entrepreneurship and Integration—rAEI—then, starting from the second phase, the owner can begin to take on the role of someone who unites managers into a team. The role of an Integrator. Someone who brings the team together, fosters mutual respect and trust within the group, and actively takes part in resolving conflicts.
Someone you can always turn to for support and advice, who, understanding and accepting the above, step by step initiates the necessary changes both in management and within the company itself. At the same time, by fulfilling this role in an operational company, there is enough time and energy to use Entrepreneurship for the implementation and realization of new ideas. That is, a kind of Owner’s cycle emerges. According to this cycle, at first, using their Entrepreneurial spirit, they launch a business, and then, like a ‘guardian angel,’ they ensure it functions properly. In my opinion, such a role not only allows you to apply your style correctly but also preserves the opportunity to look at your business from the outside, with a perspective not ‘blurred’ by daily routine and mundanity.
Understanding the theory of a company’s life cycle and using the proposed methodology for timely response will allow you to move from merely observing ongoing processes to actively managing them. You will be able to reduce losses, increase revenues, and properly allocate your energy and resources.
Filianin S.N.
03.2012