The environment in which you operate is always changing. Your challenge is to maintain relevancy, or fit, between your organization and your operating environment. One main driver of change is, of course competition. Market entrants, substitute products, forward and backward integration within the supply chain, and the intensity of competition with your direct competitors eat away at your overall profitability. Cost savings, the ability to maintain or increase price in current categories of competition, and market development are your basic survival strategies.
The generalized, predictable pattern of change on your firm is called the organization lifecycle. It describes key phases of organizational maturity and the key issues in each. Organization leaders can use the model to frame the strategic discussion, guide awareness, and direct planning. Because of the nature of strategy – where to play, how to win, capability needs — there is also a natural connection to your organization’s operating model.
The intention of this article is to demonstrate the utility of the organization lifecycle and put it into a useful broader context.
Advantage and Profitability Are Under Attack
You certainly know that profitability attracts attention. You also know that you’re continually defending that profit, and seeking new sources of profit, both within and outside your competitive industry. Organizations are forced to innovate, watch their profitability decline to some minimal market rate of economic return, or cease to exist. The lifespan of Fortune 500 companies is increasingly short.
A powerful explanation for decreasing profitability is found in the competitive industry framework Michael Porter introduced many years ago. There are five forces competing for profitability within any industry. Here are the five in simplified form.
- Threat of New Entrants (e.g., Uber upsetting the staid industry for on-demand, local transportation)
- Threat of Substitute Products or Services (e.g., Netflix streaming video effectively killing off the brick-and-mortar movie rental model)
- Bargaining Power of Suppliers (e.g., OPEC in the oil industry constraining supply to raise prices)
- Bargaining Power of Buyers (e.g., government pressure on pharmaceutical pricing)
- Rivalry Among Existing Competitors (e.g., price cutting to gain economies of scale)
This general model provides a basis to understand the push and pull of industry profitability (i.e., the operating environment). Based on this view, leaders consider the predicted impact on the organization and its forward strategy. The Organization Lifecycle model supports this strategic conversation.
The Organization Lifecycle Assists Strategy Development
The organization lifecycle is a planning tool that structures strategic conversation. It helps leaders predict key challenges created by growth and a changing environment. That environment may be seen as the industry profitability framework described above. Since its development by Ichak Adizes, many organizations have adopted its use to help plan into the future.
There are four phases of the Adizes Organization Lifecycle. On the surface it is very easy to grasp and not at all extraordinary. The value exists in its easy accessibility and the predictions/questions found in each phase that are relevant to all organizations.
- Birth/Startup/Planning – Essentially these are questions of business direction at startup or revitalization.
- Growth – Includes questions about growing complexity and the complication it may be driving into the business as leaders seek to manage the complexity.
- Maturity – How to manage pressure on margins as players in the industry profitability model start to bite.
- Decline – Deals with issues related to organizational fit to a changed operating environment.
The takeaway point is that the use of the model will precede choices to change strategic positioning and strategic initiatives (i.e., strategic intent). What we’ve done with Porter’s industry model is assess the operating environment. We’ve used the Lifecycle model to stimulate conversation about strategic choices. The next discussion concerns your operating model and its ability to deliver future strategy.
Strategy Adjustment Requires an Aligned Operating Model
All roads lead to Rome, as the metaphor claims. In a slight twist, all conversations about strategy sooner or later lead to your operating model. This is so because your operating model is the only intermediating mechanism that translates strategy into organization behavior and business results.
There are several models of an operating model from which you may choose. The most common, by far, is the Star Model articulated by Jay Galbraith and refined by others to put into pragmatic use. The Star Model identifies a universal set of domains in which any organization must make design choices. Together, these design choices create and direct organization capability to deliver business strategy.
There is much to say about an operating model and the process used to design one and put it into practice. This topic is beyond the scope of this article. However, in this moment there is a piece of wisdom I believe is worth sharing. It is, “The process we use to get to the future will be the future we get.” Said in practical terms, if you want a collaborative culture the most powerful action you can take is to use a collaborative process to achieve it.
Three Models Acting in Sequence
The organization lifecycle is a framework for prediction and strategic thinking. Feeding the lifecycle conversation is industry analysis in the form of the Porter framework. Following the strategic conversation is the operating model in the form of the Galbraith Star. Together, these three models represent a collection of tools leaders can use to steer their organization toward renewal and continued relevance in a dynamic operating environment.
Applying the organization lifecycle model can be simple. Plot revenue by year for as many years as you have good data. Identify your position on the lifecycle. Ask your leadership team the questions proposed by the model. Is there resistance or acceptance for the questions? What is the quality of the conversation that follows? How useful was the model? You’ll organize your strategic conversation one way or another. The Organizational Lifecycle is now a tool in your strategic planning toolkit.
About The Author
Dan Schmitz is an Operating Model Principal Consultant at ON THE MARK. OTM’s experience and passion for collaborative business transformation that’s supported by pragmatism, systems thinking, and a belief in people is unparalleled. OTM has been in business for 35 years and is a leading organization design firm
