Evolution and Revolution as Organizations Grow...HBR CLASSIC evolution and revolution as organizations grow 4 harvard business review May–June 1998 Managerial pr oblems and practices

Evolution and Revolutionas Organizations Grow

by Larry E. Greiner

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Harvard Business Review

ey executives of a retail storechain hold on to an organiza-tional structure long after it

has served its purpose because thestructure is the source of their power.The company eventually goes intobankruptcy.

A large bank disciplines a “rebel-lious” manager who is blamed forcurrent control problems, when theunderlying causes are centralizedprocedures that are holding back ex-pansion into new markets. Manyyoung managers subsequently leavethe bank, competition moves in, andprofits decline.

The problems at these companiesare rooted more in past decisionsthan in present events or market dynamics. Yet management, in itshaste to grow, often overlooks suchcritical developmental questions as, Where has our organizationbeen? Where is it now? and What dothe answers to these questions meanfor where it is going? Instead, man-agement fixes its gaze outward onthe environment and toward the fu-ture, as if more precise market pro-jections will provide the organiza-tion with a new identity.

In stressing the force of history onan organization, I have drawn fromthe legacies of European psycholo-gists who argue that the behavior ofindividuals is determined primarilyby past events and experiences,rather than by what lies ahead. Ex-tending that thesis to problems of

GROWby Larry E. Greiner

K

Larry E. Greiner is a professor ofmanagement and organization atthe University of Southern Califor-nia’s Marshall School of Business inLos Angeles.

This article originally appeared inthe July–August 1972 issue of HBR.For the article’s republication as aClassic, the author has removedsome outdated material from theopening sections. He has also writ-ten a commentary, “Revolution IsStill Inevitable,” to update his ob-servations.

EVOLUTIONAND

REVOLUTIONAS

ORGANIZATIONS

Management practicesthat work well in onephase may bring ona crisis in another.

harvard business review May–June 1998 Copyright © 1998 by the President and Fellows of Harvard College. All rights reserved.

H B R C L A S S I C

how companies grow

organizational development, we canidentify a series of developmentalphases through which companiestend to pass as they grow. Each phasebegins with a period of evolution,with steady growth and stability,and ends with a revolutionary periodof substantial organizational tur-moil and change – for instance, whencentralized practices eventually leadto demands for decentralization.The resolution of each revolutionaryperiod determines whether or not acompany will move forward into itsnext stage of evolutionary growth.

A Model of HowOrganizations DevelopTo date, research on organizationaldevelopment has been largely em-pirical, and scholars have not at-tempted to create a model of theoverall process. When we analyzethe research, however, five key di-mensions emerge: an organization’sage and size, its stages of evolutionand revolution, and the growth rateof its industry. The graph “HowCompanies Grow” shows how theseelements interact to shape an orga-nization’s development.

Age of the Organization. The mostobvious and essential dimension forany model of development is the lifespan of an organization (representedon the graph as the horizontal axis).History shows that the same organi-zational practices are not main-tained throughout a long life span.This demonstrates a most basic

point: management problems andprinciples are rooted in time. Theconcept of decentralization, for ex-ample, can describe corporate prac-tices at one period but can lose itsdescriptive power at another.

The passage of time also con-tributes to the institutionalizationof managerial attitudes. As these at-titudes become rigid and eventually

outdated, the behavior of employeesbecomes not only more predictablebut also more difficult to change.

Size of the Organization. This di-mension is depicted on the chart asthe vertical axis. A company’s prob-lems and solutions tend to changemarkedly as the number of its em-ployees and its sales volume in-crease. Problems of coordination andcommunication magnify, new func-

tions emerge, levels in themanagement hierarchymultiply, and jobs be-come more interrelated.Thus, time is not the onlydeterminant of structure;in fact, organizations thatdo not become larger canretain many of the samemanagement issues and

practices over long periods.Stages of Evolution. As organiza-

tions age and grow, another phenom-enon emerges: prolonged growththat we can term the evolutionaryperiod. Most growing organizationsdo not expand for two years and thencontract for one; rather, those thatsurvive a crisis usually enjoy four toeight years of continuous growth

without a major economic setbackor severe internal disruption. Theterm evolution seems appropriatefor describing these quiet periods because only modest adjustmentsappear to be necessary for maintain-ing growth under the same overallpattern of management.

Stages of Revolution. Smooth evo-lution is not inevitable or indefi-nitely sustainable; it cannot be as-sumed that organizational growth is linear. Fortune’s “500” list, for example, has had considerableturnover during the last 50 years. Infact, evidence from numerous casehistories reveals periods of substan-tial turbulence interspersed betweensmoother periods of evolution.

We can term the turbulent timesperiods of revolution because theytypically exhibit a serious upheavalof management practices. Traditionalmanagement practices that were ap-propriate for a smaller size and earliertime no longer work and are broughtunder scrutiny by frustrated top-levelmanagers and disillusioned lower-level managers. During such periodsof crisis, a number of companies fallshort. Those that are unable to aban-

evolution and revolution as organizations growH B R C L A S S I C

4 harvard business review May–June 1998

Managerial problems andpractices are rooted in time.They do not last throughoutthe life of an organization.

large

smallyoung mature

Size

of

Org

aniz

atio

n

Company inlow-growth industry

Company inmedium-growth industryCompany in

high-growth industry

Age of Organization

evolution: stages of growth

revolution: stages of crisis

don past practices and effect majororganizational changes are likely either to fold or to level off in theirgrowth rates.

The critical task for managementin each revolutionary period is tofind a new set of organizational prac-tices that will become the basis formanaging the next period of evo-lutionary growth. Interestinglyenough, those new practices eventu-ally sow the seeds of their own decayand lead to another period of revolu-tion. Managers therefore experiencethe irony of seeing a major solutionin one period become a major prob-lem in a later period.

Growth Rate of the Industry. Thespeed at which an organization expe-

riences phases of evolution and revo-lution is closely related to the mar-ket environment of its industry. Forexample, a company in a rapidly ex-panding market will have to add em-ployees quickly; hence, the need fornew organizational structures to ac-commodate large staff increases isaccelerated. Whereas evolutionaryperiods tend to be relatively short in fast-growing industries, muchlonger evolutionary periods occur inmature or slow-growing industries.

Evolution can also be prolonged,and revolutions delayed, when prof-its come easily. For instance, com-panies that make grievous errors in a prosperous industry can still lookgood on their profit-and-loss state-

ments; thus, they can buy time be-fore a crisis forces changes in man-agement practices. The aerospace industry in its highly profitable infancy is an example. Yet revolu-tionary periods still occur, as one didin aerospace when profit opportu-nities began to dry up. By contrast,when the market environment ispoor, revolutions seem to be muchmore severe and difficult to resolve.

Phases of GrowthWith the foregoing framework inmind, we can now examine in depththe five specific phases of evolutionand revolution. As shown in thegraph “The Five Phases of Growth,”each evolutionary period is charac-

THE FIVE PHASES OF GROWTH

direction

delegation

control

2 3 4 5large

small

young mature

Size

of

Org

aniz

atio

n

Age of Organization

Phase 1

collaboration

coordination

creativity

red tape

“?”

autonomy

leadership

evolution: stages of growth

revolution: stages of crisis

evolution and revolution as organizations grow H B R C L A S S I C

harvard business review May–June 1998 5

terized by the dominant manage-ment style used to achieve growth;each revolutionary period is charac-terized by the dominant manage-ment problem that must be solvedbefore growth can continue. Thepattern presented in the chart seemsto be typical for companies in indus-tries with moderate growth over along period; companies in faster-growing industries tend to experi-ence all five phases more rapidly,whereas those in slower-growing in-

dustries encounter only two or threephases over many years.

It is important to note that eachphase is at once a result of the previ-ous phase and a cause for the nextphase. For example, the evolution-ary management style in Phase 3 isdelegation, which grows out of andbecomes the solution to demands forgreater autonomy in the precedingPhase 2 revolution. The style of dele-gation used in Phase 3, however,eventually provokes a revolutionarycrisis that is characterized by at-tempts to regain control over the di-versity created through increaseddelegation.

For each phase, managers are lim-ited in what they can do if growth isto occur. For example, a companyexperiencing an autonomy crisis inPhase 2 cannot return to directivemanagement for a solution; it mustadopt a new style – delegation – in order to move forward.

Phase 1: Creativity. In the birthstage of an organization, the empha-sis is on creating both a product anda market. The following are thecharacteristics of the period of cre-ative evolution:■ The founders of the company areusually technically or entrepreneuri-ally oriented, and they generally dis-dain management activities; theirphysical and mental energies are ab-

sorbed entirely by making and sell-ing a new product.■ Communication among employ-ees is frequent and informal.■ Long hours of work are rewardedby modest salaries and the promiseof ownership benefits.■ Decisions and motivation are highly sensitive to marketplacefeedback; management acts as cus-tomers react.

All the foregoing individualisticand creative activities are essential

for a company to get offthe ground. But as thecompany grows, thosevery activities becomethe problem. Larger pro-duction runs requireknowledge about the effi-ciencies of manufactur-ing. Increased numbers of employees cannot bemanaged exclusively

through informal communication,and new employees are not moti-vated by an intense dedication to theproduct or organization. Additionalcapital must be secured, and new accounting procedures are neededfor financial control. The company’sfounders find themselves burdenedwith unwanted management re-sponsibilities. They long for the“good old days” and try to act asthey did in the past. Conflicts amongharried leaders emerge and growmore intense.

At this point, a crisis of leadershipoccurs, which is the onset of the firstrevolution. Who will lead the com-pany out of confusion and solve themanagerial problems confronting it? Obviously, a strong manager isneeded – one who has the necessaryknowledge and skills to introducenew business techniques. But find-ing that manager is easier said thandone. The founders often resist step-ping aside, even though they areprobably temperamentally unsuitedto the job. So here is the first criticalchoice in an organization’s develop-ment: to locate and install a strongbusiness manager who is acceptableto the founders and who can pull theorganization together.

Phase 2: Direction. Those com-panies that survive the first phase byinstalling a capable business manager

usually embark on a period of sus-tained growth under able, directiveleadership. Here are the characteris-tics of this evolutionary period:■ A functional organizational struc-ture is introduced to separate manu-facturing from marketing activities,and job assignments become in-creasingly specialized.■ Accounting systems for inventoryand purchasing are introduced.■ Incentives, budgets, and workstandards are adopted.■ Communication becomes moreformal and impersonal as a hierar-chy of titles and positions grows.■ The new manager and his or herkey supervisors assume most of theresponsibility for instituting direc-tion; lower-level supervisors aretreated more as functional special-ists than as autonomous decision-making managers.

Although the new directive tech-niques channel employees’ energymore efficiently into growth, theyeventually become inappropriate forcontrolling a more diverse and com-plex organization. Lower-level em-ployees find themselves restrictedby a cumbersome and centralized hierarchy. They have come to possessmore direct knowledge about mar-kets and machinery than do theirleaders at the top; consequently,they feel torn between followingprocedures and taking initiative ontheir own.

Thus, the second revolutionemerges from a crisis of autonomy.The solution adopted by most com-panies is to move toward more dele-gation. Yet it is difficult for top-levelmanagers who previously were suc-cessful at being directive to give upresponsibility to lower-level man-agers. Moreover, the lower-levelmanagers are not accustomed tomaking decisions for themselves. As a result, numerous companiesfounder during this revolutionaryperiod by adhering to centralizedmethods, while lower-level employ-ees become disenchanted and leavethe organization.

Phase 3: Delegation. The next eraof growth evolves from the success-ful application of a decentralized organizational structure. It exhibitsthese characteristics:



Creative activities are essentialfor a company to get off theground. But as the companygrows, those very activitiesbecome the problem.

■ Much greater responsibility is given to the managers of plants andmarket territories.■ Profit centers and bonuses are usedto motivate employees.■ Top-level executives at headquar-ters limit themselves to managingby exception based on periodic re-ports from the field.■ Management often concentrateson acquiring outside enterprises thatcan be lined up with other decentral-ized units.■ Communication from the top is infrequent and usually occurs bycorrespondence, telephone, or briefvisits to field locations.

The delegation phase allows com-panies to expand by means of theheightened motivation of managersat lower levels. Managers in decen-tralized organizations, who havegreater authority and incentives, areable to penetrate larger markets, re-spond faster to customers, and de-velop new products.

A serious problem eventuallyemerges, however, as top-level exec-utives sense that they are losing con-trol over a highly diversified field op-eration. Autonomous field managersprefer to run their own shows with-out coordinating plans, money, tech-nology, and personnel with the restof the organization. Freedom breedsa parochial attitude.

Soon, the organization falls into acrisis of control. The Phase 3 revolu-

tion is under way when top manage-ment seeks to regain control overthe company as a whole. Some top-management teams attempt a returnto centralized management, whichusually fails because of the organi-zation’s newly vast scope of opera-tions. Those companies that moveahead find a new solution in the useof special coordination techniques.

Phase 4: Coordination. The evolu-tionary period of the coordination

phase is characterized by the use offormal systems for achieving greatercoordination and by top-level execu-tives taking responsibility for theinitiation and administration ofthese new systems. For example:■Decentralized units are mergedinto product groups.■ Formal planning procedures are es-tablished and intensively reviewed.■ Numerous staff members are hiredand located at headquarters to initi-ate companywide programs of con-trol and review for line managers.■ Capital expenditures are carefullyweighed and parceled out across theorganization.■ Each product group is treated as aninvestment center where return oninvested capital is an important cri-terion used in allocating funds.■ Certain technical functions, suchas data processing, are centralized atheadquarters, while daily operatingdecisions remain decentralized.■ Stock options and companywideprofit sharing are used to encourageemployees to identify with the orga-nization as a whole.

All these new coordination sys-tems prove useful for achievinggrowth through the more efficientallocation of a company’s limited re-sources. The systems prompt fieldmanagers to look beyond the needsof their local units. Although thesemanagers still have a great deal ofdecision-making responsibility, they

learn to justify their ac-tions more carefully to a watchdog audience atheadquarters.

A lack of confidence,however, gradually buildsbetween line and staff,and between headquar-ters and the field. Themany systems and pro-

grams introduced begin to exceedtheir usefulness. A red-tape crisis isin full swing. Line managers, for ex-ample, increasingly resent directionfrom those who are not familiar withlocal conditions. And staff people,for their part, complain about unco-operative and uninformed line man-agers. Together, both groups criti-cize the bureaucratic system thathas evolved. Procedures take prece-dence over problem solving, and in-

novation dims. In short, the organi-zation has become too large andcomplex to be managed through for-mal programs and rigid systems. ThePhase 4 revolution is under way.

Phase 5: Collaboration. The lastobservable phase emphasizes stronginterpersonal collaboration in an at-tempt to overcome the red-tape cri-sis. Where Phase 4 was managedthrough formal systems and proce-dures, Phase 5 emphasizes spontane-ity in management action throughteams and the skillful confrontationof interpersonal differences. Socialcontrol and self-discipline replaceformal control. This transition is es-pecially difficult for the experts whocreated the coordination systems aswell as for the line managers who re-lied on formal methods for answers.

The Phase 5 evolution, then,builds around a more flexible and be-havioral approach to management.Here are its characteristics:■ The focus is on solving problemsquickly through team action.■ Teams are combined across func-tions to handle specific tasks.■ Staff experts at headquarters are reduced in number, reassigned, andcombined into interdisciplinaryteams that consult with, not direct,field units.■ A matrix-type structure is fre-quently used to assemble the rightteams for the appropriate problems.■ Formal control systems are simpli-fied and combined into single multi-purpose systems.■ Conferences of key managers areheld frequently to focus on majorproblems.■ Educational programs are used totrain managers in behavioral skillsfor achieving better teamwork andconflict resolution.■ Real-time information systems areintegrated into daily decision-mak-ing processes.■ Economic rewards are geared moreto team performance than to indi-vidual achievement.■ Experimenting with new practicesis encouraged throughout the orga-nization.

What will be the revolution in re-sponse to this stage of evolution?Many large U.S. companies are nowin the Phase 5 evolutionary stage, so

The delegation phase bringsa new period of growth, but freedom eventuallybreeds a parochial attitude.



may even see companies with dualorganizational structures: a habitstructure for getting the daily workdone and a reflective structure forstimulating new perspective andpersonal enrichment. Employeescould move back and forth betweenthe two structures as their energiesdissipate and are refueled.

One European organization hasimplemented just such a structure.Five reflective groups have been established outside the company’susual structure for the purpose ofcontinuously evaluating five task

activities basic to the organization.The groups report directly to themanaging director, although theirfindings are made public throughoutthe organization. Membership ineach group includes all levels andfunctions in the company, and em-ployees are rotated through thegroups every six months.

Other concrete examples now inpractice include providing sabbati-cals for employees, moving man-agers in and out of hot-spot jobs, es-tablishing a four-day workweek,ensuring job security, building phys-



Revolution Is Still Inevitable

I wrote the first draft of this articlewhile I was felled by a bad leg dur-ing a ski vacation in Switzerland.At the time, the business worldwas buzzing with numerous fad-dish techniques. Perhaps it was thesize and height of the mountainsthat made me feel that there weredeeper and more powerful forces atwork in organizations.

Four basic points still seem validabout the model. First, we continueto observe major phases of develop-ment in the life of growing compa-nies, lasting anywhere from 3 to 15years each. Although scholars de-bate the precise length and natureof these phases, everyone agreesthat each phase contains its ownunique structure, systems, andleadership. The growth rate of theindustry seems to determine thephases’ length.

Second, transitions between developmental phases still do notoccur naturally or smoothly, re-gardless of the strength of top man-agement. All organizations appearto experience revolutionary diffi-culty and upheaval, and many ofthese organizations falter, plateau,fail, or get acquired rather thangrow further. IBM before Lou Gerst-ner and General Electric beforeJack Welch both suffered badly atthe end of the fourth phase of coor-

dination, when sophisticated man-agement systems evolved into rigidbureaucracies.

Third, the logic of paradox un-derlying the model continues toring true, although it often hauntsand confuses the managerial psy-che. Managers have difficulty inunderstanding that an organiza-tional solution introduced by thempersonally in one phase eventuallysows the seeds of revolution.

Fourth, the greatest resistance tochange appears at the top becauserevolution often means that unitsunder each senior executive will beeliminated or transformed. That iswhy we so often see new chief executives recruited from the out-side and why senior managers fre-quently leave companies. Execu-tives depart not because they are“bad” managers but because theyjust don’t fit with where the com-pany needs to go.

As for the differences that I haveobserved since the article’s originalpublication, there is obviouslymuch more “death” in the life oforganizations today. Few organiza-tions make it through all the phasesof growth. If they don’t fail, as mostdo in the initial phase of creativityand entrepreneurship, they oftenget acquired by companies that arein a later phase.

The phases are not as cleanlymarked off as I depicted them. Thevestiges of one phase remain asnew approaches are introduced.Such overlaps are most notable inthe case of the first-phase entrepre-neur hanging on when professionalmanagement is added in the sec-ond phase of direction.

There are also miniphases with-in each evolutionary stage. Thedelegation phase, for example, doesnot typically begin with the com-plete decentralization of the entireorganization into multiple productunits, as the article implies. Usuallyone product group is launched, andthen others are added over time.Also, as delegation – or decentral-ization, as I now prefer to call thisphase – advances, senior managersat the corporate office are not ashands-off as I depicted them. Theaddition of multiple product or geographic units over time requiresa sophisticated level of involve-ment by senior management to re-view strategies, evaluate results,and communicate the organiza-tion’s values – but not to micro-manage the units under them.

I would change some of thethings I said about the fifth phaseof collaboration. My original de-scription of this phase suggeststhat the entire organization is

the answer is critical. Althoughthere is little clear evidence regard-ing the outcome, I imagine that therevolution arising from the “?” crisiswill center around the psychologicalsaturation of employees who growemotionally and physically exhaust-ed from the intensity of teamworkand the heavy pressure for innova-tive solutions.

My hunch is that the Phase 5 revo-lution will be solved through newstructures and programs that allowemployees to periodically rest, re-flect, and revitalize themselves. We

ical facilities for relaxation duringthe workday, making jobs more in-terchangeable, creating an extrateam on the assembly line so thatone team is always off for reeduca-tion, and switching to longer vaca-tions and more flexible work hours.

The Chinese practice of requiringexecutives to spend time periodicallyon lower-level jobs may also beworth a nonideological evaluation.For too long, U.S. management hasassumed that career progress shouldbe equated with an upward path to-ward title, salary, and power. Could

it be that some vice presidents ofmarketing might just long for, andeven benefit from, temporary dutyin field sales?

Implications of HistoryLet me now summarize some impor-tant implications for practicingmanagers. The main features of thisdiscussion are depicted in the table“Organizational Practices in theFive Phases of Growth,” whichshows the specific management ac-tions that characterize each growthphase. These actions are also the

solutions that ended each precedingrevolutionary period.

In one sense, I hope that manyreaders will react to my model byseeing it as obvious and natural fordepicting the growth of an organiza-tion. To me, this type of reaction is auseful test of the model’s validity.

But at a more reflective level, Iimagine some of these reactionscome more from hindsight thanfrom foresight. Experienced man-agers who have been through a de-velopmental sequence can identifythat sequence now, but how did they



turned into a matrix of teams. Inow see the matrix as confinedlargely to senior management,where the heads of geographic areas, product lines, and functionaldisciplines collaborate as a team inorder to ensure that their decisionsare coordinated and implementedacross global markets. The mostsignificant change in this phase occurs when the previously bureau-cratic Phase 4 control-orientedstaff and systems are replaced by asmaller number of consulting staffexperts who help facilitate, ratherthan control, decisions.

My speculation that “psycholog-ical saturation” is the crisis endingPhase 5 now seems wrong. Instead,I think the crisis is one of realizingthat there is no internal solution,such as new products, for stimulat-ing further growth. Rather, the or-ganization begins to look outsidefor partners or for opportunities tosell itself to a bigger company.

A sixth phase may be evolving inwhich growth depends on the de-sign of extra-organizational solu-tions, such as creating a holdingcompany or a network organiza-tion composed of alliances andcross-ownership. GE may have de-veloped a similar model in which a periphery of companies is builtaround a core “money” company

or bank (GE Capital) that attractscapital, earns high returns, andfeeds the growth of other units.

I doubt that the advancement ofinformation technology has mademuch of a difference in the basicaspects of the model. Informationtechnology appears useful as a toolthat evolves in different forms tofit each phase. For example, thePhase 2 functional organizationalstructure requires data that reflectrevenue and cost centers, whereasPhase 3 decentralization needsdata that measure profit center performance.

I wrote the article mainly aboutindustrial and consumer goodscompanies, not about knowledgeorganizations or service businesses,which had yet to come into promi-nence. After recently studying anumber of consulting, law, and in-vestment firms, our research teamfound that those organizations alsoexperience evolution and revolu-tion as they grow.

In the first, entrepreneurialphase, the professional service firmpursues and tests a variety of mar-ket paths. The phase ends with thepartners arguing about whether ornot to stay together to concentrateon one partner’s vision for the fu-ture. In the second phase, the firmfocuses on one major service and

eventually finds itself with a de-bate among the partners aboutwhether to continue focusing onthe current practice or to open an-other office or add additional ser-vices. A third phase of geographicor service expansion typically endswith a struggle over ownership:how much equity are the originalpartners willing to share with theyounger partners who led the ex-pansion and brought in newclients? The fourth phase involvesinstitutionalizing the firm’s name,reputation, and its standard way ofoperating, and ends in a crisis of cultural conformity in the face ofwhich the firm must restore inno-vation and flexibility.

Finally, as a strong caveat, I always remind myself and othersthat the “ev and rev” model de-picted in this article provides onlya simple outline of the broad chal-lenges facing a management con-cerned with growth. It is not acookie-cutter solution or panacea.The rate of growth, the effectiveresolution of revolutions, and theperformance of the company with-in phases still depend on the funda-mentals of good management:skillful leadership, a winning strat-egy, the heightened motivation ofemployees, and a deep concern forcustomers.

react when in the midst of a stage ofevolution or revolution? They canprobably recall the limits of theirown developmental understandingat that time. Perhaps they resisteddesirable changes or were evenswept emotionally into a revolutionwithout being able to propose con-structive solutions. So let me offersome explicit guidelines for man-agers of growing organizations tokeep in mind.

Know where you are in the devel-opmental sequence. Every organiza-tion and its component parts are atdifferent stages of development. Thetask of top management is to beaware of the stages; otherwise, itmay not recognize when the time forchange has come, or it may act toimpose the wrong solution.

Leaders at the top should be readyto work with the flow of the tiderather than against it; yet theyshould be cautious because it istempting to skip phases out of impa-tience. Each phase produces certainstrengths and learning experiencesin the organization that will be es-sential for success in subsequentphases. A child prodigy, for example,may be able to read like a teenager,

but he cannot behave like one untilhe matures through a sequence ofexperiences.

I also doubt that managers can orshould act to avoid revolutions.Rather, these periods of tensionprovide the pressure, ideas, andawareness that afford a platformfor change and the introduction ofnew practices.

Recognize the limited range of solutions. In each revolutionarystage, it becomes evidentthat the stage can come toa close only by means ofcertain specific solutions;moreover, these solutionsare different from thosethat were applied to theproblems of the precedingrevolution. Too often, itis tempting to choosesolutions that were triedbefore but that actually make it im-possible for the new phase of growthto evolve.

Management must be prepared todismantle current structures beforethe revolutionary stage becomes tooturbulent. Top-level managers, re-alizing that their own managerialstyles are no longer appropriate, may

even have to take themselves out ofleadership positions. A good Phase 2manager facing Phase 3 might bewise to find a position at anotherPhase 2 organization that better fitshis or her talents, either outside thecompany or with one of its newersubsidiaries.

Finally, evolution is not an auto-matic affair; it is a contest for sur-vival. To move ahead, companiesmust consciously introduce planned

structures that not only solve a cur-rent crisis but also fit the next phaseof growth. That requires consider-able self-awareness on the part of topmanagement as well as great inter-personal skills in persuading othermanagers that change is needed.

Realize that solutions breed newproblems. Managers often fail to rec-



Organizational Practicesin the Five Phases of Growth

Too often, it is tempting tochoose solutions that were

tried before but that actuallymake it impossible for the

new phase to emerge.

CATEGORY

ManagementFocus

Organizational Structure

Top-Management Style

Control System

Management Reward Emphasis

PHASE 1

Make and sell

Informal

Individualistic and entrepreneurial

Market results

Ownership

PHASE 2

Efficiency ofoperations

Centralized andfunctional

Directive

Standards andcost centers

Salary and meritincreases

PHASE 3

Expansion ofmarket

Decentralizedand geographical

Delegative

Reports and profitcenters

Individual bonus

PHASE 4

Consolidation oforganization

Line staff andproduct groups

Watchdog

Plans and invest-ment centers

Profit sharing and stock options

PHASE 5

Problem solving and innovation

Matrix of teams

Participative

Mutual goalsetting

Team bonus

ognize that organizational solutionscreate problems for the future, suchas when a decision to delegate even-tually causes a problem of control.Actions in the past determine muchof what will happen to a company inthe future.

An awareness of this effect shouldhelp managers evaluate companyproblems with a historical under-standing instead of pinning theblame on a current development.Better yet, it should place managersin a position to predict problems and thereby to prepare solutions andcoping strategies before a revolutiongets out of hand.

Top management that is aware ofthe problems ahead could well de-cide not to expand the organization.

Managers may, for instance, preferto retain the informal practices of asmall company, knowing that thisway of life is inherent in the organi-zation’s limited size, not in theircongenial personalities. If theychoose to grow, they may actuallygrow themselves out of a job and away of life they enjoy.

And what about very large organi-zations? Can they find new solu-tions for continued evolution? Orare they reaching a stage when thegovernment will act to break themup because they are too large?

Clearly, there is still much tolearn about processes of develop-ment in organizations. The phasesoutlined here are merely five in

number and are still only approxi-mations. Researchers are just begin-ning to study the specific develop-mental problems of structure,control, rewards, and managementstyle in different industries and in avariety of cultures.

One should not, however, wait forconclusive evidence before educat-ing managers to think and act from a developmental perspective. Thecritical dimension of time has beenmissing for too long from our man-agement theories and practices. Theintriguing paradox is that by learn-ing more about history, we may do a better job in the future.

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CASE STUDIES AND HARVARD BUSINESS REVIEWARTICLE REPRINTS

Many readers have asked for an easy way to order case studies and article reprints or toobtain permission to copy. In response, wehave established a Customer Service Team to grant permission, send rush copies in paperform, deliver files in Acrobat (PDF) formatelectronically (Harvard Business Reviewarticles only), or customize collections.

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Documents

Evolution and Revolution as Organizations Grow...HBR CLASSIC evolution and revolution as organizations grow 4 harvard business review May–June 1998 Managerial pr oblems and practices