Growing Pains. Flamholtz Eric G.

G. Flamholtz

      Growing Pains

Eric G. Flamholtz and Yvonne RandleGROWING PAINSBuilding Sustainably Successful Organizations^®5TH EDITION

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      Copyright © 2016 by Eric G. Flamholtz and Yvonne Randle. All rights reserved

      Published by John Wiley & Sons, Inc., Hoboken, New Jersey

      Published simultaneously in Canada

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       Library of Congress Cataloging-in-Publication Data:

      Flamholtz, Eric G., author.

      Growing pains: Building Sustainably

      Successful Organizations / Eric G. Flamholtz and Yvonne Randle. – Fifth edition.

      pages cm

      Includes index.

      ISBN 978-1-118-91640-7 (cloth)

      ISBN 978-1-118-91641-4 (ePDF)

      ISBN 978-1-118-91642-1 (ePub)

      1. New business enterprises– Management. 2. Organizational change. I. Randle, Yvonne, author. II. Title.

      HD62.5.F535 2016

      658.4′063– dc23

      2015025337

      Cover Design: Wiley

      Cover Image: © iStock.com/Studio-Pro

      Preface

      Growing Pains deals with the problems of building sustainably successful organizations^® over the long term. The first edition of this book – published in 1986 and titled, How to Make the Transition from Entrepreneurship to a Professionally Managed Firm– was written after Eric Flamholtz became aware of the paucity of theory, research, and tools for the management of entrepreneurial organizations.

      Prior to the first edition of this book, most if not virtually all of business education ignored entrepreneurship and focused instead on “business administration.” This meant focusing on large established companies such as Bank of America, Boeing, Exxon, IBM, McDonald's, Procter & Gamble, and similar institutional “blue chip” companies that had already been in existence for many decades. There was very little literature or cases about starting entrepreneurial firms, or about what we like to think of as “organizational scale-up,” the process of transitioning from a successful start-up to a much larger size and different stage of growth.

      Now, three decades later, entrepreneurship is an established academic field. Entrepreneurs like Howard Schultz (Starbucks), Richard Branson (the Virgin Group), and the late Steve Jobs (Apple), and more recently Elon Musk (Tesla), Jack Ma (Alibaba), and Mark Zuckerberg (Facebook) are business icons and business heroes. However, there still remains a large gap in the published literature to explain the process of transitioning from the start-up phase of early entrepreneurship to the end-game phase of becoming a sustainably successful organization (or institution) like Starbucks, Apple, or Amgen. Filling this gap is and has been (for almost 40 years) our primary academic and practical focus.

      During this period, we have developed one model to explain the determinants of organizational success, another to identify the stages in an organizational life cycle, and a third to explain the origin and underlying causes of growing pains (which occur when an organization has not developed the infrastructure required by its size and complexity at a given stage of growth). Initially, these models were developed to help explain the process of transition from the entrepreneurial stage to the professional management stage (see Chapter 3) in the life cycle of a business enterprise. Later we realized that what we had actually developed was an explanation or general theory of organizational success and failure at different stages of growth.

      Purpose and Focus

      The overall purpose of this book is to help readers understand what it takes to continue to grow an organization successfully after a new venture or entrepreneurship has been established. Specifically, it provides a lens or framework and related tools to help people understand how to manage organizational growth successfully at different stages from a start-up to a dominant world-class company like a Starbucks.

      Unfortunately, too many entrepreneurial companies founder after promising or even brilliant beginnings. Companies such as Boston Market, People Express, Maxicare, and Osborne Computer were all once cited as great entrepreneurial successes, yet all have failed. In the face of these failures and difficulties, some cynical observers have even begun to define an entrepreneur as someone, such as Adam Osborne (who created the first portable computer) or Robert Campeau (a Canadian shopping center developer), who can start and build a company to a given level and then watch it fail.

      Similarly, many established companies such as GM, Kodak, Sears, Reuters, and Xerox experience difficulties after decades of success. Some fail and others become no more than corporate zombies, with little life left in them. Xerox was once an icon of corporate success; people would say, “We want to be the next Xerox.” Sadly, no one says that anymore. How did this happen? Can symbols of once-great corporate success be revitalized? How can this process be managed?

      Our experience in doing research and consulting with many different types of companies in many different places in the world has led us to write this book to help present and potential entrepreneurs and CEOs of established companies (as well as their employees, advisers, bankers, and venture capitalists) understand the pitfalls typically faced by organizations at different stages of growth and to explain how to become sustainably successful over the long term. It is also intended to help governmental policymakers understand the causes of the premature demise of entrepreneurial companies that are so vital to our economy. Although this book will not solve all the problems faced by companies, our experience (as well as the positive feedback we received about the previous editions) indicates that if the ideas and methods described