Why companies lose customers as they get bigger
Today I’m going to look at how, by neglecting the natural lifecycle process of an organisation, companies risk damaging their customers’ trust.
Companies are born, they’re established or formed, they grow and develop, they reach maturity, they begin to decline and age and – if nothing is done to refresh them and align them to the market – they eventually die. This is the nature of people (except we can’t be revived!), of products and of organisations and yet many of the businesses I work with are not aware that a lifecycle misalignment with their customers is one of their biggest reasons for falling sales.
I spend most of my time talking with companies about truly understanding their customers and building their explicit and implicit wants and desires into their customer experiences and value propositions. While this is critically important, it is equally important to ensure that you are aligning with your customers in how you go to market. Companies’ future successes also lie within their own organisations and their evolving states of development.
Evolution and revolution
In Larry Greiner’s seminal Harvard Business Review 1972 paper ‘Evolution and Revolution as Organisations Grow’ (© 2014 Harvard Business School Publishing Corp. Reproduced with permission from Harvard Business Review/New York Times), he gives a few great examples of the symptoms of crises, such as:
“Key executives of a retail store chain hold on to an organisational structure long after it has served its purpose, because their power is derived from this structure. The company eventually goes into bankruptcy.”
Does this remind you of any recent organisations? Kodak and Blockbuster perhaps?
“A large bank disciplines a ‘rebellious’ manager who is blamed for current control problems, when the underlying cause is centralised procedures that are holding back expansion into new markets. Many younger managers subsequently leave the bank, competition moves in, and profits are still declining.”
Does this sound like any financial institutions you’ve recently read about or know?
Each growth phase in Greiner’s model is made up of a period of relatively stable growth where no major upheavals occur (he calls this evolution) followed by a crisis when major organisational change is needed if the company is to carry on growing which he calls revolution.
Below is a diagram that shows this process, paraphrased from the points in Greiner’s article:
And below is a summary of the ‘6 Phases’ Greiner shares in his article:
Phase 1: Growth through creativity
With the birth of an organisation the focus is on creating a new product or service and creating a market. Characteristics include:
• The founders are usually technically or entrepreneurially oriented, they often disdain management activities and their energies are absorbed in making and selling a new product or service.
• Communication is frequent and informal
• Long work hours are rewarded by modest salaries and the promise of ownership benefits
• Control of activities comes from immediate marketplace feedback. The management acts as customers react.
This period ends with a crisis of leadership where professional management is needed that can steer the organisation and pull everyone together.
Phase 2: Growth through direction
If companies have survived the first phase they continue to grow under new directive leadership. Characteristics include:
• Growth continues and more organised structures are introduced for different functions
• Systems are introduced for accounting and customer management
• Budgets and work standards are adopted
• Communication becomes more formal
• New leadership and management team set the direction
This period ends with a crisis of autonomy where lower level managers demand more say and involvement. Many companies flounder here as, while delegation and autonomy are seen as the solution, companies who have been in this stage for a long time have not developed their people to be able to make decisions for themselves.
Phase 3: Growth through delegation
• Greater responsibility is given to managers
• Profit centres and bonuses are used for motivation
• HQ executives manage the business by exception based on periodic reports from the field
• Leadership focuses on new acquisitions that can be lined up beside other decentralised units
• Communication from the top is infrequent
Decentralised managers with greater autonomy have been able to penetrate new markets and respond faster to customers but leadership sense they are losing control over a highly diversified business. This period ends with a crisis of control as local managers wrestle with leadership who try to pull together a total company once again. Companies that succeed move ahead with co-ordination techniques.
Phase 4: Growth through co-ordination
• Decentralised units are merged into product/service line groups
• Formal planning procedures are established
• HQ staff are hired to initiate company-wide control programmes
• Capital expenditure is careful weighed up and parcelled out across the organisation
• Each product group/service line is treated as an investment centre where return on invested capital is an important criteria used in allocating funds
• Stock options and company-wide profit sharing are used to encourage whole firm identity
Both HQ staff and business unit staff criticise the bureaucracy that has grown. Local managers resent interference from HQ staff and HQ staff complain about the lack of cooperation from managers. Procedures take precedence over problem-solving and, as a result, innovation is dampened. The organisation has become too large and complex to be managed through formal programmes and rigid systems. The next phase is underway.
Phase 5: Growth through collaboration
This builds around a more flexible and behavioural approach to management. Its characteristics are:
• Focus on problem-solving quickly through team action
• Teams are combined across functions for task-group activity
• HQ staff numbers are reduced and reassigned to consult with, not to direct, the business units
• A matrix-type structure is frequently used to assemble the right teams for the appropriate problems
• Previous systems are simplified and real-time systems are integrated into daily decision making
• Conferences of key managers are held frequently to focus on major problem areas
• Educational programmes are used to train key managers in behavioural skills for achieving better team work and conflict resolution
• Rewards are geared towards team performance rather than individual achievement
• Experiments in new practices are encouraged throughout the organisation
This phase ends with a crisis of internal growth where further company growth can only come by developing partnerships with complementary organisations.
Phase 6: Growth through alliances
Greiner recently added this sixth phase where growth may continue through extra-organisational solutions such as mergers, outsourcing or networks involving other companies.
A crisis of growth may occur because an organisation is more focused on alliances than on its own core business and there is a good chance that an identity crisis will present itself.
The organisation may be taken over completely by other businesses and the ‘old’ situation will disappear completely but the cycle in the new organisation will continue.
(end of paraphrase from Greiner’s article)
I have been working with a number of global organisations recently (many of them household names) that are excellent at selling new products and services to their customers yet singularly very bad at managing those same customers beyond the initial sale. We can argue that the solution to this is putting in place key account management but that alone would only be a sticking plaster approach (Band-Aid for our American readers) without looking at what organisational phase of development they are in, and how their phase is misaligned with their business to business customers.
The big issue here is the changing power of the customer; the customer now has much more power than ever before due to the Internet, technology and liberalisation of communication across countries. One of the mechanisms for responding to your customers’ power shift is to understand specifically where your organisation is in its development phase and how well you are either matching or missing your customers in the process.
One of our customers (we’ll call them ‘Alpha’) was in phase 2 and hitting the crisis of autonomy where their customer-facing staff were demanding that a more formalised account management process and organisation be put in place, and that they manage it. They were frustrated by the lack of Alpha’s support for this. Their customer (we’ll call them ‘Beta’) was equally puzzled by Alpha’s lack of flexibility in account handling and also their slow pace at responding to requests. Beta was currently in phase 5 and were demanding more collaboration, they were much more nimble and innovative and couldn’t understand why Alpha appeared not to want to work with them on new initiatives.
Once the phases and the different stages of development were made plain to both Alpha and Beta’s leadership teams, everyone breathed a sigh of relief. They could actually get on with the task of figuring out how they were going to work together despite their very big organisational and behavioural differences.
How to use the model
It’s probably important to say at this point, that this approach can be done either at an in-depth, rigorous level or it can be done at a more surface level – the kind of level my colleagues would call ‘quick and dirty’.
The key questions for business leadership to determine are:
1. Which phase are we in?
2. Do we know the limited range of solutions available to us at our phase?
3. Do we realise that solutions to one phase will breed a new set of problems during the next growth phase?
4. How is the customer-facing part of my organisation impacted by the phase we are in AND what customer management solutions are available to us?
This requires considerable self-awareness on the part of top management, as well as great interpersonal skill in persuading managers that change is needed. Is it worth the investigation? Absolutely. You will understand each other’s perspective which always leads to better understanding and better working relationships. Most importantly, this could be the single most reason why your business thrives or dies. So when we’re talking about large companies with a significant number of people employed, isn’t it worth a bit of discomfort pointing out where and how change is needed, to not only save the company but potentially save many hundreds or thousands of job and people’s livelihoods.
Do you recognise companies who are very much out of step with their customers and can you see if this has anything to do with their mismatched phases of development?
Please do share your opinion about this article. I’d love to hear from you.
Reference: Greiner, Larry. 1972. ‘Evolution and Revolution as Organizations Grow’. Harvard Business Review. © 2014 Harvard Business School Publishing Corp. Reproduced with permission from Harvard Business Review/New York Times
Cindy Barnes is a business and psychology consultant. She is clinically trained in Transactional Analysis and uses this in her business work with companies.
Her background is in product and service innovation, business development and leadership. She is founder and Chief Innovation Officer at Futurecurve who are value solution architects and builders. Futurecurve helps companies navigate from a product ‘push’ focus to a true customer ‘pull’ focus, enabling them to out-perform their peers by delivering genuine value to customers. Customers include global corporations, governmental organisations, start-ups and not-for-profits. Contact Cindy on Twitter @cindy_barnes
All of Futurecurve’s qualitative research understanding customers is based on Transactional Analysis and Interpretative Phenomenological Analysis and they have combined this approach to create their world-class approach which uncovers both what customers think, how customers feel and how and why they behave as they do. Futurecurve are the pioneers in using Interpretative Phenomenological Analysis in business and in showing businesses the emotions and motivations of their customers.