Business Life Cycle Model
In 'Corporate Life Cycles,' by Ichak Adizes illustrated the growth cycle of a business. His illustrations related to the process all businesses must pass through and the issues that must be solved to attain profitability and sales growth.
In growing, highly competitive businesses, the life cycle's predictable patterns help CEO's and their managers develop insight as to what problems need to be corrected first. These problems may be both operational and cultural, which is very normal during the growth side of the cycle. These "conflicts" are akin to a natural process, much like growing up through the terrible 2's or teen years. Management's ability to problem solve and create new market opportunities differentiates successful from unsuccessful businesses. To understand the value of the Life Cycles graph depicted below, an explanation of the terms is required.
The 'P' in PAEI stands for "Producer", 'A' stands for "Administrator," 'E' means "Entrepreneur," and 'I' refers to "Integrator." These are the four roles of management. That is: To produce a result, administer or control to doing things right, create new ideas, not fixing old ones, and to ensure the organization has the values to sustain itself.
In the early stages of a business, entrepreneurs create products and services that should result in sales. As the business rises out of creating new products from the COURTSHIP stage it transitions into the INFANT STAGE, where producing more sales and orders to generate cash becomes the utmost focus. Passing through that stage, the company either creates cash or dies an early death. Once the cash situation is under control the company moves into the GO-GO stage, where it expands its product lines to acquire market share.
With growth, comes the problem of consistent profitability. Thus during the ADOLESCENCE stage the company tries to professionalize management and develop consistency, training and service by using more ADMINISTRATIVE elements. If the company can survive these processes successfully, it will enter the PRIME stage, during which it will create many new infants or growth opportunities.
In further stages of the life cycle, the focus is much less on the entrepreneurial skills that are the future of sales growth, and more on profitability and the status quo, which emphasizes INTEGRATION, not results. The loss of this entrepreneurial edge, which is the company's long term ability to create markets and later the sales production capacity, causes the organization to age quickly.
The ability to change a culture and rebuild a business requires a return to the "basics" or INFANT AND GO-GO stages, thus revitalizing the entrepreneurial and essential sales efforts of the business.
I was asked by a client to assist his management team in a turnaround of his ailing company. I learned that the company had grown rapidly over the last 7 years, from start-up with 5 employees to over $100 million in sales and 300 employees. As the company grew, the people who started with the CEO grew in responsibility and authority.
There were also new managers who came from larger, more experienced companies who were trying to make improvements that the "old guard" would not support. The company had had three different chief operating officers in two years, all selected by the CEO with all but the last being from the "old guard." The new COO inherited a company with plummeting sales, new competition, very low morale and the same problems the company fixed years ago.
Through our assessment process, We determined that the company was in the PRE-MATURE AGING stage, and prescribed a series of action plans to halt the aging process and move it back to the growth and excitement of the INFANCY stage. Those action plans resulted in a stabilization of employee turnover, an increase in sales and improved profitability.
Only one person was fired during this process and it wasn't the original person they thought to fire when we were asked to help them. Had they shown any other stage's symptoms, we would have prescribed a very different approach. The result was to rebuild the entrepreneur side of the business, and move it back to some of the issues of INFANCY or GO-GO stage in the life cycle.
Any change towards INFANCY can be exhilarating, rewarding and very difficult. The reason the process is very painful is that it causes members of the organization to rethink their roles and skills. Corporate restructuring can sometimes be the result of this process and the development of good managers requires training and education.
Developing owners requires business experience, an understanding of risk and strategic vision. The CEO's fundamental charge is to assemble a management team that clearly understands the challenges of the company and has the ability to work to correct them with little involvement from the CEO. That's called structure and delegation. Small companies with dynamic, visionary CEOs who came from the sales area will have a very different approach to problems than a small company where the CEO was the CFO or administrator. The key to success is surrounding the CEO with people who can problem solve faster than the competition.
Management training is part of the continuous improvement process. Peter Drucker wrote in his 1954 book, "The Practice of Management," that the purpose of a business is to "create customers," not profits. The purpose of management is to keep the business alive. Profit is a measurement system on management performance. Eli Goldratt's book, "The Goal," supports this premise, stating that the goal is to make money, not product. And W. Edward Demming's chain reaction, which begins with improving quality, is a focus on change from the customer's point of view. Therefore, change is driven as a result of focusing on the creation of customers.
It is very important that future managers be sales or customer oriented. This is not about taking the best salesperson and making him/her a manager. It is about taking corrective action or solving problems based on the customer's point of view; not the income statement. If a change does not improve customer relations, sales or gross margins with new products, why do it? Cutting expenses is not a part of the growth or rising side of the cycle; it is in the downward side where the business is approaching DEATH. Management must be clear about the critical need to create customers and be measured on customer creation as well as profits.
If a marketplace is ripe with new entrants and competition, then management must continually improve, by creating new INFANTS and adding them to the product mix. Expanding existing product lines is one example of the types of ideas the management and ownership team should be reviewing. If a company is forced to reduce costs, they will have to shake up the status quo to do it and if that company is in the aging side of the lifecycle, flexibility and adaptability are not its strengths. As Peter Senge wrote in "The 5th Discipline," successful problem solving requires a deep understanding of the causes of the problem, not the symptoms.
A business lifecycle analysis such as the one those PTFCO performs though the Life Cycle Insight™ and the Strategic Snapshot™, in conjunction with a strategic planning process, provides a company with a plan that focuses management on growth and entrepreneurial characteristics rather than the status quo and reducing costs. In short, this process provides a management team with a game plan to prosper in today's competitive environment.
Do you want to measure your culture? This 19 question quiz is an illustrative approach to measuring your ownership culture by applying Ichak Adizes's Corporate Lifecycle model. While this tool is great for a one person view, how much better would it be if your whole organization had the survey? If you want to learn more about the Life Cycle Model, click here