The Phases of Organizational Development

To grow or die? The answer is obvious, right? It’s not much of a choice, yet it’s one that organizations make all the time. The natural choice is to grow but why does the evidence show differently? For proof, you need only consider the high mortality rate of companies listed in the Fortune 500. Since 1955 89% of the Fortune 500 listed have come and gone. Remember Compaq, E.F. Hutton, MCI WorldCom, Eastern Airlines, Enron, Woolworths, Pan Am, Standard Oil, Arthur Andersen, General Foods Corp, TWA, and DeLorean Motor Co.?

The challenge that all companies eventually experience is that new growth must be found and this involves change. Based on the growth curve inspired by George Land in his book entitled ‘To Grow or Die’, anything that is organic will naturally experience change. Change is simply an outcome of growth. Whether a human being, a plant, or an organization, anything organic will have three very predictable phases of growth. If we understand these we can be proactive rather than reactive.

Take a look at how this works. Performance of the organization changes over time. The time frame can be decades or days (in the case of the life of a flea) but the phases are the same and predictable.

Phase 1 of Organizational Development: The Formative Phase

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The mission of an organization in this phase is to find a pattern for success. The leader has a compelling vision and the whole organization is in trial and error mode. You are really close to prospective clients at this point. You put your solution together according to the vision and go to the prospective market and get feedback. Back and forth to the drawing board until you have ‘the pattern for success’ – and something that the market will pay for.

If you have ever been in a Phase 1 organization – a start-up – you know how exciting it can be. You bought into the vision and everyone does whatever is necessary to make it a reality – make it happen. It can also be very chaotic. Most of the time you are flying by the seat of your pants. Nobody really knows what their role is or cares because it’s all hands on deck. There is no such thing as “that’s not my job” because your performance is pretty flat and to make payroll you do what’s necessary.

I remember when I started at Apple in 1984 arriving at the front door, there wasn’t a receptionist. I walked through to the office area, “Hello, anybody here? I’m new.” Response was, “Oh, great. Nice to have you onboard. Grab a cubicle. Warehouse will give you whatever you want.” When I asked what title I should put on my business cards I received a quizzical look and “Whatever, as long as the seven-coloured logo is the appropriate marketing colours.” At that time, people were putting Evangelist on their card, or President. It didn’t matter because you really are doing whatever you need to do in Phase 1 to get it going.

Obviously you can’t stay in Phase 1 for very long or you flat line. At some point, hopefully before the start-up capital dries up, you find the pattern for success and you enter Phase 2.

Phase 2 of Organizational Development: The Normative Phase

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Now it’s all about replicating the pattern ‘efficiently’. Processes are put in place to support efficiency and predictability. We want to ‘cookie cut’ initial success. Systems, procedures, rules, hierarchy, formal structure – grow! You don’t want anybody to deviate from the pattern. We got it. We know what our customers want. What we want to do is get out as many widgets as possible.

Leadership style needs to be more managerial or operational. They need to be process oriented and focused on profitability.

Now, what’s it like to be in a Phase 2 organization?
For those who were jazzed and energized with the excitement and chaos of Phase 1, Phase 2 can feel limiting, regimented, boring, stifling creativity and navigating the hierarchy, unsavory. However most everyone loves Phase 2. Take a look at the performance curve. This is really where organizations want to be – experiencing rapid, profitable, predictable growth.

When you join a Phase 2 organization, you attend a training program, are taught what to do and how to do it. You do it and by golly, it works. You do it again and it works again. It’s a very predictable, replicable pattern and it’s associated with growth.

However nothing grows forever. There’s a natural life cycle to your offering, or your idea and, usually at the same time, your market changes, your competition is aware of your success and replicates it faster, cheaper, better. The interaction of your competitor and your market can accelerate the leveling off of your growth very quickly. Competitors have emulated your approach or your products. The offering that used to be highly profitable is now feeling competitive pressure. Working harder and smarter is not likely to result in profits like the good old days.

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This is a critical choice point. To Grow or Die. Remember what happened to the Fortune 500? Imagine the mortality rate of small/medium not publicly traded companies. How does this happen? How does a large organization that has been tremendously successful end up choosing to die?

It’s not that they don’t change or are unaware that something has to be done. It shows up as a neon sign in their financials, increase in customer dissatisfaction and migration.

Companies die because their managers singularly focus on the economic activity of producing goods and services; they forget that their organizations’ true purpose is that of service to their clients.

The change becomes very inwardly focused; you hear things like, “We’ve got to get back to basics. People aren’t doing what we need them to do. Get them back into training. We need to SELL the value.”

The organization is changing but it’s changing within the context of the past success of Phase 2. The change needs to be purposeful and focused outwardly.

The choice an organization needs to make is to bifurcate. It literally means to send off a new shoot of growth. We bifurcate when we have children. That’s how we live forever. You purposefully enter into Phase 3.

Phase 3 of Organizational Development: The Integrative Phase

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Organizations choose to go into Phase 3 ‘on-purpose’. It’s integrative because you KEEP what still works from Phase 2 and START reinventing the new pattern for success. You’re not starting from scratch again but reinventing it. That sounds simple enough. The challenge most organizations face is letting go of what’s not working – to STOP the things that are no longer serving and are draining precious resources that could be re-invested to innovate.

Companies get set in their ways. They may have the new vision and well articulated transformation strategy but a number of factors stimy the shift.
1) Not knowing what to keep and what to let go of;
2) A culture which is firmly established and resistant to change – ‘it’s the way we do things around here’. Recall Peter Drucker’s famous quote, “Culture eats strategy for breakfast’. This too is natural. We are wired to achieve stability and predictability – homeostasis is built into humans;
3) Legacy systems prevent us from doing what we know needs to be done;
4) If late into Phase 2 – the decline has begun – the focus is on cost cutting and not on re-investing.

Now, what mode do you think you are in when you’re reinventing the pattern for success? Trial and error again– although it’s very different from Phase 1 where no one had any expectations of you. You didn’t have customers who you disappointed as you were trying new things. In that trial and error mode, you didn’t have an organizational structure that was relying on you to be bringing in the business so they could feed their families.

Transformation is necessary but the new Trial and Error period has to coexist culturally with a business that has become intolerant of mistakes. But how do you do both?

This trial and error mode is often called the Yes And Phase. YES, you need to innovate AND make sure that you’re still bringing in the 30-, 60-, 90-day transactional business because that’s what’s keeping the doors open and what will feed the new growth.

This trial and error is a lot like rewiring the house with the electricity still on. You are changing while you’re renovating.

What does an organization need in terms of leadership when in Phase 3? The move to the Integrative Phase is particularly challenging because the enemy of the new story is the success and the history of the old story. And 1-degree can help you wih that.

We collaborate with leaders who have a strong “ownership” mindset about change. Have a look at the Growth Curve below. If your business (or division) is at the end of “Phase 2,” where growth is slowing down and you need some re-invention, we would like to connect for a discovery conversation! Many businesses are aware that the fast growth phase is behind them and new growth is vital. The move to the Integrative Phase is particularly challenging because the enemy of the new story is the success and the history of the old story.

Is your organization at the “Phase 3” stage where re-invention is a must have? At 1-degree we believe even small changes can have large effects – what 1-degree shifts can you make to help transform your organization?

Stay tuned for the next article…What’s Causing This Transformational Tsunami?

2017-10-19T10:42:12+00:00