Managing Through Turbulent Times. Anthony Holmes
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Transit along the lifespan is mostly unidirectional. The early stage of growth is followed by maturity, which precedes decline. By definition decline does not proceed the early stage of growth, although some organisations fail to enjoy a prolonged period of maturity and appear to enter decline shortly after growth ends. Examples of these are organisations and products launched to capitalise on highly fashionable trends or transitory technology such as fan clubs for popular music bands, children’s toys, some financial products based on tax breaks, some software products, vacation resorts, trendy restaurants, TV shows and movies. For these types of organisation the whole of their lives are turbulent as they never encounter the relative stability of a prolonged period of maturity.
The duration of each phase will vary and be different for each organisation but empirical evidence suggests that in a large number of cases (such as fashion products) the more rapid the growth phase the shorter the period of maturity and more rapid the onset of decline.
The presumption that, if unmanaged, the lifespan curve is symmetrical – taking the shape of a normal distribution – is a reasonable starting point. However, empirical evidence reveals that decline to collapse occurs at an accelerating rate and is steeper than the change from infancy to growth. Economic recessions and HILPEs tend to magnify this end stage asymmetry.
A feedback system works at this point. The onset of decline causes organisational turbulence and the emergence of environmental turbulence, such as a recession, tends to accelerate the decline of businesses in late maturity by magnifying their problems, causing additional turbulence in its wake and reducing the options for rectification.
A determination of whether it is likely that the organisation is in maturity or decline may be made by considering what the preceding phase is most likely to have been.
If the organisation is in maturity or decline it will exhibit characteristics that cannot be mistaken for those of an immature organisation in the infancy or growth phase. Some of these characteristics of infancy and growth are obvious:
The company is still comparatively new and has probably commenced trading within the preceding five years.
Revenue growth in the last two years will be significantly greater than any preceding period.
Headcount will have grown to add human capacity to manage the enlarged business.
Capital spending will probably have been high in relation to the company’s scale and the company will have moved premises at least once in the preceding three years to add physical capacity.
A significant fraction of revenue growth will be attributable to the acquisition of new customers and not through increased demand from existing buyers.
Most of the senior management team will have been with the company since its early days.
Because the business is expanding quickly the process is probably disorganised and turbulent.
If the company doesn’t have these characteristics the early stage may be discounted and it may be concluded that the organisation is located in the maturity or decline phase. The following are some of the characteristics that indicate a move to maturity and beyond:
The company will have existed for longer than five years. It is unlikely that a company that has survived for a longer period, probably in a buoyant economy, remains in its infancy.
Historical revenue growth will reveal a phase of expansion at a rate higher than in preceding years followed, most recently, by a phase of more modest or no growth.
Return on capital will for several years have ‘normalised’ to close to the industry average and now additional capital will be required.
Recent profit growth will have been solid rather than spectacular and a loss may be predicted.
If the preceding phase was growth and no discernable period of consolidation or stagnation has been experienced then it is possible but unlikely that the organisation moved from the early stage straight to decline. It is more likely that the organisation has entered maturity.
Early maturity is preceded by recent slowing growth. Late maturity is characterised by recent low growth, stagnation or oscillation between slow growth and intermittent periods of decline.
It is unnecessary to conduct further analysis if there are prima facie indications of late maturity or decline and the general economic environment is turbulent or predicted to be so. In such circumstances management should assume difficulties lie ahead and begin to act accordingly.
This elimination of phase methodology becomes unreliable when only very recent data are used so at least five data points are needed covering a minimum period of 2½ years. These data may be distorted by recent fluctuations within a phase thereby giving the misleading impression that the organisation is in maturity when it is just encountering a pause in growth and the pattern of expansion will resume.
Sometimes complex systems, like the economy or a market, seem to settle briefly at an equilibrium point but then, for no easily apparent reason, they resume momentum, occasionally not in line with the previous trend.
It is also feasible to determine your company’s lifespan position in general terms by evaluating the mode of management, i.e. whether it is concerned predominantly with ‘becoming’ or with ‘being’. However, the problem with this subjective appraisal is that, at the turning point from one phase to the next, it is often difficult to form a conclusive judgement.
How to determine the managerial mode
This is a subject that could consume the pages of another book and therefore I do not intend to attempt a comprehensive discussion in this brief work. By the same token I do not want to be so superficial that you conclude that there are just a few easily recognised traits that will enable a clear identification of the prevalent mode.
The key mode to search for is denial, which I discuss in a little more depth in chapter 4.
The point I want to emphasise is that the action you take in turbulent times depends not just on your organisation’s position in its lifespan or the psychological mode of management but on the way the two interact.
If the organisation’s position in its lifespan is late maturity or early decline, it is a period of general economic uncertainty and an appraisal of management’s psychology concludes that denial or concealment of problems is the dominant condition, then stakeholders should consider the early removal of the incumbent senior management and the replacing of them with individuals experienced in leading unstable businesses.
If the same external conditions are encountered during the growth phase and managers are engaged in the self-deception of denial as to do otherwise means an admission that their ambitions may be unfulfilled then, as the senior manager, you must examine the consequences of growth being truncated. Will the scale achieved be sufficient to give the critical mass necessary for maturity or can the investment in growth be slowed until more conducive conditions return? Will ‘becoming’ be brought to a premature end and are you organised enough to enter the mode of ‘being’?
These preliminary comments lead directly into the important area of managerial psychology and the mindset managers need to understand and adopt in order to manage through turbulent times.
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