The transition from a mid-sized entrepreneurial company to a large professionally managed one includes many challenges. Some are obvious while others seem to lurk below the surface. The latter tend to be more troublesome.
For instance, many new builder clients come to my consulting firm after having enjoyed a few years of significant growth. Usually, however, they have hit an invisible wall that is causing growth and profits to stagnate and senior managers to spend more time dealing with crises than growing the company. Common symptoms we see include:
- Stretched cycle times, with too many weeks passing from sale to start and from start to completion
- More construction errors requiring more rework
- Unacceptably long punch lists that don't get resolved until well after closing
- More warranty items that are taking longer to resolve
- Unhappy employees and high turnover rates
It's usually clear to everyone that the processes and people that used to deliver great results are no longer working, but most of the CEOs we speak with can't figure out why. (The company may be run by an owner or a small executive team, but I use CEO in this article for simplicity’s sake.) When we dig into the problem, we usually find that the root of it is a failure on the part of top managers to acquire and develop good talent, define roles and responsibilities, and delegate authority.
Very often, company in a phase of sustained and stable growth is managed by the same people who were there at the startup. This has positives and negatives. On the plus side, these early standard bearers can help communicate what I call the organization's “legends”— powerful cultural stories that help employees find meaning in their day-to-day work. On the other hand, if the company's new growth vision has not been clearly articulated and shared (see my February article, “That Vision Thing”), these tribal standard bearers may (intentionally or unintentionally) end up trying to implement their own visions. The end result is a company driven not by principles and plans but by personalities: strong personalities who make decisions without approvals and weak personalities who wait for the strong ones to make decisions. The results can be chaotic.
In most companies, a significant percentage of those strong personalities will be unable to adapt as the company grows. For example, a Director of Construction for a builder delivering 300 closings per year may not be capable of filling that role when output climbs to 800, as the latter requires more sophisticated leadership skills.
Addressing this means identifying which managers who will (given the right training and professional development) and which won't be able to adapt to the new reality. This can be extremely difficult, as most people aren’t capable of differentiating between competence and incompetence, especially when they have close relationships with the managers under scrutiny.
An even tougher question is what to do with the people who can't adapt. Exiting them signals to everyone that the organization does not value loyalty, hardly a productive message when you want to attract top talent. Conversely, keeping them in positions they are clearly unfit for sends as message that loyalty trumps competence.
Putting the right talent in place is just the first step; a growing company also needs to define the role played by each person. Few know how to structure this analysis, which is why we at Continuum Advisory Group utilize a simple, four-part framework called R2A2– Roles, Responsibilities, Authority and Accountability.
- Roles: brief, objective and clear descriptions of the roles played by each manager as well as by management teams
- Responsibilities: lists of specific items, tasks, processes, and other elements each key manager is responsible for doing, managing and overseeing
- Authority: a clear statement of what decisions each manager is authorized to carry out, along with a clear delineation of the limits of that authority
- Accountability: concise and specific statement of whom each manager is accountable to and what they are accountable for.
As with most improvement efforts, it’s important to begin at one end or the other of the organizational chart. Although most people want to start at the bottom and work their way up to the C level, we find it much more effective to begin at the top. That's because the biggest challenge tends to be getting the CEO to focus on strategic issues that will drive growth (capital allocation, geographic planning, organizational development and the like) rather than on day-to-day operations. Clearly defining the CEO's new role makes that transition easier. And when the CEO successfully makes this shift it's easier for managers at every level—from senior VPs to jobsite supervisors—to embrace their new roles and their part in the organization's mission.
While this is part of the R2A2 process, it causes enough problems to warrant a discussion of its own. A growing company absolutely needs to learn to share authority among different management levels, and needs to define which decisions will be made by whom.
A lot growing builders overlook this and fail to grant appropriate authority to their middle managers. As a result, the CEO or the executive team sometimes reverse perfectly sound decisions made by perfectly competent managers, causing havoc and breeding resentment. Many of those managers, who likely came from large production builders where they had the authority to make appropriate decisions, become frustrated and move on to other opportunities.
The bottom line is a CEO who is unwilling to relinquish control and share authority makes the leap from small or mid-sized company to high volume production builder impossible. When decision-making remains concentrated at the top of the organization, the pace of operations slows down as everyone else waits for instructions. This can be irritating in a small company; in a large one it becomes debilitating.
Builders who want to address these issues need to start by determining where they are on the evolutionary scale. Are they in the high-growth entrepreneurial stage or transitioning to the stable, large-scale stage? Have they hit a wall in their ability to grow? Do they have the right management talent to see them through to the next phase? Have they successfully pushed decision-making authority to the appropriate levels throughout the company? Have they done the hard work of evaluating everyone’s role and then making sure that the executive team is focused on the things that will help move the company forward?
The more time spent working through these issues the greater the rewards, but even an few hours spent thinking through them can yield a measurable return on investment.