Growing Pains. Flamholtz Eric G.

their level of incompetence. Bob felt that the company owed its people a chance to grow with it and he saw management development as a chance to provide them that opportunity. Quite frankly, he felt that if people had this opportunity and failed to grow, the organization could feel it had met its responsibilities to them.

      To deal with these issues, Medco asked a consultant to design a management development program for its personnel. Two programs were developed: one for top managers and one for middle managers.

       Corporate Culture . Although Bob Mason had been aware that his firm had a culture, he had never taken any serious steps to manage it. He had always wanted the firm to be sales oriented, aggressive, and profit oriented. He hadn't realized that there were also a great many other facets to the firm's culture, which had been embedded since the earliest days of its operation.

      As the firm began to change, Bob became increasingly aware that he needed to manage the firm's corporate culture in order to reinforce the change. One of the unintended aspects of the firm's culture that had developed was that people felt that if they worked hard they should be rewarded regardless of the results. Bob felt that people needed to learn that hard work was simply not enough and that they had to be oriented toward bottom line results.

      A second aspect of the firm's culture had been that decisions would be pushed up to Bob. Since Bob was acknowledged to be an entrepreneurial genius and since his personality had tended to lead to nuclear explosions whenever someone made a mistake, people naturally pushed decisions to his desk. Bob now wanted to reverse the culture, and push the decisions down to the lowest level of responsibility in the firm where they could be meaningfully made. The firm also tried to emphasize that under the new culture, mistakes would be examined, and corrected, but that people would not feel the brunt of a nuclear explosion if a mistake was made.

      A third aspect of the Medco culture had been that “we're good crisis managers.” This meant that Medco managers had to learn to turn on a dime and solve whatever crises came up. Mason now wanted Medco to revise its culture to emphasize the importance of long-range planning. He wanted the culture to become one of “planning is a way of life at Medco.” A fourth aspect of the Medco culture had been “we're hands-on managers.” This needed to be revised so that managers stayed in touch with operations, but delegated responsibility to the lowest level capable of performing the required tasks.

      One of the most important aspects of this change was that Bob, together with the senior managers, now realized that the management of the corporate culture was an important part of the strategic leadership function that they had to perform.

       Changes in the CEO . Bob Mason realized that just as Medco had to change, so did he. His basic skills were as a salesman and as an entrepreneur. He had worked hard, and he had built a successful company. He had the title of president, but he realized he was not acting like a president.

      In spite of the fact that he was the CEO of the company, Bob continued to spend too much time dealing with the technical and marketing aspects of the business. This is what he knew how to do, and this is what he enjoyed. He knew he was not devoting a sufficient amount of time to the broader aspects of organizational development.

      Bob also understood that there were certain other problems with his management style and capabilities. In spite of the fact that his organization had grown substantially, he still wanted to control too many details of the business. He knew he still poked his nose into too many areas of the business. He began to understand that this was not only a problem that he was facing, but his behavior was seen as a role model by other managers in the organization who, in turn, were doing the same things at their level of responsibility.

      The first change that Bob made was to decide to change. He then proceeded to redefine his concept of his role. He decided to spend more time on the planning and organizational development aspects of the business and less time in many of the technical areas. He made a decision to give up control over the marketing area by delegating more responsibility than he had in the past. He decided to change his leadership style from “making all decisions” to “involving the senior leadership team” in many of the decisions that needed to be made. There were always going to be decisions where he would, in effect, have to decide what was best for the company and then announce it to the organization. However, he decided to significantly increase the extent to which his senior managers were involved in planning overall organizational changes and in making day-to-day operational decisions.

      Another aspect of Bob's behavior that needed to be changed was the way he was dealing with stress. Bob, like most entrepreneurs, was constantly under a great deal of pressure. Periodically he would “explode” or as one of his managers put it, “go nuclear.” When Bob went nuclear, everybody headed for the hills. If something went wrong, Bob might “nuke 'em” in a meeting. This had led, over time, to people avoiding bringing Bob bad news. In turn, this had created serious problems for the business because Bob was, at times, simply not in touch with information he and other senior managers needed to have to make effective decisions. As people began to see Bob dealing with conflict but not exploding, they became more open in discussing problems, and even disagreeing with the direction that Bob was proposing. His management team began to be a team in the true sense of the word.

      Bob sent another signal to the organization about his willingness to change by participating in the organization's new management development program. As he stated: “If I want people to change, I've got to lead by example as well as by word.”

Program Results

      For 18 months, Medco implemented its new program of organizational development. After this period, the organizational growing pains score decreased from an average score of 32, which put the company in a red-flag danger zone, to a score of 21, which indicated some problems but nothing of major concern. This improvement occurred despite the fact that the firm continued to grow. Moreover, the firm's profitability increased significantly during this period, as a wide variety of operational inefficiencies were eliminated.

      In brief, Medco had made a fundamental transformation. It had gone from a firm about to choke on its own growth to one that was able to absorb growth and operate profitably and effectively. In addition, Bob Mason had made the transition from an entrepreneur to a true CEO.

      Summary

      This chapter has examined the issues of success and failure typically facing organizations and their leaders after promising entrepreneurial starts. We have identified the need for continued success, and described the personal and organizational transitions to promote that continued success. We have identified and discussed the changes that the CEO needs to make as his or her organization grows, and we have examined the alternatives available to CEOs who face such transitions.

      The chapter presents a comprehensive case example of the transitions required by Medco, which faced classic growing pains and developed strategies for addressing them. The steps that Medco took to identify its challenges and work to address them illustrate how an organization can build the infrastructure needed to promote sustainably successful growth. The personal challenges faced by Bob Mason, Medco's CEO, and how he addressed them provide a good example of how to make the personal transitions required to support an organization's continued successful development.

      There is no one way to make a successful transition from an early-stage entrepreneurship to a future stage of growth. However, the key to making this change is for the entrepreneur to recognize that the company's former mode of operation will no longer be effective.

      All change is accompanied by risk, and many of us feel uncomfortable during the process of change. Unfortunately, the need for organizational transitions and their accompanying personal changes is inevitable. Those who do not believe this are likely to increase the risk that their organizations will experience significant difficulties. However, if knowledge is truly power, then entrepreneurs and others who understand the need for the kind of transitions described in this book will be set up for the possibility of continuing success.

      The remainder of this book deals with how to make these required personal and organizational transitions – beginning with the next chapter, which presents a framework (based upon research and experience) that identifies the key factors that must be focused upon in building a sustainably successful organization.