Venture Gabble

Role of executive leadership in shaping Organizational Identity

I received much feedback on my previous blog post on how - Having an Organizational Identity is a requirement for high-growth companies, with readers sharing their own experiences on the topic. This was a very pertinent issue that many executives and employees in high growth companies were able to relate to. In this post, I wanted to extend this discussion to how CEOs and executives can help their organization develop its own identity, in support of company's long term objectives.

First of all, CEOs should resist trying to impart their leadership style, their work culture, and their management approach, to the rest of the organization. This is a difficult thing to do, especially considering that most CEOs have a strong personality and their position in the organization puts them in spotlight at most times. However, there are some serious risks to this approach. One, the CEO's capabilities and their management style becomes the ceiling for the entire organization to achieve - which is a scary thought. Two, it fosters followership rather than true leadership. Three, what worked for the CEO in the past might not be what the current organization needs to fulfill its promise and long term objectives. 

In my experience, CEOs who are successful in building great organizations that last beyond their times, do not start with preconceived ideas about what their organization's identity should be. They constantly experiment to bring out traits best suited for their organization and work towards institutionalizing them. Here is a framework that CEOs could use to understand and refine their own organization's identity.

1. Bring together a team of RSPs (really smart people) – An organization’s identity is one that is defined by the people it is made off. Smarter its people, higher the chances that the organization’s identity would be good one. Having quality people with different perspectives will ensure that the best of ideas and business management practices are brought forth under a given situation that a company faces.
   
2. Set long term mission, not short-term performance as the moral compass that will dictate organization behavior and how it responds to business situations
   
3. Foster an environment of experimentation and risk taking – CEOs should empower employees or teams to come up with solutions to business situations and let them respond on their own. However these solutions/responses should be grounded in intellectual honesty – rational, backed by data, debated in a team setting, and with accountability.
   
4. Institutionalize organizational traits that should be retained - Based on results against expected outcome, organizational behaviors that are preferred should be retained and institutionalized while other behaviors are discarded.

Applying this framework repeatedly in business situations and over time will bring out an organization’s true identity that will enable it to be successful in the long run. As you can see, the same framework can be applied not just at a company level, but even at division level or department level or in a small team setting, to bring out that group’s identity. So the next time there is a business situation requiring a response, treat it as an opportunity to learn more about your organization’s identity.

Source: Dilbert.com 

Having an Organizational Identity is a requirement for high-growth companies

One of the common mistakes that I see high-growth companies executives make is that they focus so much on product, sales and creating the market and pay less attention to building their organization. Sometimes this can cost a young company a lot. Last week I was meeting a CEO friend of mine who runs a successful technology company – grew revenues in a recession, doubled team size in less than 2 yrs. The CEO mentioned to me that though the going was good (under the recessionary circumstances) he felt that his company lacked something.  He had a gut feeling that his team might not be able to support the higher levels of growth he envisioned. We discussed his organization and its capabilities and after much discussion, we came to the conclusion – that the root of his concerns was that his company lacked an Organizational Identity that could support future growth.

How does one define Organizational Identity? It is a set of behavioral traits that enables an organization to successfully manage challenges pro-actively or reactively, as the situation requires.  Here are some examples.  Say for instance, a company is working in a technology area that lacks definition of industry standards. Should the company take the lead and define standards for others to follow or should it wait for someone else to take the lead? Here is another. A competitor is planning the release of a new product version that has some really cool features and has the potential steal market share. What should the company’s response be? As is evident, the first situation requires proactive action while the second situation requires a reactive response. The way a company responds to similar situations it faces each day defines its Organizational Identity.

There aren’t many young companies that actually work towards defining its own Organizational Identity. In many cases, an organization’s identity or lack thereof is defined by the road it has taken. Typically companies start off as a disorganized startup – loose organization structure, chaotic communication, lack of processes etc.). As it meets with some success and new leadership comes on board, new rules are created by individual executives.  In many cases, the organization’s identity mirrors that of the executives that lead it. As the organization grows even bigger, processes and policies take over and an organization’s identity is defined by what is in those manuals. By the end of all this, nine time out of ten, no one in the company might actually be able to define what its true identity is. This is exactly what happened with the company that I was talking about earlier.

Founders/executives are better off thinking about Organizational Identity early in the life stage, if they want to truly grow the company beyond a certain size. It is easier to define an identity when a company has 50 employees than when it has 5000. Though there isn’t a standard set of traits that define Organizational Identity, here are some pointers.

-          How much structure and formality do I need in my organization?

-          Is my organization nimble enough to react quickly to changes?

-          How do we define responsibility and accountability?

-          What type of communication works best – frequent vs. infrequent, formal vs. informal etc?

-          Is success in the organization driven by individuals or as a team?

Last but not least, defining a company’s organizational identity is not a short-term project. It takes years and a lot of experimentation to truly understand what works best for your team. 

Hope you enjoyed this post, enjoy the rest of the week!

Source: Dilbert.com 

Crossing the chasm from startup to expansion phase

Entrepreneurs and startup founders always think warmly about the day when they will go from startup phase to expansion phase. The thrill of hiring a bigger team, building a new facility  or acquiring new equipment to launch a new product is an ultimate adrenaline rush for any entrepreneur and a satisfying experience. This is also the time when a startup typically goes out and raises significant venture capital to support its growth plan. So in all, exciting time for the startup company, if it gets there. Research and reality indicates that the percentage of startup companies that reach this phase is very small. Obviously something goes wrong for most startup companies and they are stuck in startup phase forever and die a slow death. It is not that these companies do not have a compelling idea or good operations, it is just that they have not figured out the ingredients for the secret sauce that could propel them to the next phase.

I think it is very important for each startup company to come up with its own secret sauce for growth. But there are lessons that companies could use from other successful startups that have crossed the chasm and into the expansion phase. I dug into my own experience working with entrepreneurs and startups and identified characteristics displayed by successful companies and identified five commonalities among these companies. 

1. Have a strong management team - that is driven, has the vision, thinks ahead and has compelling leadership skills to elevate themselves and their team to the next level.

2. Deliver a differentiated product or solution that addresses an important need for the customer today - An idea too late or too early has a much lower chance of success and hence timing is key. Also successful companies stand out from the crowd (check out my other post on Three things that Cloud computing and SaaS companies should do to differentiate from competition)

3. Operate in a very big market with potential for further expansion - bigger the market opportunity, higher are the chances of success and to hit a home run

4. Demonstrate profitable operating model that is scalable

5. Develop a practical growth strategy road map that could help the company scale with new capital infusion and a step ahead of competition - maybe it involves expanding the sales & marketing or product team, or building a new data centers to service more customers.

C-suite profiles and expectations at venture capital portfolio companies

Recently I had written a post on the need for Active Portfolio Management to increase venture investment returns. A critical factor and requirement to realizing positive results with Active Portfolio Management is a strong executive team in portfolio companies.  I also want to clarify at this time that Active Portfolio Management approach is more relevant and more effective for a growth-stage or late-stage company, but the principles can be applied in other situations as well.

So what are some of the successful C-suite profiles and expectations for a portfolio company executive? I would categorize profiles and expectations in five areas – roles & responsibilities, competencies, behavioral attributes, decision rights and motivators. Below is the description:

With financial conditions so tight, limited exit options and secondary market just beginning to show some life, VCs best shot at generating strong returns lies in their ability to make the companies they control more profitable. Getting it done at the ground level is in the hands of portfolio company executives and VCs have to get it right in terms putting the right people in charge.

A framework to improve company operational performance

We all know that driving operating performance improvements in companies is easier said than done. I have been part of several transformation agendas at leading corporations and PE backed portfolio companies (both as an operator and as a consultant) and I have to say the difference between those companies that successfully transform themselves and those that fall off the wagon comes down to three things.

1. Acknowledging the need for operating performance improvements by all stakeholders (especially employees) – In most cases and rightfully so, the first to realize the need for operating performance improvements are the senior executives and board members. It is equally important for the employees to understand the need for operating performance improvement – otherwise there would be disconnects. I have seen situations where employees have felt that “transformation” was nothing but a tool for executives to improve their own position within a company – in other words, land grab. This kind of mistrust leads nowhere but straight to the bottom of the ocean. I would put the responsibility of communicating the need for operating performance improvement and gaining employee buy-in firmly on the shoulders of the CEO – after all he/she is bottom line accountable for company performance. Backed by a strong communication plan, CEOs must communicate clearly the need, rationale and urgency behind operating performance transformation. Also, empowering employees to be part of the transformation agenda will bring participation and ownership. Gaining buy-in for operating performance transformation from all stakeholders is a small but critical step and should not be done in a frivolous manner. 

2. Prioritizing performance improvement areas that deliver most benefit – Sometimes the word ‘transformation’ is misinterpreted as a complete overhaul. Reality is far from this interpretation. In my experience, operating performance related transformations have been most successful when companies have focused on a specific area. For e.g. it could be one of the below areas or even a sub-segment;

   a.       Revenue growth – e.g. Innovation in product development, sales effectiveness, pricing optimization, channel optimization, customer service effectiveness

   b.      Cost Management – e.g. SG&A optimization, Sourcing management

   c.       Working Capital Management – e.g. Cash management, inventory management

   The key is to understand, which operational improvements will have the biggest bang for the buck and pursue it vigorously.                                                                                                                     
3. Showing persistence in operating performance improvement execution – Operating performance transformation is not easy and requires a huge effort on the part of everybody involved. It involves changing processes, changing people mindsets and in some cases changing people who don’t fit into the new plan themselves. Hence it is advisable that companies adopt at least a medium term (2-3 years) approach to transformation, work on transformation diligently and not to expect instant results. Attempts to slash and burn to get short term results are counterproductive and might bring down enterprise value very quickly.

I hope you enjoyed this post. Have a great rest of the week.

Jugaad - driving innovation with scarce resources

“Do more with less” corporate mantra is not going away anytime soon. In fact this would be a necessary requirement for American businesses to compete on the global stage. Hence executives would be well advised to push their teams to innovate on this front across the board – strategy, product design, manufacturing, distribution, customer service and every other area relevant to their business.

So how does one go about innovating with limited resources instead of putting together a case for huge R&D budgets or process re-engineering budgets? Try Jugaad - pronounced "Joo-gaardh", the latest in management ideas. The principle underlying Jugaad is to implement innovative ideas under two important constraints – one, it should cost very little to deliver the innovation and two, it should be fast to deploy.  Here is the link to a recent Business Week article on this topic.

Here is an example of Jugaad at work that I have seen. When Coca-Cola reentered India, it realized that key to its growth in that country was dependent on its success in rural markets. However, several villages in India did not have wide roads to accommodate the large distribution trucks. Coca-Cola adapted its supply chain to include smaller transportation options within its distribution network - 3 wheel autos, motor cycles and in some case even distributed their products on bikes. 

Let’s be clear, the Jugaad approach isn’t any different than old-fashioned ingenuity. But its emergence as a management idea shows us how corporations have moved away from basic common sense as an approach to innovation in favor of bureaucracy.  We need to dial it back in favor of common sense. Here are my recommendations on low cost innovation or Jugaad, for executives willing to try it.

1. Sponsorship from the highest level - CEOs should set the right context for Jugaad within their company and articulate its significance to achieve objectives (be it overall growth in sales, cost reduction, product development or any other area). CEOs should over communicate the message that these small innovation experiments are not just a tool for the short term, but rather a preferred element of the organization’s DNA and culture.
2. Empower the organization right to the grassroots level – CEOs should be the biggest champions of innovation within their company and create an environment whereby employees are comfortable taking risks in their everyday jobs by thinking outside the box. Solving a problem can be done by one person, but its quick implementation requires the committed involvement and enthusiasm of everyone else in the organization. Empowering employees (all the way to the grassroots level) to solve problems and get it done while providing support and coaching brings participation and ownership. 
3. Define processes/controls to ground ideas in reality and practicality – Processes and controls are required to make sure that Jugaad and its innovative ideas don’t get out of control or end up focusing on areas that might have much impact in terms of priorities. It is equally important that processes and control defined do not kill innovation before it is born. 
4. Celebrate successes and failures – Organizations might have to experiment 10 things before identifying the right idea and hence patience is key. It is equally important to celebrate failures as it is to celebrate successes. In my experience, organizations tend learn more from their failed initiatives than successful ones.

As always, I welcome your comments on this post. For those looking for some Jugaad related humor, here are a couple of links that I have enjoyed.

http://timesofindia.indiatimes.com/India/Kerosene_lamps_helped_Gates_take_off/articleshow/3715160.cms

http://www.youtube.com/watch?v=I42fxNIjMsI

Have a great rest of the weekend!

Gaining market share in a downturn environment through disruptive ideas

In the high-tech industry, relative competitive positions of companies can change radically in a downturn. A McKinsey study found that 69 of the 146 high-tech companies entering the 2000–2002 downturn as leaders—47 percent—emerged from it as laggards and 13 percent improved their positions during that same period. I am sure a bunch of new companies made the list for the first time.
 
So what could explain this movement on the leader board? After all the incumbents should have a sizable market share, stronger balance sheet, arguably better capabilities and reputation which should make it difficult for any challenger. The answer in my opinion is the ability and conviction of the challenger to change status quo, develop and bring about disruptive ideas in the marketplace while the incumbent tries to protect status-quo.