Four Levels of Organizational Growth

Among the many lessons and insights gained from decades of working with independent business owners, a particularly compelling one has to do with the development and growth of businesses over time; the business life cycle, if you will.

This business life cycle can be summarized in four basic levels:  Owner/operator, owner/manager, management organization and leadership organization.

As a business gets underway the owner/operator quite naturally is the key driver of all aspects of the operation.  S/he is charged with sales, marketing, production, finance, customer service, equipment maintenance, logistics, delivery and just about anything else that needs to be done.  The owner operator is the absolute best the business has to offer at each of these things.  They better be, there is no one else!

As the business grows, it begins to transition to the next level.  The owner/manager now begins to bring on a small group of professionals.  Depending on the specific needs of the business, this may be the company’s first outside salesperson, a full-charge bookkeeper, or a production supervisor.  The owner is still very much “hands on” but some of the burden of operational performance is assigned to staff professionals-direct reports of the owner who now takes on the management responsibility of overseeing their work, their growth and their development.  Now, the success of the enterprise is dependent on the owner’s ability to perform certain staff functions as well as their skill at supervising, managing and leading others.  A subtle but important shift.

Growth continues and often leads to the next level, the management organization.  Structure, processes, and procedures are gradually put in place.  Functional departments are set up and headed by directors, managers and vice presidents who hold responsibility for sales, marketing, finance, production, and other areas of the business.  Here, the role of the owner shifts dramatically. This is also reflected in their title which morphs from “owner” into president and/or CEO.  It is no longer practical or even necessary to perform staff work (at least it shouldn’t be!).  Rather s/he must be adept at molding a group of professionals into a cohesive management team.

The individual and collective development of this group is a key factor in organizational success and the CEO is responsible and accountable for this.  This is quite naturally a different set of responsibilities for which the CEO may have little or no formal training or preparation.  While they understand what drives the business from an operational perspective (and there is great value in that), this emerging role brings a unique set of challenges and stress.

The fourth level of organizational growth is the leadership organization.  Here, there is a particular focus on development of supervisory and management skills.  Leadership training, and succession planning are emphasized.  The senior team assumes duel responsibilities; one for their primary area or department, the other to participate actively in strategy formulation and execution.  Here again, the role of the CEO shifts to leading the senior team and preparing for growth and transition up to and including their own succession plans.

Leadership organizations are aspirational and tend to outperform their competitors and exceed industry norms by a wide margin.

In the classic book, Flight of the Buffalo, by Ralph Stayer and James Belasco, Stayer’s transition from “hands-on” owner to organizational leader is well chronicled.  The pivot point for Stayer comes from the realization that everything he knew about business was no longer applicable for the company he founded and grew.  In fact, his continued insistence on doing everything himself frustrated and even drove away talented team members.

Which level best defines your organization?  How can you move seamlessly from one level to the next?  And what is your role as CEO in making this happen?  For details, contact me at joe@ajstrategy.com