Growing Pains. Flamholtz Eric G.

They simply waited for him to make decisions, which they executed. After his retirement, when the next president took over, he had different expectations, and wanted a true managerial team. It took about two years to change this “obedience culture” in which people simply followed orders.

      Still another factor that might limit a CEO's willingness to reduce the degree of control exercised over operations is personal experience. Some CEOs have tried to reduce their level of control, but the results have been disappointing. Other CEOs have not tried to do it themselves, but have observed others try with unsuccessful results. These are powerful barriers to changing leadership practices. For example, one CEO, who headed a residential real-estate development company we worked with for many years, had observed only negative results in decentralization of operations. He was therefore very reluctant to follow the same organizational strategy in his firm. He ultimately became convinced that a variation on this was a necessity for his company to facilitate further growth, which, in turn led to positive results.

The CEO's Existential Dilemma: What Do I Do Now?

      The CEO who elects to stay with the company and delegate authority to managers now faces another problem. As more than one CEO has asked us, “What do I do now? What is my role?” It is likely to be more than a little discomforting for a person who has been hyperactive and involved in virtually all phases of an organization's activities to find that all tangible roles have been delegated and the only thing left is to be responsible for intangibles. These intangibles include ultimate responsibility for the company's vision, organizational development, and culture management.

      The entrepreneurial CEO has become accustomed to being the most versatile person in the orchestra: the individual who could play violin, bass, trombone, drums, or harp. He or she could even be a one-person band. Now, however, the CEO's job is more like that of an orchestra leader. The CEO may not be at all sure that he or she likes or values this new and unfamiliar role. It does not seem to be productive in a concrete way.

      In fact, this new or redefined role is indispensable. The CEO needs to focus on ensuring that the company has a clear and well-communicated vision. People need to know where the company is going and, in this sense, the CEO is the person who is responsible for charting and then working with his or her team of senior executives to keep the organization on course. The CEO is responsible for championing a holistic view of the development of the entity to ensure that there is a focus on creating strengths, overcoming limitations, and identifying areas for improvement. This function is known as “strategic organizational development.” Again the CEO is not responsible for the specific organizational development initiatives; he or she is responsible for orchestrating the process. Finally, the CEO needs to focus on ensuring that there is a clear definition of the corporate culture, as well as a method for managing it. In all of these areas, the CEO is responsible for articulating the “what” (is done), but not the “how” (it is being done).

      A CEO may not be equipped to handle this new role because he or she does not adequately understand this new role or have the skills required to effectively perform it, or both. Moreover, many CEOs cannot admit weakness by letting anyone guess that they know neither what to do next nor how to do it. Some try to bluff their way through by acting in an executive manner and issuing peremptory edicts. Others try to cope by becoming hyperactive, burying themselves in their work. Often, however, this is merely make-work or busy work, an attempt to fool themselves into believing that they are still doing something valuable. A CEO who does not know what to do next but is afraid to admit it and seek help is setting the stage for future organizational crises.

      At this stage of the company's development, the CEO's role involves becoming a strategic leader. The focus needs to be on the future direction of the enterprise and its long-term objectives, versus doing work or managing day-to-day operations. There needs to be a focus on managing the organization's culture and on serving as a role model for others. Each of these aspects of the CEO's new role requires the ability to think abstractly or conceptually about the business rather than merely in terms of concrete products.

      The Need for Organizational Transition

      In addition to making personal changes, CEOs and other senior managers must face the challenge of managing organizational transitions. It is obvious that a company with $100 million in annual revenues is fundamentally different from one with annual sales of $1 million. It follows, then, that as an organization grows, it needs to develop new systems, processes, structures, and ways of managing the business (that is, it needs a different infrastructure). Through our work and research, we have identified a specific progression of infrastructure development that needs to occur to support organizational success. This progression is embedded in a “stages of organizational growth” framework that will be the subject of Chapter 3 and Chapter 4.

      Building a sustainably successful business, then, involves understanding and effectively managing these stages of growth. The remainder of this book is intended to provide CEOs and their leadership teams with the information that they need to effectively develop and manage their company's infrastructure.

      Transitions Required for Continuing Success: An Overview Case Example

      As an introduction to the remainder of this book and to illustrate the personal and organizational transitions that typically occur as a company grows, this section presents a case study of an entrepreneur, Robert Mason and his company, Medco. Although the case selected is that of a medical products company, the issues faced by the entrepreneur and the company cited here are similar to those faced by CEOs in diverse organizations with revenue ranging from $1 million to substantially more than $1 billion. In brief, it has been selected as a prototype of a widespread phenomenon, not one that is limited to certain companies or industries.

Medco's Early History

      Bob Mason, the founder of Medco, began his career as a salesman for a major medical products manufacturing and marketing firm. He worked hard to learn all he could about the industry, and discovered that the company for which he was working was not adequately meeting all of its customers' needs, and that there was an untapped market for medical products. So he decided to start his own company, a medical products business.9

      Apparently Bob's belief about the demand for his products was accurate, because within a few years, his business began to experience rapid growth. Within five years, the company had reached more than $20 million in annual revenues, and it was estimated that within four more it would achieve $50 million in yearly sales.

The Onset of “Growing Pains”

      When Medco reached $20 million in sales, and Bob Mason was feeling good about that, he also became aware that the business was beginning to experience certain organizational problems, which are what we term “growing pains,” as described below:

       Many People Were Not Aware of What Others Were Doing . A significant number of people did not understand what their jobs were, what others' jobs were, or what the relationships were between their jobs and the jobs of others. This problem resulted, in part, from a tendency to add personnel without developing formal descriptions of roles and responsibilities. Since employees were added on an ad hoc basis whenever a staff shortage seemed imminent, there was often little time to orient them to the organization's operations or to train them adequately in what their own responsibilities would be. Indeed, there was no formal training program.

      Some people were given job descriptions, but did not adhere to their specified roles. Others were given a title, but no explicit responsibilities. Surprisingly, many individuals often did not know to whom they were to report, and managers did not know for which employees and activities they would be held accountable. People learned what they were supposed to do on a daily basis; long-range planning was nonexistent.

       Interactions between Departments Was Also a Problem . Managers often did not understand what their responsibilities were and how what they were doing fit in with the firm's overall operations. New departments were created to meet Medco's product and marketing needs, but many managers were not aware of how these departments fit in with the rest of the organization. One manager complained, “People sit outside my door, but I don't