Growing Pains. Flamholtz Eric G.

Chapter 2

      Building Sustainably Successful Organizations^®

The Pyramid of Organizational Development

      As a new venture begins to grow, the CEO and other members of senior management must simultaneously cope with endless day-to-day problems and keep an eye on the future. Making this even more difficult is that many managers of growing entrepreneurships are going through the process of building an organization for the first time. This is about as easy as navigating uncharted waters in a leaky rowboat with an inexperienced crew while surrounded by a school of sharks. The sea is unfamiliar, the boat is clumsy, the skills needed are not readily apparent or not fully developed, and there is a constant reminder of the high costs of an error in judgment.

      Just as the crew of such a boat might wish urgently for a guide to help them with navigation, training, and ship repair, the senior managers of a growing enterprise may frequently wish for a guide to help them build their organization. The crew might also be glad to know that others before them have made the voyage successfully and to hear some of the lessons that the other voyagers learned in the process.

      This chapter attempts to provide a guide for senior managers who are faced with the special challenge of building a sustainably successful company. It gives a framework or “lens” for understanding and managing the critical tasks that an organization must perform at each stage of its growth. The framework for organizational development that is presented in this chapter is an outgrowth of nearly four decades of research and consulting experience with organizations who have faced and dealt with the need to make a transition from one stage of growth to the next.

      The Nature of Organizational Development

      Organizational development is the process of planning and implementing changes in the overall capabilities of an enterprise in order to increase its operating effectiveness and profitability. It involves thinking about a business organization (or any organization, for that matter) as a whole and planning necessary changes in certain key areas in order to help it progress successfully from one stage of growth to the next. Based upon our empirical research and experience, the key areas that require focus include the organization's business foundation (the conceptual foundation on which the rest of the company's systems and processes are built), as well as six key organizational development tasks.

The Business Foundation

      All business or economic organizations (including nonprofits) are based upon a conceptual foundation, which is either explicitly defined or implicitly understood. The foundation consists of three related concepts: (1) the business concept or definition, (2) the strategic mission, and (3) the core strategy.

       The Business Concept . A business concept is a statement of what the organization is in business to do. It defines an organization's identity and gives it strategic focus. It provides the raison d'etre of the business. For example, Coca-Cola is in the beverage business, Federal Express is in the package transportation business, and Disney is in the entertainment business.

      The overriding key problem or challenge of creating a business concept is that it must be valid or validated by customers in the marketplace. This means that the business must provide something (tangible or intangible) that the market wants or will accept. Validation occurs when there are customers who purchase the enterprise's product or service, thereby enabling it to continue to operate and survive as a business entity. When a new business concept fails to achieve this, or an existing business concept no longer works in the market, the organization will suffer and ultimately fail or die. For example, many of the first dot-coms (such as Webvan, eToys, Pets.com, and many more) did not succeed in creating valid business concepts and ultimately perished. Similarly, RadioShack was once a successful enterprise, serving several generations of electronics hobbyists; but its business concept became outdated and muddled, leading to a long period of irrelevance in the market and decline that suggests its ultimate disappearance from the retail market space.11

      Another key strategic problem or challenge of creating a business concept is to strike a balance between one that is too narrow to facilitate future growth and one that is so broad as to be strategically meaningless. We shall deal with the development of a business concept in Chapter 6, when we address strategic planning. At this point, our primary concern is with the purpose or function of a business concept in the context of building a successful organization over the long term.

      In brief, the identification and clear definition of a business concept provide the foundation on which all other aspects of the business are and should be built. The customers to be served, products offered, and the company's day-to-day systems are all built upon the foundation of the business concept, as explained below.

       The Strategic Mission . While the business concept defines what an organization is, the strategic mission identifies what the enterprise wants to achieve or become. It is a statement of the strategic intent of the enterprise. It answers the question “What do we want to achieve or become?” over a defined time period. For example, in its early days (1994) Starbucks Coffee Company (now Starbucks) established the strategic mission of becoming “the leading brand of specialty coffee in North America by the year 2000.” It was an aspirational statement. Similarly, in 2014, Techcombank (then the eighth largest bank in Vietnam) established the strategic mission of becoming the leading bank in Vietnam. We will discuss the nature and development of strategic missions further in Chapter 6.

       The Core Strategy . While a strategic mission identifies what the enterprise wants to achieve or become, a core strategy is a statement of how the organization will compete and achieve its strategic mission. Most organizations have several strategies, but relatively few have core strategies. Core strategies depend upon the type of business. For example, the core strategy for a commodity type of business (such as Walmart, a retailer, or Rio Tinto, a mining company) is to be the low-cost provider. The core strategy is the central theme around which all other strategies are created. We will discuss the nature and development of core strategies further in Chapter 6. However, it must be noted here that many companies do not have core strategies. They can have lots of strategies without a true core strategy that ties all strategies together.

Six Key Organizational Development Tasks

Once a company has identified its business foundation (either implicitly or explicitly), it begins the process of developing the organization that will support this foundation. Our research12 and consulting experience suggests that there are six organizational development areas or tasks that are critical in determining whether an organization will be successful at any particular stage of growth. Taken together, these six key tasks make up the “Pyramid of Organizational Development,” shown in Figure 2.1. As can be seen in this figure, this pyramid is built upon the organization's business foundation. We will first identify and describe each key organizational development task individually and then examine the Pyramid of Organizational Development as a whole.

Figure 2.1 The Pyramid of Organizational Development

       Identify and Define a Market and, if Possible, Create a Niche . The most fundamental prerequisite for developing a successful organization is the identification and definition of a market and, if feasible, the creation of a market niche. A market is made up of the present and potential buyers of the goods and/or services that a company intends to produce and sell. A market segment is simply a place in the market differentiated by products offered (e.g., luxury, mid-sized, compact, and used automobiles) or customers served (e.g., businesses, schools, homes, etc.). As used here, a market niche is a place within a market where a company has developed a sufficient number of sustainable competitive advantages