In the wake of the “New Normal”, defined by PIMCO as a period of slower growth, static profit margins, increased government intervention and consumer retrenchment, there have been few things to fire the imagination more than a viable growth story. Key stakeholders, including management, lenders, investors (private equity and venture capital), suppliers, etc. have all pursued with increasing fervor the elusive goal of robust growth. But the goal is not elusive for all companies; in fact, some companies are finding themselves poised for growth. And for those fortune companies, there can be no greater disappointment than a failure to execute in the face of such opportunity.
The often unexamined corollary to stories of rapid corporate growth is the accompanying explosion in organizational complexity and the attendant challenges to incumbent management. Companies embark on concerted growth strategies for a number of reasons: market opportunity, capital availability, shifting competitive dynamics, etc. While most stakeholders understand the external constraints on growth, the chief internal constraints are rarely appreciated until they become a problem (see Exhibit A).
Exhibit A: Constraints on Growth
For companies with favorable growth conditions, constraints on growth do not make themselves felt immediately (see Exhibit B). Rather, there is a cumulative effect in which these constraints act as gravity to the rocket ship of a fast-growing company. Over time, the increasing complexity of a fast-growing company overwhelms the ability of that company to execute, and performance falters.
Exhibit B: Sales & Growth Rate of a Hypothetical Growth Company
In the above example growth could be said to level off for a number of reasons, but the growing complexity of the organization must be counted among them. One challenge that the management teams of high-growth companies often struggle with is the step change in complexity of a growing company. That is, complexity does not increase at a steady rate, rather, at certain points the complexity of an organization will tend to explode upward, and then remain relatively static until the next step change. It is this tendency of organizational complexity to increase in a step function that often bedevils incumbent management; leading to missed forecasts and a failure to realize a company’s full potential (see Exhibits C & D).
Exhibit C: External Constraint Symptoms
Exhibit D: Internal Constraint Symptoms
The task of leading a company through the step change in complexity that is a natural feature of any successful growth strategy is often one best left to a skilled interim manager. The reason for this is simply that the best interim managers have developed the rare and valuable skillset of driving needed change at critical points in the evolution of a company. In my own interim management engagements I have tackled the following challenges:
- Leadership Transition. Often it is only in retrospect that everyone can agree that a member of the senior management team was no longer the right person to help an organization continue to grow. However, an interim manager, whether coming in as an interim CEO, CFO, or some other role, provides a valuable reset of expectations for that role, as well as allowing the time necessary to conduct a thorough search for a full-time replacement.
- Organizational Realignment. Including assessing business units and production facilities in context of the overall organizational strategy and implementing necessary changes.
- Departmental Reorganization. Often focusing on the Sales, Purchasing and Accounting/Finance departments, this becomes necessary when the needs of an organization become misaligned with the capabilities of key departments.
- Strategic Planning. Too often growth companies lose the focus that allowed for their growth in the first place. Taking the time to guide senior leadership through the thought exercise of where a company wants to be and how to get there is essential for companies that wish to maintain and preserve a competitive edge.
Escalating organizational complexity is the price companies must pay for growth. It is when that complexity overwhelms senior management that growth falters. Interim managers, by nature of their experience managing complexity, are often the best option for helping companies to remain on or return to a growth path.