Using the conventional description of the corporate lifespan as a base enables managers and stakeholders to understand the points at which turbulence will arise naturally, and the phases during which reliance on the procedures established to control the recent phase lose their saliency.
© Anthony Holmes 2004
Of course, this is a very simplified illustration. The lifespan of each firm is different and for those that reach maturity the duration of this phase often exceeds the period of growth.
However, all firms experience periods of comparatively rapid change that are usually positive in the early phases and negative in later stages. Resistance to these changes is, as they say, futile, nonetheless it is natural although perhaps less pronounced in the transition from growth to maturity than from maturity into decline.
The early period is a stage of building and capitalising on what has been achieved. The later period is negative and necessitates the painful discontinuation of things once considered important, perhaps the contraction of the organisation, a reduction in staff, etc., etc.
In fact many of the things that were established as desirable when ‘becoming’ and ‘being’ dominated the psychology now become impediments to survival.
Lifespans differ in length and shape and a few companies manage to reinvent themselves by recognising their imminent demise due to the dwindling availability of what they need to survive. In those that do so their managers adopt a psychology of a second phase of ‘becoming’. They pursue a new viable position rather than attempting to return to the status quo ante, which is usually not possible.
The dotted line in the figure opposite in the decline phase represents the desired change in trend which I contend can only be sought if management changes the natural psychology of ‘reversing’ to ‘becoming’.
Take, for example, the postal services. In 1635 Charles I gave the general public access to the royal mail system. This was a novel and expensive system of communication limited by the speed a horse could travel. In its lifespan a number of challenges have confronted its management. The advent of railways, enabling the unit cost of posting a letter to reduce and the speed of delivery to increase, stimulated an expansion in demand and the volume of letters, which was further magnified by an increase in literacy. Telegraphy, wireless telegraphy and then telephony caused the market to change, at first slowly and then turbulently.
Now, the advent of modern telecoms and broadband connectivity has begun to undermine hard copy communication. ISP’s have no legacy assets or culture to manage out of and their managerial psychology is ‘becoming’, whereas the objective of postal companies is to moderate the rate at which hard copy communication decays so that they can manage their decline in an orderly manner.
They have transcended the mature phase of ‘being’ and are now firmly entrenched in decline. Reversal is clearly not a viable strategy, which leaves orderly demise or ‘becoming’. No one doubts that ‘becoming’ is difficult and perhaps more so for managers who have spent many years in maturity immersed in the procedures of ‘being’, but there are notable examples of companies that have left behind their previous shape and nature to ‘become’ something new and viable. IBM is a good example that has accomplished this transition from mechanical computational machines to electronic computers to software development.
As an industrial society we have faced, and continue to deal with the legacy of, the decline in large-scale employment industries such as mineral extraction and processing, volume manufacturing of standardised products, and utilities such as the postal services. Many economists argue that the principal impediment to the transition to new industries is labour inflexibility, which resists the decline in their staple industry until it collapses catastrophically with unpleasant social consequences for many who continue to be wholly dependent on these businesses.
Although simplified, the proposition is clear; try to resist the natural change from one lifespan phase to another and the probability is that you will amplify the turbulence inherent in the transition and most likely fail as the forces that drive the lifespan process are beyond management’s control. Resistance is futile.
Only external factors can distort the sequence by either bringing forward the turning points (e.g. the firm loses business when a technically superior replacement enters the market) or, potentially retarding them (e.g. the firm wins business unexpectedly when the industry structure changes as a competitor fails).
Transitional events, because they are turbulent, are often regarded as ‘negative’ periods as the continual incremental progress, which is the ‘positive’ objective of scientific management, is suspended and reform becomes necessary.
When the rate of growth diminishes marking the transition from growth to maturity or profit declines indicating the transition to decline, managers tend to regard the changes negatively as they assess the present and future in comparison with a more successful past. They often conceive of objectives in terms of returning to this state, which is why you hear calls to ‘get back to basics’ as though the fault that needs to be rectified is some deviation from previous practice, and when this toxic component has been excised, the company will perform as it did in the past.
But in a recession the future is another country and severe economic turbulence often signals a discontinuity rather than a pause and creates a turning point of such significance that what emerges cannot easily be connected to the trends of the preceding years.
Reversing is not possible. This is a one-way street and managers who drive the corporate vehicle forward while looking through the rear view mirror will not progress far without hitting an obstacle. The faster they accelerate to escape the undesirable conditions the more damaging the inevitable crash will be.
Identifying an organisation’s position in its lifespan
Identifying an organisation’s position in its lifespan is not easily achieved in a precise way. Ideally, those charged with the direction of the organisation would like to predict the impending onset of each point at which the rate of progression changes, heralding the movement from growth to maturity and from maturity to decline. Where this is possible plans can be made to address the specific issues that are associated with these transitional phases.
Some businesses never reach maturity and disappear from the corporate landscape a few months or years after their introduction. For these organisations spending time looking for the signs of transition is irrelevant as they are destined never to reach critical mass. Many of these will be too immature to survive turbulent times. The fortunate few may be sold to larger companies who are better able to withstand the turmoil. Others will just fall by the wayside.
Calculating the scale that a business needs to achieve in order for it to become established and escape its beginning and confront its becoming is a relatively simple calculation. The point at which it consistently generates cash rather than consumes it is an important signal. The period in which revenue growth accelerates and profits are made and begin to grow at a faster rate than revenue grows is another notable pattern.
When these rates of growth begin to diminish it suggests another transitional stage is approaching.
If one of these natural turning points occurs during a time of general turbulence then the organisational turmoil can be immense and be beyond the manager’s capacity to cope in an orderly way. In general, however, it is usually difficult to identify these points with certainty until they are past and action is directed at the management of the consequences rather than their avoidance or mitigation.
I do not believe that this is sufficient reason simply to ignore these phases and adopt the position that it is impossible to put in place a strategy to address each stage leaving, instead, reactionary tactics as the only viable methodology.
Let