Part 1 – Organizational Change… Why?

Part 1 (of 3) of a white paper I wrote 10 years ago for a customer that had just recently started selling professional services, but had sold product for over 20 years. This deliverable was one of several I created over the years to train sales and delivery staff in the ways of professional services and intangibles in general. Part 2 is here.

All Sales Engineers must be keenly aware of how their organization is constructed, and at which maturity it (and it’s parts) are at. This is also of key importance to Sales Engineers as they are the only ones in an organization paid to make all the departments work together as a team to get/close the deal. -pat

Note: Confidential is the company that was acquired by YYY, and is used to refer to both the old company and new division (for simplicity’s sake) -pat

Growth Phases – Evolution and Revolution

“Interesting-a word we often use to signal an uncertain mix of danger and opportunity. If we wish to enjoy more of the opportunity and less of the risk we need to understand the changes better. Those who know why changes come waste less effort in protecting themselves or in fighting the inevitable. Those who realize where changes are heading are better able to use those changes to their own advantage.” Charles Handy, The Age of Reason, 1991

From many sources, it is determined that there are five critical dimensions, or domains if you will, to change:

Organization Age
Organization Size
Evolutionary Stages
Revolutionary Stages
Industry Growth Rate

Lets take a look at each…

Organization Age

The age, or maturity in years, of Confidential determines how it reacts to and initiates change. Companies like YYY that have been doing well in business for many years may not feel a new comer like Confidential could teach them anything, on any front. Organizational problems are rooted in time. The passage of time also contributes to the institutionalization of managerial attitudes. Consequently, employee behavior becomes not only more predictable but also more difficult to change when attitudes are outdated.

At Confidential, we learned that you cannot have employees filling out forms and asking permission to breathe and then ask them to think “out of the box”. You can only hope for the realm of thought within which you imprison your employees.

Organization Size

Organizational problems and rate of change are usually directly tied to the size of the company involved. Decentralization may have worked on one scale, but becomes unmanageable on another. Size can, and almost always does, lead to compartmentalization and isolation of IBUs (Independent Business Units). This fosters all the bad things that teamwork promises to cure, and makes the act of change difficult.

Evolutionary Stages

These are times when the business is changing the success of the company as a whole. This can be measured in market share, revenues, employees, or any other factor tied to the vision and mission statements. A successful company enjoys successive productive years, not a few good years, a few bad, etc. Successful evolution of a company is measured by its ability to adapt to business conditions and climate and still remain “successful”.

Revolutionary Stage

A stage classified as revolutionary is one in which the internal workings of the company change. This is what is happening now with Confidential as a pre-cursor to a larger YYY service offering convergence.

Industry Growth Rate

Most companies chase the industry, and a few lead it. If Confidential can effectively predict and lead the industry, it can be prepared for the changes it already knows will come. Confidential has to be able to create and mature its change processes in each domain uniformly in order to be staged and prepared before each major revolutionary stage.

By inspecting our market share of IT services, Confidential can position itself to serve all client IT needs, and become a strategic partner with that customer. And as far as the YYY-Confidential convergence, Confidential is the obvious leader (by example) of how to change and where the company needs to be once combined. This is due primarily to the fact that:

-Confidential can be changed easier and faster than all the YYY “Classic” IBUs
-Confidential has a culture and work ethic YYY wants to benefit from
-Confidential positions itself to be a strategic solution provider for the client
-Confidential is at a higher growth (or maturity if you will) phase than YYY

The future integrated YYY will easily be able to set a course for the industry, prepare for that change, and then capitalize on it ahead of our competition.

In order to completely plan our growth as a YYY IBU and eventually as a merged technical platform in the future, we need to understand the fundamental growth phases of a company. You can think of a company as YYY, Confidential, or a new or existing service offering. Either way, the age of the company or business unit is closely tied to the following phases. Keep in mind when reviewing these evolutionary phases where a new service offering or integration would be best injected, and where you feel the YYY IBUs you work with are.

Why did/do we change?

In order to completely plan our growth from a national, to an international and eventually a collaborative service platform in the future, we need to understand the fundamental growth phases of a company. You can think of a company as what the company is now, what is acquired, or even as a new or existing service offering. Either way, the age of the company or business unit is closely tied to the following phases.

The model that lasted 9 years was based on a disconnected franchise linked by common methodology and centralized directors. Each branch was allowed to control its own initiatives and basically how Confidential was perceived by our competitors. Unfortunately, there were many down sides to this approach, and area management had to be directly involved with projects and proposals once serious national engagements started to frequently come up on the radar.

A flat, circular delivery model (LEGACY) was managed by a legacy hierarchical management structure. As a result, each branch was its own Confidential, and abided only loosely to the doctrines distributed by corporate (see Growth Phase 2 below). Branches had only their own best interests in mind, as all compensation was geared toward a specific branch’s numbers.

As Confidential has altered its managerial model, the delivery model remained the same. The area model still lacks the ability to encompass the elements of a successful global consultancy. Of primary concern should be the inefficient use of existing resources that abound all around us in our Confidential Independent Business Units (IBUs). If Confidential wishes to survive, under any name, it will need to make drastic changes in internal organization in order to survive and thrive in an international market (see Growth Phase 5 below).

But in order to mature, we need to take steps that will not disrupt the revenue stream, and will take the best in our ranks with us. To meet this vision, the enlightenment of the new SDM role to the sales cycle seems a logical choice. In collaboration, each element relies on the strengths of the others. There is no better way to help the SAE community than to become more cognizant of the process, steps and concerns of getting a project approved.

It is to this end that this paper is primarily devoted, and the following growth phases will outline the phases Confidential has already advanced through as well as define the level of excellence we need to strive toward.

(note: the following section on growth models comes from a paper I released May 24th, 1999 entitled “How Does Confidential change Confidential? A Guide for Changing Confidential’s Service Offerings ..and more..” -by Pat Trainor)

Keep in mind when reviewing these evolutionary phases where a new service offering or integration would be best injected, and where you feel the Confidential IBUs you work with are.

Growth Phase 1: Creativity

In the beginning, a new company, new service offering or new business unit has focus primarily on product and a market for it. Creative evolution is marked by the following characteristics:

-The company’s founders are usually technically or entrepreneurially oriented, and they disdain management activities; their physical and mental energies are absorbed entirely in making and selling a new product
-Communication among employees is frequent and informal
-Long hours of work are rewarded by modest salaries and the promise of ownership benefits
-Control of activities comes from immediate marketplace feedback; the management acts as the customers react

The Leadership Crisis

These are important elements in the beginning, but you can see that these standards will not be enough as the service offering starts to grow to meet demand. The founders find themselves burdened with unwanted management responsibilities, and they long for the good old days, still trying to act as they did in the past-ad hoc.

Growth Phase 2: Direction

If the new service offering has survived the first crisis, it now has official and directive leadership. The offering’s evolution in this next phase is punctuated by:

-A functional organization structure being introduced to separate manufacturing from marketing activities, and job assignments become more specialized
-Accounting systems for inventory and purchasing are introduced
-Incentives, budgets, and work standards are adopted
-Communication becomes more formal and impersonal as a hierarchy of titles and positions builds
-The new manager and his or her key supervisors take most of the responsibility for instituting direction, while lower level supervisors are treated more as functional specialists than as autonomous decision-making managers

The Autonomy Crisis

The advances above lead to the next crisis level, where efficient employees become snubbed by a single, central authority where they are lost in insignificance. Worse is that the employee force soon realizes that they have far more direct knowledge about the offering than their managers do. Upper level managers cannot be bothered with the needs of the employees, so buried in direction are they, and middle/lower managers are forbidden the authority to enact what they know needs to be done. Upper level managers do not want to relinquish “signing authority” to anyone, for fear they lose perceived power in the organization, and are viewed as less influential by the company’s officers. In order for the service offering to continue maturing, a more practical blend of the first two strategies is incorporated, called delegation.

Growth Phase 3: Delegation

Now the service offering is on its way to real success. We’re at a point in it’s management where:

-Much greater responsibility is given to the managers of the divisions, areas and branches
-Profit centers, cost centers and bonuses are used to stimulate motivation
-Vice Presidents at Houston are managing their divisions, Division Managers are managing their areas, Area Managers are managing branches, and Branch managers are managing the service offerings of Confidential.
-All management often concentrates on making new acquisitions that can be lined up beside other decentralized units
-Communication from the top is infrequent, usually by correspondence, telephone, or brief visits to Division/Area functions

The Control Crisis

All is well, no? Well, a serious problem eventually evolves as top executives sense they are losing control over a highly diversified field operation. Autonomous field managers prefer to run their own shows without coordinating plans, money, technology and personnel with the rest of the organization.

This revolution starts when top management seeks to regain control over the entire company. Some top management teams attempt a return to centralized management, which usually fails because of the vast scope of operations. Those companies that move ahead find a new solution in the use of special coordination techniques.

Growth Phase 4: Coordination

During this growth phase, formal systems are employed to achieve greater coordination of effort and by top executives taking responsibility for the initiation and administration of these new systems. Can you think of any systems being deployed currently that have this goal? Were we at this phase, we would see that:

-Decentralized units are merged into product groups
-Formal planning procedures are established and intensively reviewed
-Numerous staff members are hired and located at headquarters to initiate company-wide programs of control and review for line managers
-Capital expenditures are carefully weighed and parceled out across the organization
-Each service offering group is treated as an investment/cost center where return on invested capital is an important criterion used in allocating funds
-Certain technical functions, such as administration and IT infrastructure are centralized at the corporate headquarters, while daily operating decisions remain decentralized
-Stock options and company-wide profit sharing are used to encourage identity with the firm as a whole

This phase is a protracted exercise in efficiency.

The Red-Tape Crisis

In the coordination phase we see a gradual lack of confidence build between line and staff and between corporate headquarters and the field. The proliferation of systems and programs begins to exceed its utility; a red tape crisis is created. Line managers, for example, increasingly resent heavy staff direction from those who are not familiar with local conditions. Staff personnel, on the other hand, complain about
uncooperative and uninformed line managers. Together both groups criticize the bureaucratic paper system that has evolved, or the electronic versions of the paper system, or both! Procedures take precedence over problem solving, and innovation is dampened. New service offerings and adaptations of company direction are stifled as the company struggles to just get by day to day with all the accountability red tape. In short, the organization has become too large and complex to be
managed through formal programs and rigid systems. The next revolution is at hand.

Growth Phase 5: Collaboration

Traditional, orthodox and frankly colonial management practices will put the company at phase 4, and it may well never leave that phase. Old school management taught even today teaches that the above scenario is a normal, terminal and eventual ending point for a company or service offering. Resistance is significant at this point to fix it. Most all top executives think that the bad is what you get as a result of gaining the good, and that’s the way businesses run. They focus on refining procedures and buying more extensive software tools to give the appearance of “streamlining” the system that has choked the company. The problem is not the tire, it is the car.

The next (and last?!) evolutionary phase for our service offering/company emphasizes greater spontaneity in management action through teams and the skillful confrontation of interpersonal differences. Social control and self-discipline take over from formal control. The transition is especially difficult for those experts who created the legacy management systems that came before as well as for those line managers who relied on formal methods for answers. The next level in maturation builds around a more flexible and behavioral approach to management, it is characterized by:

-The focus being on solving problems quickly through team action
-Teams are combined across functions for task-group activity
-Corporate headquarters staff experts are reduced in number, reassigned, and combined in interdisciplinary teams to consult with, not to direct, field operations at the division, area and branch levels
-A matrix-like structure is frequently used to assemble the right teams for the appropriate problems
-Previous formal systems are simplified and combined into single multipurpose systems
-Conferences of key managers are held frequently to focus on major problem issues
-Educational programs are utilized to train managers in behavioral skills for achieving better teamwork and conflict resolution
-Real-time information systems are integrated into daily decision making
-Economic rewards are geared more to team performance than to individual achievement
-Experiments in new practices and service offerings are encouraged throughout the organization

The Next Crisis

This is the crisis of “workaholics” that only feel productive when they are working “all out”. They feel guilty if they are not at full speed continuously. Our outdated work ethics of “more is better” spills over into our family and personal time to a point where we never leave work. Cell phones, email, pagers all contribute to this problem. This is a technology overload crisis where technical toys are interfering with employee psychological balance. If people struggling with themselves like this are given sabbaticals or extra time, they instinctively feel compelled to fill that time with business, thus fighting the desired beneficial affects. Conversely, misguided managers will allow for less work time outside of scheduled hours, and then heap
more work on the employee thinking they now have more time to do the work! Either way, there is an imbalance between perceived and actual throughput and effort by all parties.

The best minds in our country are attacking this problem. Many companies have achieved this fifth level and are now struggling to define, then reach, the next level. Experimentation is apparent in the business world in the form of “Casual Fridays” and “4 – 10’s”. A focus is now shifting toward employee burnout and mental exhaustion as we are dealing with the “more is better” philosophy beaten into us for years.

An interesting experiment in progress is that of an additional exoskeletal support structure for large companies. This shadow team evaluates the productivity and efficiency of the organization as a whole, and their findings are made public within the company. They focus on the metrics associated with achieving goals and visions, and pay attention to employee retention and satisfaction.

Team sabbaticals are another trend in the fight to deal with the level 5 Evolutionary Crisis, as is the concept of forcing managers to periodically spend time doing the jobs of the subordinates, working in the location and atmosphere of those they manage remotely.

Next: Part 2 – Pre-Sales Project Considerations


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