Harvard Business Review July-August Larry E. Greiner Evolution and revolution as organizations grow A company's past has clues for management that are critical to fnture success Foreword This author maintains that growing organizations move through five distinguishable phases of develop-ment, each of which contains a relatively calm period of growth that ends with a management crisis. They soon find out that such initiatives not only generate returns that fall off rapidly but also vastly increase the company’s operational complexity. Consequently, growth by acquisition will no longer be propelled by macroeconomic tailwinds of the kind we’ve felt for the past 30 years, and organic growth through the usual incremental approach will be anemic at best—certainly not enough to impress anyone. The aim was to demonstrate that good ideas for boosting organic growth would always find resources at Gillette, even at the bottom of the cycle. George Orwell wrote that “the slovenliness of our language makes it easier to have foolish thoughts.” Like him, we believe that a tidy language for growth makes for a tidier, wiser pursuit of it. When the company was modernizing the Wall Street Journal, it wanted everyone—art directors, direct marketers, circulation managers, salespeople, and managers of the online edition—to focus on how changes would be received by readers and advertisers, and, by extension, how those changes would affect Dow Jones’s ability to grow organically and profitably. Although any one organic growth initiative may seem small from a corporate perspective, collectively such initiatives are essential to realizing a return on a company’s capital base. The entrepreneur and founder of Sonnentor, an organic food production company, has grown his business by focusing on unusual strategic and operative choices. The best growth opportunities for both businesses are in emerging markets, where local expertise is critical and managerial talent is scarce. The opportunity was not apparent when Guinness operated in geographic silos; it came to light only when the corporate center saw the bigger picture of the two market units together. Procter & Gamble then bought the company at 5.5 times revenue and almost 19 times EBITDA—multiples normally reserved for high-growth companies. The idea is to get unit managers to identify the highest-potential opportunities so that they will be less likely to propose investing in areas that would yield only small wins. In an uncertain business environment, all corporate leaders need to be actively engaged in organic growth. Organic growth is not the inevitable result of a successful business model. Instead of asking only questions such as, How are you doing against your targets? “I’ve worked for other people who would have said, ‘I’ll take all $70 million on the bottom line,’” Scalzo noted. At the bottom of the cycle, pessimistic signals from the center can make unit managers reluctant to fund new products, upgrade critical aspects of customer service, or invest in market building. Why do companies so often miss out on these opportunities? James Kilts, the CEO of Gillette from 2001 to 2005, provides a good example of the various ways corporate leaders can do this. The Harvard Business Review Manager's Handbook: The 17 Skills Leaders Need to Stand Out. Managers would rather succeed conservatively than fail bravely, which might be good for their careers but does little for growth. What is the proper role for corporate leaders when it comes to organic growth? The upside from this benefit in Ireland combined with the export potential justified the investments. High-growth companies become low growth all the time. Many CEOs don’t seem to care about organic growth. He knew that could lead to all sorts of destructive behaviors.” Kilts’s ability to make trade-offs between expense reduction and investment allowed Scalzo to reinvest a portion of $70 million in savings he had identified in his unit. In a sample of 3,000 acquisitions by U.S. companies from 2001 to 2011, only the companies that generated robust organic growth from their acquisitions also created value, as measured by total shareholder returns (TSR).
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