Week 4 : Learning objectives

• To understand the need for organizational

transformation and the means to achieve it
Module 3 • To understand the changing role for the
founder(s) imposed by growth
• To be familiar with different modes of
management and their appropriateness during
different stages of growth
• To understand the transition to a professional
culture
 Basic logic of stages-of-
development models
• A singular discrete entity exists that undergoes change yet
maintains its identity throughout the process
• The entity passes through stages distinguishable in form or
function
• A program, routine, rule or code exists which determines
the stage of development and governs progression through
stages
• Varying degree of determinism
• Varying degree of systematic empirical support
 Organizational transformation
• Organizations change from one configuration
to another
• Fundamental and concurrent change in
multiple aspects of the organization
• Mis-match in configuration drives change
• Growth causes mis-matches
• Successful growing organizations have to
change, too
 Configuration of elements
• fit between environment, strategy, culture and
organization structure

Organizational
structure Environment

Culture Strategy
 Why configurations?
• Only those that adapt to environment survive
• Effectiveness, performance and harmony
• Quantum, dramatic and rapid change may be needed

Environment
structure Environment
Culture Structure

Culture Strategy
Strategy
 The Transition
Stevenson, Roberts and Grousebeck:

1. Recognise the need for change

2. Develop the human resources
– Train
– Hire
3. Delegate responsibility
4. Develop formal controls
 Transition to What?
Stevenson & Roberts (4.1)
Use of formal control mechanisms
Low High

High Laissez-faire Professional

Delegation management management
and
responsibility
Entrepreneurial Bureaucratic
Low management management

• Delegation favors effectiveness

BAD!
• Formal controls favors efficiency
 Implications of age and size

Increased age of the Increased size of the

activity requires more organization requires
formalization; letting go;
optimized routines empowerment (going
(because of from entrepreneur-led
competition between to entrepreneurial)
similar alternatives)
As age and size tend to go together there may be a tricky
balance between different types of transition –
making the operations of the original activity more efficient
vs.
making the organization more entrepreneurial = innovative
 What is the “right” distinction for
describing appropriate transitions?
“bad” “good”

Entrepreneurial mgmt < > Professional mgmt

Bureaucratic mgmt < > Entrepreneurial mgmt

Entrepreneur-led firms < > Entrepreneurial firms

 Perhaps this makes sense?
Entrepreneur-led
(can be both efficient and Professional-Entrepreneurial
effective – when small) (more effective when larger)

Professional-Bureaucratic
(more efficient when mature –
but no effectiveness in change)
 Four modes of management
defined by depth of involvement in work
Growth
1. Management of content
– Doing the work
– Participating in decision making
2. Management of behaviour
– tell people what to do to achieve desired result
3. Management of result (Management by objectives)
– Set detailed targets
4. Management of context
– Identify mission and broad objectives
– Hire and train key people
– Foster culture that reinforces values
Time
intensity
 Managing Transitions: Content
Managing Managing Managing Managing
Content Behavior Results Context

Summary: • Real-time management of content

• Requires managers time, energy and effort

When: Early in company’s life:

• Physically possible in small companies
• Team is inexperienced, firm cannot afford experts
• Each and every decision is important, requiring entrerpeneur’s input
• Change happen too fast for any formularisation or routinaisation

Tools: • Primarily acting: making decisions, assigning tasks, hiring people

• Anticipating and reviewing: used to coordinate entrepreneur’s own
activities
Managing Transitions: Behavior
Managing Managing Managing Managing
Content Behaviour Results Context

Summary: • Specifying how people should behave, rather than what the results
of that behaviour should be
• Requires use of more formal tools

When: • As company grows and tasks become multiplied and more complex
• Difficult to specify end result (e.g., during early high growth stage)
• Results are not measurable or only measurable at a group level

Tools: • Primarily anticipation and review: job design, policies and

procedures, review and audit systems
• Acting: Prescribe action steps, inspecting and training people
 Managing Transitions: Results
Managing Managing Managing Managing
Content Behavior Results Context

Summary: • Management by objective

• Most widely used mode of management as it is very efficient

When: • Desired results can be specified in advance (predictable)

• Desired results can be measured (measurable)

Tools: • Primarily anticipating and reviewing : plans and budgets, reward and
punishment, information systems, staffing plans, etc
• Acting: focused on motivating and training, also hiring
Managing Transitions: Context
Managing Managing Managing Managing
Content Behavior Results Context

Summary: • Manager as guardian of core values

• Manager charts broad set of objectives
• Focus on type and quality of people

When: • Difficult to measure desired results

• Complex and changing organisation
• People in organisation are trained professionals
• And as a strategic choice (AES)

Tools: • Communication
• Role modelling
• Organisation structure and systems
• (Selection)
• (Review)
 Stop!
and think for a minute
• When is it time to start managing
context?
Managing Transitions: Context

Managing Managing Managing Managing

Content Behavior Results Context
Changing Role of CEO-Founder
Advantages of making the transition:
• Time for other tasks
– More important
– More interesting
• Increased (or maintained) employee involvement
– New challenges for employees
• Distributed management
– Not totally reliant on one individual
– Risk reduction
– Broader base for new initiatives
Can entrepreneurs make the transition to
Visionary Leader/Organizational Glue?
• Some can and do (e.g. Inc. 500
survey)
• Others can but don’t want to
• Too many fail or get stuck in the
“wrong” role
From top left: Steve Wood, Bob Wallace, Jim Lane.
Second row: Bob O'Rear, Bob Greenberg, Marc McDonald, Gordon Letwin.
In front: Bill Gates, Andrea Lewis, Marla Wood, Paul Allen. December 7, 1978
 Alternatives to making the
transitions
• Do nothing, remain small (lifestyle)
• Do nothing, hit the wall (sense of
infallibility)
• Sell, start new firm (serial entrepreneur)
• Employ CEO, become chairperson
• Employ CEO, take on other role
 Lessons from AES

• The entrepreneurs must reconceptualize their roles

– Other people have to do the work to fulfil vision
– Can only be achieved if the vision is shared
• Focus on mission, values, culture
• Save no expense in hiring
• Hire for cultural fit/shared vision
• Entrepreneur must probably have leadership talent
 AES authority and controls
• Extreme decentralization (40 000
employees, 4 levels of management)
• Self sufficient teams
• Teams take full responsibility for own work
• Minimal reliance on central staff and
experts
• Trade-off: reinvention of the wheel:
duplications
 AES hiring practices
• Extensive hiring process
• Focus on cultural fit
• Largely conducted by prospective
colleagues
• Have to demonstrate commitment to core
values
• Element of self-selection
 AES compensation and
performance evaluation
• Bonus and stock options throughout the
company
• Bonus based on adherence to values
• Self and group assessments
• Monitoring?
 Role of entrepreneurs
• Guarding core values
– Frequent visits to plants
– Open communication
– Read all surveys
• Advising
• ‘Organizational glue’?