As successful businesses grow and expand into new markets, there can be a tendency to keep everything under the one roof, under the one leadership structure. But often this can stifle the growth of new businesses and new ideas, and their futures can be dependent on the opportunity to break free and find their own individual paths to success.
Active Knowledge Question:
When, and at what point of time, is it appropriate for a new business to be released and allowed to set its own journey?
It’s Multiplication
There is often a reluctance by leadership to allow new and growing businesses to leave the pre-existing business and to find their own path. But there can be compelling strategic reasons as to why it must leave if its if ever going to succeed, and in many cases just survive.
When it comes to growing a business, multiplication is a good thing as it reflects new and expanding markets. Multiplication should be the goal of every business and established as a very clear principle and practice.
Some would argue that this reflects ‘division’ as you are breaking down the whole and therefore making it less. Also, that you are increasing overhead costs as you now are supporting more than one business.
In many instances, I would suspect that the bias driving this thinking is self-interest on the part of leadership; keeping in mind also that bias often acts at the subconscious level. A business stepping out from under one leader may mean lesser revenue, profit and assets under their control, which may well lead to a lowering of status and even bonuses etc. Self-interest should not be a deciding factor when it comes to growth.
There may well be additional costs incurred in multiplication, but these should be factored against reduced HQ costs and the expected further growth in revenue.
Bureaucracy – The Death Of Competitiveness
Trying to keep everything under the ‘one roof’ can rapidly lead to a growing bureaucracy and crush the competitiveness of a business.
If you were to draw a list of how you would want your business to function in today’s marketplace, you would likely create a list that includes to:
- Support a vast network of informal and open communications and connections.
- Encourage teams to form and then disband in support of customer needs.
- Permit quick, fluid responses.
- Cultivate knowledge exchange between the right people at the right time.
- Promote an insistence on informality but effectiveness.
- Nurture a culture of first names, open doors, real honesty, and to support each other – community.
- Support rather than managing the delivery of value to customers.
- Create a real focus on purpose.
- Ensure the compounding of customer value.
- Establish a motive of competitiveness.
Bureaucracy can be the catch-all of process and authoritative actions that simply restrict competitiveness and tend to weaken all of the functions noted above.
Bureaucracy tends to form as a business grows bigger in size, as there is a general belief that size requires more regulation and oversight to control actions and behaviour. There are, of course, more effective ways to achieve direction, alignment and focus, which are really the intents of bureaucracy.
Purpose, simple guiding principles, culture, and trust are effective alternatives to bureaucracy as is adopting a corporate design principle founded in smallness.
When it comes to creating structures that are reflective of bureaucracy, the question to always ask is, how will this support an increase in customer value? If it doesn’t, then it serves no competitive purpose.
It’s Family
The other point that is important in considering multiplication in business is the analogy of family. A family is formed, they have children, the children grow up and form their own families and have their own children and so the family of two grows and expands. The children will leave home and commence their own lives but they all still part of the one family and the bonds exist.
Multiplication in business should be seen and treated as an expanding family. They are all independent and live their own life, but they are all connected and will support each other and come to each other’s aid if and as required. Because they are family.
When Should You Multiply?
Multiplication can occur in many different forms, here are some examples:
- Parachute off new divisions, along product or geographical lines, to create autonomous new businesses.
- Allow these new businesses independence with both responsibility and decision-making authority.
- Maintain head office staff at a minimal level with a few centralised functions.
- Shared services can operate as a separate business supporting all businesses in the group.
- No career head office ‘corporate’ people, instead, run a rotation of staff from the various businesses.
- Cross business and functional teams to deliver projects that impact all businesses.
Think of building a network of businesses rather than one big pyramid. Always bear in mind that simple guiding principles are a great way to overcome the need for increased regulations and rules.
Is there an optimal size for a growing business at which point it should ‘multiply’ itself out to form a new autonomous business? Yes, there is, but the answer will be different for every business.
With size will likely come constraints on competitive performance. You must have a clear competitive posture, that is, how you compete to deliver customer value.
Growth will impact your ability to deliver on that competitive posture, and there will come a point at which your attempts to ‘keep everything under the one roof’ will adversely affect the customer value you deliver. Before this point, you want to multiply out and strengthen your businesses.
There is a right size for every business, which allows it to optimise the value it delivers to its customers. It is centred in that business’s competitive posture and the competitive engine that is used to drive its performance.
A worthy leader’s awareness of these dynamics will allow them to ‘rightsize’ each of their businesses to maximise customer value and, therefore, competitiveness.
As your business grows always seek to ‘keep it acting’ like a small business that can maintain a closeness to its customers, always improving the value it delivers to them.
An entirely new level of performance.
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All the best in the success of your business,
Richard Shrapnel
