Specifically, in analyzing organizational behaviors by the size of the company, we see a four-step evolutionary process by which companies grow into — and occasionally out of — dysfunction:
Step 1: $0–$500 Million. Responses from small companies are more likely than those from their larger counterparts to indicate Resilient or Just-in-Time profiles — organizations that are effective at executing and adapting to change in their environment. This finding is intuitive because small companies tend to be younger, and therefore more attuned to and aligned with the vision and strategy of the founders. Moreover, their small size allows them to adapt more nimbly to market shifts.
Step 2: $500 Million–$1 Billion. As firms cross the $500 million threshold, many seem to address their growing coordination challenges by centralizing authority in a strong senior team that drives the business. Not surprisingly, the Military profile reaches its peak in this revenue segment. In addition, we see a sharp increase in the Overmanaged profile, suggesting that many firms in this size range become bureaucratic, slow, and overly politicized as an expanding middle management starts to second-guess and interfere in lower-level decision making.
Step 3: $1–$10 Billion. Once past the $1 billion mark, organizations become too large and complex to be run effectively by a small senior team via command-and-control mechanisms. Companies are thus forced to decentralize. Given the marked increase in Fits-and-Starts profiles in this revenue range, the transition to a decentralized organizational model appears to go badly in many cases. Local managers may be given the authority to make decisions, but not the incentives or information to make them well. Passive-Aggressive profiles also increase in companies of this size, because incoherent and uncoordinated structures and processes create inertia, confusion, and ultimately a failure to execute.
Step 4: More than $10 Billion. To survive and grow to this size, companies clearly have had to figure out how to execute and adapt, and Resilient profiles do make a comeback in this segment. Even so, plenty of very large organizations still struggle to execute effectively. Overmanaged profiles increase and Fits-and-Starts profiles decrease in the $10 billion+ segment. This finding suggests that many of the largest companies may try to “fix” a badly decentralized organization by adding layers of management and bureaucracy. Passive-Aggressive is the most prevalent profile in companies of this size, indicating that, although people may agree on the strategic plan, few are really implementing it.
But nothing is preordained. Companies are not fated to cycle through the Military, then Fits-and-Starts, and then Passive-Aggressive phases as they grow. Those firms that are aware of these patterns can anticipate and break them.
Our survey results indicate sharp differences in perception between upper management and lower-level groups, suggesting that senior executives may be out of touch with the rest of their organization. Specifically, senior managers are consistently more optimistic in their views of organizational health, a finding that echoes numerous other organizational research studies.
More than any other group in the organization, senior managers we surveyed saw their firms as “healthy.” Indeed, senior executives were twice as likely as any other group to view their companies as Resilient. Consistent with this comparative optimism, senior management answers translated into unhealthy profiles — Overmanaged, Outgrown, Fits-and-Starts, and Passive-Aggressive — almost 30 percent less often than those of other groups. (See Exhibit 6.)
Senior management’s positive bias is reflected in all categories. On virtually every question that tracks to the Resilient profile, senior executives reported the “desirable” response more often than any other segment of respondents. Most strikingly, senior managers were far more willing than others in the organization to agree with the statement, “Important competitive information gets to headquarters quickly.” Given the yawning gap between their perceptions of their organizations’ effectiveness and that of every group that reports to them, one might question how well informed senior managers really are. As business operations grow increasingly complex and the pressure for greater accountability mounts, top management would do well to reassess data flows within the company and institutionalize access to timely, relevant, and accurate information.