Probably most readers can recall a time, however brief, when everything worked as we have described in the last chapter, a time when the quality of your products or services neared perfection, schedules were met on time, people and activities interacted smoothly and harmoniously-almost without effort-customers were blissfully happy and employees were filled with enthusiasm. Chances are this was also a time when the company was very profitable and growing rapidly as well. If everything was going so well, why didn't it last? Why is it that most companies find it so difficult to sustain high performance and rapid growth for more than a few years? Why is rapid growth usually such a short-lived phenomenon?
The answers to these questions are relevant to every company that wants to grow rapidly-regardless of whether it has or has not ever grown rapidly in the past and regardless of whether it is or is not growing rapidly at the present moment. For in any case the issue boils down to two questions: What makes rapid growth happen? What makes rapid growth stop?
We have already addressed the first of these questions in the last chapter, where we described the process that generates rapid growth. But that process does not occur in every company, and it is not easy to sustain for long periods in any company. Therefore it is not enough that we know what generates growth. We must also understand what impedes and stops it.
In our study of fast growing companies, we stumbled on a paradoxical fact that sheds light on these questions. Apart from the list of positive characteristics reported in the last chapter, these companies also reported a set of negative characteristics which almost all of them shared in common. The paradox is that these negative characteristics are exactly opposite and in direct contradiction to the positive ones reported by the very same companies during the same period! Along side high energy, a clear sense of direction, good morale, pride, enthusiasm, teamwork, good systems, good coordination, and continuous training, these same companies reported high levels of stress, fatigue, and burnout, chaos and confusion, breakdown of systems, conflict within the organization, poor coordination and communication, continuous shortage of skilled people and no time for training.
How is it possible for the same companies to report that both enjoyment and stress are very high, that both teamwork and internal conflict are widespread, that systems are at once smooth-running and inadequate, that training is non-stop and non-existent? How is it that such high performing companies should resemble all too closely in some important respects the thousands of ordinary, average companies that are unable to generate rapid and profitable growth? This apparent contradiction contains an important key to why most companies are unable to maintain high rates of growth and why others are unable to grow rapidly in the first place.
The contradictory descriptions reflect the fact that rapid growth is experienced differently in different stages of its progress. Rapid growth usually occurs as a steeply ascending curve followed by a steeply descending curve. The positive characteristics associated with growth-the energy, clear direction, enthusiasm, teamwork, and smooth systems-are commonly associated with the ascending curve when growth is taking off and profits are soaring. As growth gains momentum, enthusiasm rises. People feel excited and eager to meet the challenge. Differences of opinion and preference get pushed into the background as everyone focuses on common goals. There is not time for quarrels or disputes. The organization comes alive and functions at peak performance.
NOT ANOTHER ORDER!
As growth accelerates the demands of work on each individual, department, system and operation become proportionately or even geometrically greater. Space becomes scarce, phone lines are constantly busy, computer systems are overloaded. These conditions place more and more demands on the individuals to adjust to or compensate for the shortages by greater personal effort and longer working hours. Stress, fatigue, burnout and internal conflicts increase. Employee turnover rises. Even routine operations-relaying messages, returning phone calls, filing letters, paying bills and salaries(!)-no longer function automatically and require individual attention, because the systems are no longer adequate and there are not enough trained and experienced people. Often the hiring of new people at this stage compounds the difficulty, because the new people need attention and their work needs to be closely supervised in order to ensure that quality is maintained. As stress, pressure and haste increase, so do errors, confusion, and frustration. Quality declines. Service degenerates. Profits fall. The descending curve has begun.
At times like this you can hear people say-sometimes in apparent jest, sometimes in dead seriousness-"Oh, not another new order!" Or depending on the context, a variation on this theme is repeated, such as "Not another new office to open!", "Not another new customer to serve!" or "Not another new product to develop and produce!" Not surprisingly, life gradually responds to this voiced attitude or silent prayer in one way or another. Customers get frustrated by poor or slow service and go elsewhere with their orders. New products get buried in R & D and never leave the drawing boards. Management cancels plans for expanding into new territories. Growth slows or stops altogether. This explains why out of the 100 companies on INC.'s 1986 list, 37% were growing too slowly to remain on the list in 1987 and 20% reported lower absolute revenues. That is why Mesa Airlines saw their growth rate drop to under 10% last year. That is what prompted Ben Cohen to issue the edict at Ben & Jerry's: "No more growth."
The process we have been describing is exactly opposite to the one we described in the last chapter. There we saw how companies release and garner all available corporate energies, and then focus, direct, magnify and multiply them to achieve extraordinary results as Harold Corner did at C & J Industries under intense pressure from Japanese competitors and Jan Carlzon did at SAS to transform a substandard airline into one of the best in the world.
In this chapter we see how even highly successful companies dissipate the energies that they have released, scatter, disperse and waste them, the way a poorly tuned engine burns excess fuel and dissipates the energy through friction as waste heat. The reverse of the process by which companies convert energy into results is the process by which they disperse those energies in wasteful and unproductive activity. In fact, these are but two expressions, positive and negative, of the same phenomenon. Regardless of whether your company is growing rapidly, levelled off, in a period of decline or near the bottom of the curve, the process of energy conversion and dispersion is the same.
Figure 3 depicts a company which is well-passed the peak of rapid growth and on the descending curve. Revenues are flat, profits are falling. The company possesses considerable energy but dissipates most of that energy and reaps minimum results for maximum effort. As in the previous diagram, there are three lenses. But in this case the lenses are dispersing the energy rather than focusing and magnifying it. The first lens is direction. Instead of being concentrated on pursuit of corporate values and objectives, the energy is diffracted and scattered. The company does not have clearly defined goals. Its values are vague. There is no formal planning. Various departments pursue conflicting priorities leading to doubts and confusion. The company is rife with rumors. People are skeptical and pessimistic.
Figure 3. Corporate Energy Dispersion
The second lens is organization. Instead of harnessing and channeling the energy, the energy is being obstructed by lack of clear lines of authority, absence of discipline and constraints on individual initiative. It is being consumed by outmoded, cumbersome, inefficient systems and wasted by duplication of work due to inadequate communication and poor coordination.
The third lens is people. Here the energy is expended inefficiently due to inadequate knowledge and skill and diminished by negative attitudes among employees about the company and its activities.
All three of these diffractive lenses are found in most companies. They account for the very poor conversion of energy into results which retards growth and minimizes profits. The efficiency of energy conversion in the average company is not unlike that of the early steam engines of the last century-lots of sound and lots of heat to do a little work.
THE OTHER END OF THE RAINBOW
Like all other living things, companies exist and oscillate between two extremes or poles of existence. At one pole they are exploding with a boundless youthful creative energy, expansive, exuberant, lightning quick and responsive, aware of boundless opportunity, performing at peak levels, and growing by leaps and bounds. At the other end they are dull, heavy and slow, overcome by inertia and resistant to change, old in their thoughts and actions, aware only of limitations and obstructions, stagnant and gradually degenerating. In between these two extremes are the companies that have levelled off. They have not yet started up the ascending curve to rapid growth or not yet started down the descending curve to losses and possible extinction.
Whether a company is at one extreme or the other or somewhere in between has relatively little to do with age or size. We have seen very young, small companies behaving like aged invalids and very ancient, large ones behaving like exuberant children. But a company's position on the spiral of ascent and descent has everything to do with its attitude and the way it utilizes the energies at its disposal.
When an unsuspecting Englishman, Ben Thompson-McCausland, took over as CEO of London Life in 1980, he encountered a company headed straight for the bottom of the barrel. His charge was clear: "London Life is a first class company. Wake it up, but let there be no blood baths." In his struggle to find a antidote for corporate degeneration, he discovered a formula for eternal corporate youth.
Imagine a company wearing wire-rimmed bifocals and you get the picture. London Life was founded in 1806, making it one of the oldest mutual life insurance companies in the world. It was a company with some notable strengths-good quality and a good range of products, a record of sound investment performance, loyal employees who took pride in the company's heritage and past achievements, a tradition of service, and the goodwill of its policyholders.
But as the new CEO soon discovered, the company was really living in the past and on its past, while slowly but surely heading for the precipice. When Thompson-McCausland assumed charge, he found the company in a serious state of deterioration and drift. "All energy had gone out of the company." There was an atmosphere of complacency and inertia-no deadlines and no sense of urgency. "The company was suffused with a feeling of sleepy security."6
There was no sense of direction either. Values like service, which the company had prided itself on in the past, had lost all meaning. The quality of service had been declining for years. Responses to enquiries were slow. Employees reacted to customer complaints with excuses and defensiveness, or did not bother answering them at all! There was no planning and no budgeting. New ideas were discouraged, good ideas were shot down.
The organization was fragmented and highly bureaucratic. It was divided into several autonomous empires. There were no clear lines of authority. Status and security were given greater importance than productivity. In one department there were five employees, four of them supervisors! Systems were sloppy and outdated. Coordination was poor. Each branch office functioned according to its own standards and procedures.
People felt secure in their jobs and were well-paid, so there was very little staff turnover. There were no targets set for individuals or departments. No one was evaluated or held accountable for achieving results. Therefore talents were ignored. "The idea of standards of performance was completely alien." Morale was low. People felt defensive and afraid. Gossip and quarrels were rife. There was an anti-training attitude in the company. Training for managers was non-existent. Selling was considered a dirty word.
For the previous 20 years, the company had been gradually losing market share to the competition. In 1976 alone the company lost a major government account and 44% of its most profitable premium income. A 1980 industry survey showed London Life's expense ratios were the highest of the nine companies examined and dangerously out of line with the rest of the industry. In other words, London Life was a company whose lenses were cloudy, full of cataracts, and all out of shape.
What would you do if you were in Thompson-McCausland's position-assuming, of course, that it was too late to back out of the assignment?
RESTORING LIFE TO LONDON
Ben had an intuitive understanding that energy was the key, that without energy he could not accomplish anything. So the very first thing he did was to start moving around briskly through the company, meeting everybody, taking interest in every operation, speaking enthusiastically, asking thousands of questions-even running up and down the stairs. He made himself a living example and embodiment of energy, dynamism and speed and set a demanding pace for every activity in which he got involved. "Energy was the one thing I concentrated on. It was a charismatic approach, energy and example."
Then he set a new direction for the company. He started talking about change and growth, about improving performance and rejuvenating the company, about restoring London Life to the heights it had occupied in the past. He opened up communications, encouraged suggestions from all quarters, and challenged pessimistic attitudes. He asked senior managers to identify the company's values and define clear standards for how those values should express in action. He then extended the process to middle managers and eventually to groups of employees at all levels of the company to build awareness and acceptance of those values. He got everyone involved in thinking and talking about how to improve the company, in developing performance standards and contributing their ideas on how to achieve them. A consensus gradually emerged. A previously unknown energy, enthusiasm and excitement began to surface in this once placid and lethargic company.
Top management formulated a new mission: "To be the best run life office in the land." They set quantitative targets for growth-40% a year, compared to an industry average of 15%. The plan was "received with horror."7 Time deadlines were set for every routine activity. Meeting schedules were rigorously enforced to ensure that too much time and energy were not spent in talking rather than doing.
Then he and his staff turned to look at the organization. It was immediately clear that the existing structure was inadequate for the task. Already managers were having problems directing and utilizing the new energy for productive purposes. People now became easily frustrated by conditions they had quietly endured for years.
So they set about creating a new simplified structure, abolishing the dotted lines and devious routes by which people reported, got their work done and exercised control over others. Many supervisory positions were redefined and assigned clear operational responsibilities. Branches were given a much higher level of decision-making authority and greater freedom for initiative. Frequent meetings were instituted to foster coordination and teamwork, especially between the head office and the branches. Ben found that "the new structure gave rise to a sense of renaissance."
The initial response to these efforts was extraordinary. Against a target of 40% growth, new business increased by 87% in 1982. Morale improved dramatically. People worked hard and happily. The company began to grow again. It was on the upward spiral.
But it soon became evident that much more needed to be done in order to sustain that growth. The organization was still a constraint and a stumbling block. Systems were quickly overloaded by the increased volumes and rendered useless. Management instituted a complete review of the company's systems and an effort to upgrade them to handle the growing volume of business quickly and smoothly. They instituted quality circles to get everyone involved in making improvements. There was even a circle for messengers and file clerks, which came up with some good suggestions to streamline the process of file retrieval.
The greater the efforts they took, the greater the improvement in performance. Yet they always seemed to be chasing an elusive target. For the more they improved, the more business grew and the more needed to be done to keep up with the increasing volume of work. For this reason, it took a full three years to bring down customer response times to the desired level.
Yet for all their efforts, it was clear to Ben and his team that something more was needed. The higher quality standards, sales goals and volumes of work not only strained the company's systems to the limit, it put enormous demands on the skills of the people as well. So they introduced a comprehensive training program to impart new and higher skills to people at all levels of the company, from senior management to secretaries and receptionists. At the top, the company instituted a two year corporate development program to improve managerial and interpersonal skills with an emphasis on participation and teamwork. The program released tremendous energy, revealed hidden talents and generated a sense of fulfillment. At lower levels, the program covered a broad array of skills ranging from time management, decision-making and assertiveness training for subordinates to creative thinking, report writing and how to manage your in-tray. Improving people's skills was highly motivating. Thompson-McCausland found that "training released much more energy."
Ben removed the bifocals and restored clear vision to this once aging company. Gradually this sombre and formal corporate personality was transformed into a youthful, dynamic and exciting company again-as it had been in its prime many decades earlier-and a rapidly growing one too. From 1980 to 1984, London Life's new premium business increased 4.5 times, its total income and investment fund both doubled, and its expense ratio declined by 41%.
REFOCUSING THE LENSES
The conditions Thompson-McCausland found at London Life are not as uncommon as we may like to believe. They are quite similar to the conditions that Lee Iacocca encountered when he took over at Chrysler in the late 1970s, of which he later remarked: "If I had the slightest idea of what lay ahead for me when I joined up with Chrysler, I wouldn't have gone over there for all the money in the world."8 The situation he encountered was so de-energizing that instead of thinking how to double the company he was literally seeing double! Yet Iacocca was able to reverse the lenses and convert $3.3 billion in losses which Chrysler accumulated from 1978 to 1981 into $3.3 billion in profit over the next three years and to double the revenues of what was already a $12 billion company in the process.
In actual fact, these conditions exist to some extent in every company. Like the lenses in our eyes, the lenses of a company have to be continuously refocused on a constantly changing and moving world both outside and within the company. This task can never be complete, so long as a company wants to keep growing and surpassing its previous performance. And regardless of its age, as soon as it stops wanting growth, it embarks on the descending curve which London Life had ridden nearly to the bottom, before refocusing its lenses and reversing the direction of its energy flow.
GROWTH IS AN ENDLESS CHALLENGE
Even after the dramatic turnaround of SAS, Jan Carlzon found that the job was not over. In winning international recognition, 1983 was a year of attainment for SAS and for Carlzon. But for Carlzon, it was followed in 1984 by "a year of agony."9
The problem was that SAS had achieved all that it had set out to achieve...and more. Carlzon explains how by fulfilling and exceeding its goals, SAS had inadvertently rendered itself directionless once again. The first lens got out of focus.
"I was quickly learning yet another lesson about running a business organization: when you reach your goal, you become a prisoner of success...Between 1981 and 1984 all our forces were aligned, and each and every person was striving to surpass his previous best efforts. But now we had arrived at our objective-before we had given much thought to what we wanted to accomplish next. The absence of new goals was producing some negative effects at SAS. The atmosphere of togetherness was eroding. The purpose of our work began to be questioned frequently. And our employees' newfound energy began to be redirected toward narrower and more personal objectives...By establishing our original goal, we had placed a demand on our employees. But now that there was no goal, a kind of reversal had set in. We had unleashed new energy, new motivation; with the goal achieved and the motivation still there, people began setting their own individual goals, scattering in all directions and making different demands of the company. It was a graphic illustration of the need for top management to direct all forces toward a common goal."10
And so Carlzon set about refocusing the lenses again by launching what he calls "the second wave". He established a more challenging direction for the corporate energies-to make SAS the most efficient airline in Europe by 1990 in preparation for deregulation of the commercial airlines there. Then he introduced further changes in the organization to further flatten and decentralize it, redefining the roles of middle and top management and further empowering people on the front lines.
The SAS experience dramatically illustrates the power of the process of energy conversion. It also points to the inadequacy of a limited goal like doubling. So if you have not yet chosen to triple or quadruple your business, set your sights higher!
ACTION PLAN FOR CORPORATE ENERGY FLOW
What about the three lenses in your company? What is their energy coefficient? To what extent do they focus and magnify corporate energies? To what extent do they diffract and disperse them? Refer back to the questionnaire at the end of the last chapter. Are you fully releasing the potential energies of your people? Are you giving clear direction to those energies through commitment to values and objectives? Does the organization effectively harness and channel those energies for productive work? Do your people have the right attitudes and skills to effectively express the energy and achieve maximum results?
Develop an action plan using the form in Appendix A. List on the form the actions you propose to take to improve the generation, direction, organization and expression of energies in your company and to eliminate the dispersion and loss of energies due to lack of direction, organization, skills and attitudes. If possible, try to roughly estimate the impact which these actions will have on the revenues and profits of your business over the next few years.