Growing Pains. Flamholtz Eric G.

of leadership success) in addition to all of the standard things that leaders are supposed to be able to do. Specifically, this is to be able to think conceptually about their business. The ability of a leader or leadership group to step back from day-to-day operations and the concrete things that business involves is a critical ability that contributes to sustainable success of organizations.

      This same cognitive ability is often the difference between great successes in virtually any activity, including sports that are very physical in nature such as American football. For example, National Football League (NFL) teams use the so-called “combine” to test for various abilities such as running speed, jumping ability, and cognitive ability. Specifically, they use the “Wonderlic Cognitive Ability Test.” Because NFL football is one of the most physically demanding sports, the emphasis on cognitive ability might seem surprising. However, as coaches in the NFL undoubtedly know, there is also a conceptual aspect to the game. For example, in discussing the ability of his prized recruit at UCLA, quarterback Josh Rosen, Coach Jim Mora stated: “Josh is very intelligent. He is one of those kids that the game comes to more easily than some. He understands concepts.”1

      As the reader will see, some conceptual thinking is required by this book. However, the ability to do this type of thinking will pay great dividends.

      Acknowledgments

      This work is a product of nearly 40 years of action research and consultation with many different organizations. These range from new ventures to members of the Fortune 500. They were our research “laboratory.” Simply stated, the most significant ideas that underlie this book were the products of observing, analyzing, and conceptualizing what actually happened in successful and unsuccessful organizations as they grew. The book could not have been written without having had access to those companies of various sizes, in different industries, with different degrees of success. Accordingly, we are greatly indebted to the CEOs, presidents, senior managers, and others who invited us to serve as researchers, consultants, or advisers for their organizations. (Many of these companies are not mentioned by name, to preserve their privacy. In some cases, fictitious names are used; in others, examples are cited without the company being named at all.)

      The data presented in Chapters 2, 5, and 11 are drawn from the organizational effectiveness database compiled by Management Systems Consulting Corporation. They are derived from a survey developed by Eric Flamholtz. Omar Aguilera, Senior Consultant with our firm, Management Systems, assisted in the preparation and interpretation of some of the data (updated from the fourth edition) dealing with organizational growing pains and strategic organizational development.

      We want to also acknowledge the help that Clara Penny, Management Systems' Vice President of Finance and Administration, provided in preparing the manuscript of this fifth edition. And, we would like to thank the other members of the Management Systems team – Leslie McKenna and Michael Tan – for their support.

      Although we acknowledge with gratitude the contributions of all those cited, we remain responsible for the book and its imperfections.

Eric G. FlamholtzYvonne RandleLos AngelesApril 2015

      Part I

      A Framework for Developing Successful Organizations

      This first part of Growing Pains identifies the determinants of organizational success and provides a framework for understanding the key transitions that organizations and their leaders face as they grow. It also focuses on helping the entrepreneur or company leader understand and manage the personal transitions as well as organizational transitions that are required to support the enterprise's continued successful development.

      The First Challenge for Entrepreneurs

      The first challenge that entrepreneurs face is establishing a successful new venture. The basic skills necessary to meet this challenge are the ability to recognize a market need and the ability to develop (or to hire other people to develop) a product or service appropriate to satisfy that need.

      If these two fundamental things are done well, a fledgling enterprise is likely to experience rapid growth. At this point, whether the entrepreneur recognizes it or not, the game begins to change. The organization's success creates its next set of problems and challenges to survival.

      As a result of expanding sales, resources become stretched very thin. A seemingly perpetual and insatiable need arises for more inventory, space, equipment, people, funds, and so on. Day-to-day activities are greatly sped up and may even take on a frenzied quality.

      The business's operational systems (those needed to facilitate day-to-day activities), such as marketing, production or service delivery, accounting, credit, collections, and personnel, typically are overwhelmed by the sudden surge of activity. There is little time to think, and little or no planning takes place because most plans quickly become obsolete. People become high on their own adrenaline and merely react to the rush of activity.

      At this point the organization usually begins to experience some, perhaps all, of the following “organizational growing pains”:

      • People feel that there are not enough hours in the day.

      • People spend too much time “putting out fires.”

      • Many people are not aware of what others are doing.

      • People lack an understanding of the company's ultimate goals.

      • There are not enough good managers.

      • People feel that “I have to do it myself if I want to get it done correctly.”

      • Most people feel that the company's meetings are a waste of time.

      • Plans are seldom made and even more seldom followed upon, so things often do not get done.

      • Some people feel insecure about their place in the company.

      • The company has continued to grow in sales but not to the same extent in profits.

      These growing pains are not merely problems in and of themselves, they are a symptom of the underlying problem that there is an “organizational development gap” between the infrastructure required by the organization and the infrastructure it actually has. An organization's infrastructure consists of the resources, operational support systems and management systems, and culture required to enable the organization to function profitably on a short- and long-term basis. As described further in Chapter 2, a company's resources consist of the human capital, financial capital, and physical assets of an enterprise. Operational support systems consist of all the day-to-day systems required to produce a product or deliver a service and to function on a day-to-day basis. Management systems consist of the organization's planning system, organization structure, management development system, and performance management system. “Culture” refers to the values, beliefs, and norms that drive the behavior of people in the enterprise as well as the “system” for culture management (whatever that might be). These are the systems required to manage the overall enterprise on a long-term basis.

      The Second Challenge for Entrepreneurs

      Once an organization has identified a market and has begun to produce products or services to meet the needs of customers within that market, it will begin to grow. As the business grows, it will be faced with the need to make a fundamental transformation or metamorphosis from the spontaneous, ad hoc, free-spirited enterprise that it has been to a more formally planned, organized, and disciplined entity. The organization must move from a situation in which there are only informal plans and people simply react to events to one in which formal planning is a way of life; from one in which jobs and responsibilities are undefined to one in which there is some degree of definition of responsibilities and mutually exclusive roles; from one in which there is no accountability or control systems to one in which there are objectives, goals, measures, and related rewards specified in advance as well as formal performance

1

Chris Foster, “Rosen Is First Among QB Equals,” Los Angeles Times, April 26, 2015, D9.