Preparing your organization for “Growth” | McKinsey

“Companies that address their organizational weaknesses as they implement growth strategies give themselves an advantage.”

Most senior managers pay close attention to the strategic side of growth—the “wheres,” “whens,” and “hows.” Yet many underestimate the importance of organizational factors in translating a growth strategy into reality. This oversight can dampen a company’s growth plans: organizational processes and structures that are well suited to today’s challenges may well buckle under the strain of new demands or make it impossible to meet them. Likewise, key employees may lack the skills needed to cope with the additional complexity that growth brings. By reviewing the experiences of three organizations that faced the stresses imposed by new growth initiatives, this article seeks to illustrate such “pain points” and suggests some approaches for coping with them.

1. Stifling structures 

Well-defined organizational structures establish the roles and norms that enable large companies to get things done. Therefore, when growth plans call for doing things that are entirely new—say, expanding into new geographies or adding products—it’s well worth the leadership’s time to examine existing organizational structures to see if they’re flexible enough to support the new initiatives. Sometimes they won’t be.

Companies need to decide how much, and when, local customization should trump global standards and the benefits of scale, taking into consideration factors such as the product or service being created, market conditions, internal culture, and the skills of the managers involved. In some cases, the necessary customization can be as minor as enabling people to work in a local language; in others, as large as creating a whole new business unit with different suppliers and customers.

Deliberately making these approaches temporary. In our experience, two to three years is usually enough time for new operations to gain sufficient maturity to hold their own within the organization. It is also crucial for companies to reintegrate these innovative pockets before they reach substantial scale, or they will simply create an additional layer of complexity that makes the company as a whole harder to manage and could inhibit its next growth spurt.

2. Un-scalable processes

Business processes are another area that companies often overlook, to their detriment, when they are growing. It’s important for a company to determine which processes will come under particular stress when it grows. The case of a European biotech company illustrates the dangers of not addressing potential problems early.

Before the company began an ambitious growth strategy, it used a small group of ten key scientists to make decisions about its product portfolio. The group’s culture of collegiality, informality, and communal decision making worked quite well, and each scientist actively helped to shape and refine every project. Quarterly reviews of the research portfolio took one or two days.

But as the company grew and the volume and diversity of its projects increased, the number of scientists involved in portfolio management also had to expand. The meetings grew in length, and no clear decisions were made. By the time the company had 40 scientists involved, the process had become unmanageable. The scientists—and business leaders—were intensely frustrated, the collegial culture was disintegrating, and there was no agreement about which projects should proceed or what level of resources they required. The scientists became defensive and territorial, and the company was saddled with a bloated, expensive, and slow-moving set of projects.

Fixing these problems required formalizing the portfolio review process. This move, in turn, meant rethinking the scientists’ governance processes—determining, for example, who would attend, lead, and set the agenda for meetings. Scientists would now have to prepare and distribute briefs in a standardized format ahead of each meeting and break into subgroups to make decisions on related research projects. The company established clear decision rights and decision-making protocols, including formal stage-gate mechanisms to determine, for example, if products were ready to enter large-scale clinical trials. It also worked to ensure that there were clear, strong links between portfolio decisions and the way scientists and other resources were assigned to projects.

Getting the large—and frustrated—group of scientists to accept these changes was much harder than it would have been had the company addressed the issues before it grew. This was particularly true because the changes involved culture and mind-sets, not simply different documents or meeting formats. The scientists had, for example, enjoyed receiving and giving input on the full set of research projects and initially found it difficult to accept more defined responsibilities and a sense of exclusion from important discussions. It took two years to implement these changes, and not all of the scientists were comfortable with them. Within nine months, however, most of them saw that the projects with the greatest scientific interest were getting more resources, which boosted morale and corporate results.

3. Unprepared people

Growth naturally creates new interactions and processes, expected and unexpected, and often at a fast pace. To manage them, the employees who face the greatest complexity—for example, those in functions or businesses that will see increased activity—must have “ambidextrous” capabilities. These enable people to take initiative beyond the confines of their jobs, to cooperate and build linkages across the organization, and to complete many tasks in parallel.

Companies sometimes forget to think about these capabilities in the units immediately involved in growth and very often don’t do so beyond them. A manufacturer of cutting-edge technology products that was seeking to expand from its domestic base, for example, found itself limited by the surge in complexity associated with operating under several different national regulatory regimes. The company’s cautious legal department rejected deviations from home country procedures. As a result, the department tended to add new legal constraints in each new jurisdiction but was unwilling to remove constraints that didn’t apply to it. The expansion plans stagnated until senior executives realized that the company’s legal department needed new leaders who felt comfortable assessing and mitigating the risks in these new, ambiguous environments. The company responded by hiring new lawyers—a few in the home country, as well as new legal leaders in the markets where they were seeking to expand.

The specific organizational challenges companies face as they grow will differ according to their growth strategies. By managing organizational complexity early, however, any company can improve the odds that its growth plans will succeed— while making it less difficult than ever to get things done. 

 

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