Staff management during testing times: What startups must remember before scaling up

Ensuring that there is alignment in communication across different levels and parts of the organisation is another important aspect
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In recent times, startups that are scaling have attracted a lot of attention because of the manner in which they have managed their human resources. Exits of key employees, change in executive team, layoffs and bringing in talent at senior levels from other organisations have been extensively discussed in the media. Much less is spoken whether some of these are natural phenomena that are encountered by organisations that are in a scaling-up phase. Using a lifecycle perspective to understanding organisations helps us understand the headlines in a more systemic manner.

If we looked at organisations from a living systems perspective, birth, growth, decline and death are a natural part of organisational evolution. Larry Greiner in his classic Harvard Business Review article titled “Evolution and Revolution as Organisations grow” draws on human development perspectives from psychology literature and transports it into the organisational context. According to him, one can identify a series of developmental phases through which companies tend to pass as they grow. Each phase begins with a period of evolution, with steady growth and stability, and ends with a revolutionary period of substantial organisational turmoil and change—for instance, when centralised practices eventually lead to demands for decentralisation. The resolution of each revolutionary period determines whether or not a company will move forward into its next stage of evolutionary growth. Greiner identifies five stages of growth – growth through creativity, growth through direction, growth through delegation, growth through coordination and growth through collaboration. There is an implicit recognition in this model that each stage has certain distinctive characteristics and challenges. Such a perspective allows for us to examine what is happening in a scaling-up organisation through a distinctive growth lens. In the growth through creativity stage, the entrepreneur and founding team take care of all activities in the organisation. They are often market- or product-driven and tend to hire employees known to them from their networks. Motivation is high because the sheer challenge, autonomy and versatility demanded at this stage is a source of inspiration. Often people tend to stretch and put in long hours because they believe in a cause and a purpose. As the company grows, customers begin to demand predictability; more processes and systems are needed to deliver efficiency and predictability. Often there is a competency mismatch between the old employees who have stayed with the organisation and the new employees who join the organisation. As customer demands increase, and systems and processes are usually weak, founders delegate lesser and lesser and often there is a crisis of leadership across the organisation. Organisations that transition through this stage bring in management capability from outside, often institute systems and processes and decentralise the activities and responsibility. During this phase, founders need to identify a strong management professional who will manage scale effectively. They also need to delegate the tasks and responsibilities that focus on operational excellence and customer satisfaction and focus on increasing market share and profitability.

The next stage is Growth through Direction. During this phase organisations often deepen their markets; they introduce structural changes, set up systems that will strengthen operations, delivery and execution becomes a key attribute. Communication tends to get more formal and there is a higher degree of decentralisation of authority. Incentives, budgets and reviews become more structured. Policies and procedures begin to get institutionalised. Employee positions get defined and often discretion in decision-making gets reduced for managers across the organisations. Older employees complain about the lack of purpose that characterised early years; while new employees tend to demand professional treatment for the competence that they bring into the organisation. The classic loyalty versus competence debate is pervasive in the organisation. Companies at this stage tend to seek higher degrees of delegation by their managers and there is greater emphasis on accountability and ownership.

The third phase is Growth by delegation. In this stage, organisations consciously choose to invest in their managerial pipeline by identifying, grooming and developing managers who are likely to manage scale. While expansion of activities and increase in market share begins to happen, this period is also characterised by delays, not enough empowerment and autonomy; too many layers in the organization, all of them contributing to inefficiencies.  At this stage, organisations will attempt higher degree of formalisation and centralisation with respect to their policies and practices.

As is evident from the discussion above, entrepreneurs need to re-examine their own roles periodically during the different stages of organisational growth. Since enterpreneurs are known to communicate extensively to the founding team, it is important to ensure that they continue to communicate and connect with new employees who join the organisation.

Three key questions that should inform the choices made by entrepreneurs: Firstly, do I have enough number of employees who are willing to take on ownership and close issues and problems? Secondly, do I have someone 70 percent ready to take over my role in the organisation? Finally, how effective am I in recruiting and retaining new recruits? These three questions determine your effectiveness as an entrepreneur in a scaling-up context.

From an employee point of view, the life stage of an organisation has implications on the future trajectory of an organisation. Is the organisation in a landscape where consolidation is happening? Is our organisation likely to be scaling up organically or inorganically? If we are likely to scale organically, then what kinds of capabilities will I need to remain relevant to the organisation? If my organisation is going to be acquired, what is the role that I am likely to be best fit for in the new structure? What capabilities will I need to succeed in this new organisation? Finally, what is the opportunity in the new structure for me to create value?

We know that maintaining employee morale during transition is a challenge. However, ensuring consistent and transparent communication throughout the transition phase is important. Ensuring that there is alignment in communication across different levels and parts of the organisation is another important aspect. Having credible leaders take time to engage with employees also brings in trust and confidence. Above all, a difficult decision which may not be in the interest of the employee is best delivered by the leadership team. All of these signal the intent of management which will evoke trust and empathy from employees.

- By Vasanthi Srinivasan, Professor, OBHRM area, IIM Bangalore