Changes, Scaling & Shrinking

Previous: Maintaining Morale

A great organization will excel over time, but time will crush a mediocre one.

• Adequate-enough organizations can survive when times are good, but collapse right after the awful organizations when times are harsh.

Stay extremely paranoid about any dips in your financial situation.

• Even when you’re growing, make movements to protect from recession later.
  • Invest heavily into research & development to improve the product.
  • Only scale up executive pay directly with the rest of the organization.
• Generally, the financial state of a bankrupt organization happens slowly over years, then strikes suddenly in about a month.
• If you’re aware of it, do not try to cut your losses and run, since people will look for someone to blame.
  • Instead, look for someone else to buy out your organization, which may give an opportunity for you to leave management entirely if you want.

Above a specific level (or throughout the growth of a not-for-profit), your role will be subjected to the desires of a board of trustees.

• Even if they don’t exert their power, this board will have some level of influence over every decision and change within the organization.
• If you have control over your board, pick people who match your values, not simply who you’re familiar with.
• Board selection, and any additions or removals, defines the future of the organization.

Avoid hiring in the good times or firing in harsh times too quickly.

• Payroll is, by far, the most expensive cost in an organization, and every new hire has an initial lead time before those people can successfully work at full-capacity.
• The workers are, by far, the most valuable part of an organization, so losing any qualified and tested worker is a blow to the organization’s culture.

Change Management

Always expect change.

• Nearly every system is imperfect, and even a perfect system has to deal with related systems which are flawed or unreliable.
• Occasional problems are natural, but repeated issues are clear indicators that the system itself (or its interactions with other systems) has defects.
• Further, organizational culture itself shifts with growth and hardships.
• Without change, all systems become bad systems.

While you may be able to make changes instantly on an individual level, all change moves slower in larger systems.

• Information has to travel across a pipeline to all affected people.
• Most system changes require running the old method alongside the new method for a period of time.
• People also often tend to resist changes, so offer incentives instead of ultimatums.

For any change, expect a multi-phase approach:

1. Observe any pain points, weaknesses, shortcomings, or process gaps.
2. Analyze and brainstorm ways to fix them.
3. Make a clear plan on how to fix them.
4. Give everyone clear and reasonable goals about what to do and why it matters.
5. Get consistent status updates on their progress.
6. If you need to change the plan, go back to Step 1 for that specific needs.
7. As you see results, compare actual and projected metrics.

Try to foster more open discussion and ideas about change.

• Make a requirement that every new idea have a minimum word count.
• Cross-pollinate ideas by mixing everyone across different workgroups and departments.
• Give members the freedom to explore methods they prefer.

Each organization is affected by Thinkers, Builders, Improvers, and Producers:

• The four groups of people are aligned by a combination of experience and attitude about the work:
  1. Thinkers develop ideas, where most of the significant ideas start with them (e.g., visionaries, creatives, researchers).
  2. Builders create new things that convert Thinkers’ ideas into reality (e.g., entrepreneurs, inventors, project managers of new projects).
  3. Improvers manage defined tasks to make them work better (e.g., managers of existing systems).
  4. Producers perform relatively mundane tasks for a project (e.g., helpdesk, sales, data entry).
• People tend to develop their skills over time through a predictable pattern, with 1-2 dominant forms at any given time:
  1. They start a role as a Producer, doing what they’re told and not much else.
  2. After some experience, they become a natural Improver for their work environment.
  3. If they thoroughly understand what they’re doing, they can become a Builder.
  4. If they’re intelligent enough, they’ll resign themselves to becoming a Thinker.
• At any given time, the questions you’re asking determine the kind of person you need:
  • What significant problems haven’t been solved? (Thinker)
  • Do we need to make any substantial changes or start new projects? (Builder)
  • What needs upgrading or improving? (Improver)
  • What portions of the project need high-quality and repetitive activities? (Producer)
• Contrary to individuals, organizations’ needs build through a reverse sequence:
  1. Launch Phase – An organization starts by needing at least one strong Thinker to consider many unknown factors the organization will crash against.
  2. Rapid Growth Phase – That Thinker will need a good Builder to make those ideas happen.
  3. Maturation Phase – The Thinker and Builder will need an Improver to make everything work better.
  4. Sustaining Phase – Everyone will need Producers to do exactly what they specify.
• To that end, most organizations devolve into bad systems as the brilliant minds leave the organization:
  1. Producers and Improvers do most of the work at first – TT BBB IIIIIII PPPPPPPPP
  2. If the leadership doesn’t keep fostering a culture of large-scale changes, Improvers’ risk assessment halts future changes – IIIIIIIII T BB PPPPPPPPP
  3. Before changes completely stop, the Thinkers and Builders have moved on to more meaningful work – IIIIIII PPPPPPPPP
  4. Eventually, as the tyranny of standardization expands, Improvers follow the Thinkers and Builders, with new Producers replacing them to create some semblance of order – PPPPPPPPPPPPPPPPPP
  5. The organization will dwindle and die from a lack of new ideas, or possibly become necessary by some form of government legislation.

Each change management system either tends to prioritize keeping people informed or keeping systems continuously running.

ADKAR Change Management Model:

• It gives 5 domains necessary for successful change:
  1. Awareness – everyone understands the change and why it’s coming.
  2. Desire – any concerns have proof to convince members, including case studies, evidence, and research.
  3. Knowledge – the members understand how to make the changes.
  4. Ability – the members can apply what they learned.
  5. Reinforcement – members are rewarded for achieving at making the change.
• While the model is effective at motivating managers to communicate change, it presumes everyone is acting out of the same motivation.

Bridges Transition Model:

• It indicates the emotional state of members as their situation transitions:
  1. Endings – they accept what might change.
  2. Neutral Zone – they’re still unsure about the new responsibilities.
  3. New Beginnings – they’ve accepted the new method as how to do things.
• Instead of “changes”, it defines the concept as “transitions”, and helps for understanding how people may feel throughout the process.
• The model is focused more on member satisfaction than on productivity.

John Fisher Change Management Model:

• The model considers the individuality of each stage of members’ feelings:
  1. Anxiety – insufficient information to visualize the future.
     • (Alternate) Complacency – complete apathy about the change, which can represent anywhere and at any time.
  2. Happiness – shared hope and relief that the change may have positive consequences.
     • (Alternate) Denial – refusing to believe a change is coming.
  3. Fear – uncertainty over the impact of the change.
     • (Secondary) Anger – directed frustration, typically toward others at first.
     • The anger persists for several more stages beyond this one.
  4. Threat – a sense of dread over the risks the change presents, especially to their purposes or identity.
  5. Guilt – self-directed hatred about any failures regarding the change.
     • (Secondary) Anger – directed frustration at self.
     • (Alternate) Disillusionment – complete resignation, with purposes directed to something beyond the team.
     • (Alternate) Hostility – fierce aggression toward trying to make progress in fixing something, typically by ignoring or sabotaging the change.
  6. Depression – total despair about the change, often with an identity crisis involved.
  7. Gradual Acceptance – a sense of meaning in the new change.
  8. Moving Forward – complete integration of the new experience.
• The model is very precise on how people behave (and very accurate), it may be too complex for most middle managers to comprehend.
• It gives plenty of status on the members’ emotional state, but doesn’t explain how to resolve issues with members at each of those stages.

Kaizen Change Management Model:

• It’s a 10-step process:
  1. Releasing assumptions.
  2. Taking initiative to solve problems.
  3. Rejecting current conventions.
  4. Avoiding perfectionism.
  5. While discovering mistakes, looking for solutions.
  6. Fostering an environment that provokes everyone to contribute.
  7. Asking “why” instead of accepting obvious explanations.
  8. Gathering information from multiple sources.
  9. Finding low-cost, small improvements.
  10. Ensuring continuous improvement.
• The system is great at the entire team brainstorming and idea-generation.
• The system isn’t very effective at making the changes directly.
  • It overlooks the emotional reactions everyone will have over the change.
  • Often, including members in the brainstorming process can dramatically complicate the result, especially if the leadership didn’t listen to their ideas.

Kotter’s Change Management Theory:

• It uses 8 steps:
  1. Increase urgency.
  2. Recruit a team that will guide the change.
  3. Build out the vision for that change.
  4. Communicate how much everyone will have to contribute.
  5. Help everyone to act.
  6. Do everything possible to finish tasks and projects quickly.
  7. Build momentum with the changes.
  8. Make the change-based approach a cultural standard.
• It emphasizes a focus on making important things urgent and fosters a culture of rapid change, but doesn’t consider the long-term impact of those changes.

Kubler-Ross Change Management Framework:

• It draws on the 5 stages of how we handle losses:
  1. Denial – not able to admit the change.
  2. Anger – generally upset in response to the change.
  3. Bargaining – doing what they can to prevent the change.
  4. Depression – hopelessness about the change happening.
  5. Acceptance – resignation about the change occurring.
• The model effectively captures the emotional state people may be having about a change.
  • While we individually go through any loss sequentially, organizational changes are significant enough that we may make changes about different losses over the same change at different rates, meaning it’ll appear random.
• The system, however, often implies that people may be acting out of emotional reaction instead of a specific principle they live by.

Lewin’s Change Management Model:

• It consists of 3 simple steps:
  1. Unfreeze – observe and openly communicate existing processes and roles that should change or stay the same.
  2. Change – start making changes and openly communicate as events happen.
  3. Refreeze – create and communicate goals and deadlines for when a plan should be in place.
• While it emphasizes communication, it doesn’t focus as much on systems continuously running or how fast those changes need to happen.

Nudge Theory:

• The idea is that people more readily accept change when they choose to over strict rules and enforcement.
• It employs a marketing approach with stages of selling.
  1. Introduce something new alongside the old thing.
  2. Provoke a trend toward that change.
  3. Finalize consensus by removing the old thing.
• The approach is not effective when it’s something people may dislike (e.g., pay cuts).
• While this has been established for the purpose of casually directing large groups, it’s also the basis for many dysfunctional systems.
• For most changes, there will always be at least a few outliers who will put up resistance.
  • They will need to be terminated, reassigned, or forced to conform.

Satir Change Management Methodology:

• There are 5 phases to the methodology:
  1. Late Status Quo – members understand what they’re responsible to do.
  2. Resistance – members don’t like what they’re responsible to do.
  3. Chaos – members are less productive as they start applying the change and understand the new approach.
  4. Integration – member morale improves once they see positive results.
  5. New Status Quo – members are productive again.
• While it accounts for dips in productivity while changing, it doesn’t give much indication of the best way to navigate change.

Growth

As an organization grows, its competence scales proportionally but its failures scale exponentially.

• As the group gets larger, it eventually becomes a bad system unless you completely decentralize management to separate, near-autonomous entities.
• The only way you can succeed is through constant delegation to everyone else.

The leadership should grow with the organization.

• Frequently, organizations stop growing because the senior management hasn’t adapted to the new requirements of their role.
• Any direct management should slowly shift to an influence-based approach.

Level 5 Leadership Model:

• The model divides skills into 5 distinct levels of leadership:
  • Level 1 – self-leadership (i.e., professional self-management)
  • Level 2 – team player (i.e., can work on a team)
  • Level 3 – team leadership (i.e., can tell people what to do)
  • Level 4 – manager leadership (i.e., can direct managers)
  • Level 5 – organizational leadership (i.e., can inspire entire organizations)
• The model captures the idiosyncratic differences between scopes of leadership, but doesn’t accommodate how different industries and organizations have different requirements for leadership.

The only way to keep a massive group together (i.e., above 150 people) is to break it apart into significantly smaller divisions, and repeat as it continues growing.

• By breaking apart the organization into units, each unit becomes its own mini-organization.
• Try to prevent each organization ever breaking past 60 people.
• By breaking it apart, each entity is able to work for themselves, but also able to pull from the vast resources of the collective entity.

Large groups often become defective because the senior leadership can’t lead leaders.

• Training a leader needs constant and dedicated input, feedback, encouragement, and guidance.
• Even for menial tasks, training leader-like personalities is dramatically harder because it’s the art of influencing the most self-determined (and therefore stubborn) class of individuals.

Greiner Curve:

• The model captures the phases of an organization’s growth based on the primary factor that drives its continued growth.
  • Stage 1 – Growth through Creativity
    • The organization’s founders spend most of their time making new products and finding open markets.
    • Not many staff, and communication is mostly informal.
    • Individuals who work hard or extra hours are usually awarded a share of the profits or company stock.
    • Growth ceases with a leadership crisis when the leaders must better organize their resources.
  • Stage 2 – Growth through Direction
    • Typically, someone new is brought in to compensate for inadequacies in current leadership.
    • Communications are more formalized, such as meetings or a knowledge base.
    • There’s more emphasis on budgeting, as well as separating activities into distinguished groups like marketing, production, or sales.
    • Individuals who work hard or extra hours receive incentive benefits more than profit-sharing or stock.
    • Growth ends with an autonomy crisis once the products or processes have grown so numerous that one person can’t oversee all of them.
  • Stage 3 – Growth through delegation
    • The senior leader starts giving responsibilities to others, which often includes middle managers.
    • Top management monitors and managers large-scale issues (e.g., mergers & acquisitions).
    • Individuals who work hard or extra hours receive increased authority over the organization and its processes.
    • At this stage, most organizations fail because the primary manager usually won’t consent to less direct control.
    • Growth ends with a control crisis because different parts of the organization need a larger headquarters.
  • Stage 4 – Growth through coordination and monitoring
    • The leadership starts establishing members in clearer roles.
    • Previously isolated units become reorganized as usage-based process flows.
    • Investing becomes centrally-managed and focuses on ROI (return on investment) more than simply profitability.
    • Individuals who work hard or extra hours receive organization-wide profit-sharing arrangements.
    • Growth ends with a red tape crisis when bureaucracy halts further progress.
  • Stage 5 – Growth through collaboration
    • The entire organization has enough collective motivation to adapt their culture and structure to use more common-sense.
    • The leadership eradicates vast systems that deliver rigid rewards to unchanging team structures and replace them with more autonomy to teams, including the ability to reorganize as desired.
    • Individuals who work hard or extra hours are often promoted to team leadership or given special projects.
    • Growth ends with an internal growth crisis where the organization has reached a hard limit on the number of people who can adopt the culture.
  • Stage 6 – Growth through extra-organizational answers
    • The organization creates partnerships with complementary organizations.
    • Growth continues through mergers, outsourcing, networks, and other solutions.
• The model is very effective at capturing what can keep growth going, but doesn’t work well for troubleshooting.
  • Further, the model becomes much more complex with multi-team organizations, since it’s harder to define what constitutes a “group” of people.

Good ideas come through outside the organization, so connect as much of the organization to the outside world.

• Get direct customer feedback instead of simply hearing members’ disagreements.
• Get personally involved in altruistic activities and causes you care about, and advertise them to the team.
• Pay the members for time serving in altruistic capacities.

When hiring new managers, be very picky over who you appoint.

• It’s tempting to pick someone you know (e.g., a family member), but they will have an easier time stealing from you or breaking rules if they know they can influence you out of any legitimate consequences.
  • Unless you favor everyone who isn’t a personal connection, any personal connections will imply nepotism for everyone else.
• Hire for character and moral integrity (which you can’t train) more than competence (which can be trained).

Modular Systems

If your product is relatively the same everywhere it’s provided, find ways to create a modular framework.

• If you give the customers a homogeneous experience, the brand recognition will guarantee they’ll know what to expect (e.g., McDonald’s restaurants).
• However, this only works for something you can turn into a commodity. Otherwise, it’s better to more clearly differentiate different parts of the organization as separate autonomous groups.
• Generally, a very large organization works better with different subsidiary entities that specialize in different domains.

Reassigning Workers

Sometimes roles are no longer necessary.

• Change is almost guaranteed in most industries, meaning the workers will have to adapt to it or leave the organization.

If it’s at all possible, reassign workers to what they want to do, not simply on how skilled they are.

• If they’ve been at the organization for at least a few years, offer a few months’ pay for them to leave if they want.
• Generally, the older they are, the more they’ll want a reputable role.

Mergers and Acquisitions

As organizations get larger, several things will happen to your role:

1. You will need to delegate most of your tasks to others, meaning you’ll eventually be doing nothing but make decisions all day.
2. Everyone who was part of your team as a worker will likely grow with you (and become managers as well) or depart the organization.
3. To most people, you will become a symbol more than a human being, meaning the rules of celebrity management apply.

To that end, your role (if you choose to stay with the organization) will adapt to endless meetings and communications with a wide variety of short interactions.

• This is typically not a good life for most people, so be prepared to leave your role if it doesn’t sound appealing.

Don’t expect the group’s loyalty to transfer in a merger/acquisition.

• They were closely connected with the culture and workplace they had before.
• Unless the new organization respects that culture, some will adapt to it, some will embrace it more than the old culture, and others will leave.

Downsizing

Generally, if you have a choice, prioritize your terminations according to the organization’s needs:

• For non-social roles, get rid of the least productive workers.
• For social roles, get rid of the least pleasant people.
• For technical roles, get rid of the least-skilled people.

If you have to lay off people, only do it once, and as deep as you’ll ever need.

• Every layoff drops morale, and multiple layoffs make people feel it’s a trend.
• If the budget isn’t balanced, you really can’t help it.
• After the second layoff, workers will start looking for work elsewhere.

Don’t procrastinate layoff decisions if you know it’s inevitable.

• Openly communicate the likely risks of a layoff and offer severance pay for any volunteers.
• To avoid further anxiety, take decisive action within a week of the announcement.

Be absolutely direct with the layoff message.

• Speak personally about the fact that you don’t want to do it, but you had to.
• If you made any mistake whatsoever, clarify precisely what happened, how you misjudged, and that you were wrong.
• Wrap up the notice by clarifying precisely what will happen, what departments will be affected, and by how much.

High Above

No matter how human you are, and no matter how well you craft your image, your public presence over an organization of several thousand people is guaranteed to have at least a few ugly marks on it.

• Learn to integrate your shadow and humbly understand your place in the hierarchy.
• Being an executive is a bit like being a monarch, where everyone imagines they can do it better but don’t realize the stress and limitations required within the role.
• Executive and magisterial roles are very abstracted from humanity, and have more in common with a strategy video game than any legitimate human connection.

From 2nd-level middle management and higher (i.e., no longer working alongside the workers), everyone quickly becomes a data point.

• If you wish to work in that environment, you’ll find yourself competing with many personalities who will have no ethical problems with harming many people to provide a little personal gain (e.g., Cluster B personality).
• In general, it’s far easier to fire a 15-person team or cut pay for 200 people when you have no sense of ethics or humanity.
  • Making or keeping lower-ranking friends in a high-ranking role can represent an opportunity for your rivals to make accusations of political favoritism or imposing their scandals or unfavorable reputation onto you.
• By delegating every task, a manager has a unique power discrepancy:
  • They can claim the benefits of anything good their subordinates do.
  • If someone keeps making mistakes, they can fire the under-performer.

Stay ethical, even when a small lie can give you a moderately-sized city’s wealth at the expense of people you’ll never know.

• People never say something is “just business” for morally good things.
• Your moral responsibility, within this life and the next, leans more on you proportionally to the power you have over others.

Your organization is safest when you publicly expose every scandal yourself.

• To the extent you can, publicly disclose everything you know to be true.

The complexities of running a large organization are the same as smaller ones, but with many more nuances.

• Every business role will be heavily specialized.
• Many of the tasks you were doing will become specialized roles (often part of a Human Resources division).
• It may be tempting to relax and do nothing, but stay closely involved with any critical projects.

On a high enough level, your management expertise involves power-brokering within the world of government lobbying, further mergers/acquisitions, and giving commands to your subordinate managers.

• Your “score” is ranked in the industry competitively against other organizations (e.g. Fitch, Standard & Poor’s), but that score determines how much the organization’s owners will be pleased (but not the workers, and not necessarily the customers).
• If you want a long-lasting model, pay more attention to what the customers and workers want, even if your organization is only middle-of-the-road profitable.
• Whenever possible, try to distinguish the quality of your product from your competitors.
  • This is not easy to do when the product is a commodity, but great marketing approaches and improvements to existing products can turn even mundane objects into a new experience.

No matter what, never let large-scale organizational events happen without your direct permission:

• Don’t let any vote for board members added or removed without your permission.
• Stay involved if the board wants to relocate the organization’s headquarters.
  • Since future hiring decisions draw from the surrounding area, the headquarters location determines the long-term culture of the organization.
• Any substantial asset must get your approval to be disposed of or shut down.
• Any new product or business must be approved before purchase or launch.
• The board should never award themselves bonuses or salary increases.

Next: Middle Management