Industry Turbulence

The problems just discussed are compounded by the amount of indus­try turbulence surrounding the venture. Firms with higher growth rates are usually found in industries that are also developing rapidly. In addi­tion, there are often many new entrants, both with competing products or services and with substitutes.

The effects are many. Often, prices fluctuate. The turbulence in the semiconductor industry in the 1980s is a good example. From June 1984 to June 1985, the price to original equipment manufacturers (OEMs) of 64K memory chips fell from $2.50 each to 50 cents. The price to OEMs of 2 5 6K chips fell from $ 15 to $3. The same devastating indus­try effect manifested in the years 2000-2002 when cellular airrime pric­ing plunged by more than 50 percent. The disruption this caused in marketing and sales projections, in financial planning and cash fore­casting, and the like, for firms in theses industries can be imagined. Often, too, there are rapid shifts in cost and experience curves. The consequences of missed steps in growing businesses are profound.

The Importance of Culture and Organizational Climate

Six Dimensions

The organizational culture and climate, either of a new venture or of an existing organization, are critical in how well the organization will deal with growth. A number of studies of performance in large busi­ness organizations that used the concept of organizational climate (i.e., the perceptions of people about the kind of place it is to work in) have led to two general conclusions. First, the climate of an organization can significantly impact performance. Further, climate is created both by the expectations people bring to the organization and the practices and attitudes of the key managers.

The climate notion has relevance for new ventures as well as for entrepreneurial efforts in large organizations. An entrepreneur's style and priorities - particularly, how he or she manages tasks and people - is well known by the people being managed and affects performance. Roger Enrico, former chair of Pepsi, describes the critical factors for growth as setting high-performance standards by developing short-run objectives that do not sacrifice long-run results, providing responsive personal leadership, encouraging individual initiative, helping others to succeed, and developing individual networks for success.

Evidence suggests that superior teams operate differently in terms of setting priorities, in resolving leadership issues, in what and how roles are performed by team members, in attitudes toward listening and par­ticipation, and in dealing with disagreements. Further, evidence sug­gests that specific approaches to management can impact the climate of a growing organization. For example, gains from the motivation, com­mitment, and teamwork, which are anchored in a consensus approach to management, while not immediately apparent, are striking later on. At that time there is swiftness and decisiveness in actions and in follow-through, since the negotiating, compromising, and accepting of prior­ities are history Also, new disagreements that emerge generally do not bring progress to a halt, since there is both high clarity and broad acceptance of overall goals and underlying priorities. Without this con­sensus, each new problem or disagreement often necessitates a time-consuming and painful confrontation and renegotiation, simply because it was not done initially.

Organizational climate can be described along six basic dimensions:

Clarity: the degree of organizational clarity in terms of being well organized, concise, and efficient in the way that tasks, procedures, and assignments are made and accomplished

Standards: the degree to which management expects and puts pres­sure on employees for high standards and excellent performance

Commitment: the extent to which employees feel committed to the goals and objectives of the organization • Responsibility: the extent to which members of the organization feel responsibility for accomplishing their goals without being con­stantly monitored and second-guessed

Recognition: the extent to which employees feel they are recog­nized and rewarded (nonmonetarily) for a job well done, instead of only being punished for mistakes or errors

Esprit de corps: the extent to which employees feel a sense of cohesion and team spirit, of working well together

Approaches to Management

In achieving the entrepreneurial culture and climate described above, certain approaches to management are common across core manage­ment modes.

Leadership. No single leadership pattern seems to characterize suc­cessful ventures. Leadership may be shared, or informal, or a natural leader may guide a task. Common, however, is the pattern whereby a manager defines and gains agreements on who has what responsibility and authority and who works with whom. Roles, tasks, responsibilities, accountabilities, and appropriate approvals are defined.

There is no competition for leadership in these organizations: leader­ship is based on expertise, not authority. Emphasis is placed on per­forming task-oriented roles, but someone invariably provides for "maintenance" and group cohesion by good humor and wit. Further, the leader does not force his or her own solution on the team or exclude the involvement of potential resources. Instead, the leader understands the relationships among tasks and between the leader and his or her fol­lowers and is able to lead in those situations where it is appropriate, including dynamically managing the activities of others through direc­tions and suggestions.

This approach is in direct contrast to the commune approach, where two to four entrepreneurs, usually friends or work acquaintances, leave unanswered such questions as who is in charge, who makes the final decisions, and how real differences of opinion are resolved. While some overlapping of roles and a sharing in and negotiating of decisions are desirable in a new venture, too much looseness is debilitating. This approach also diverges from situations where a self-appointed leader takes over, where there is competition for leadership, or where one task takes precedence over other tasks.

Consensus Building. Leaders of most successful new ventures define authority and responsibility in a way that builds motivation and com­mitment to cross-departmental and corporate goals. Using a consensus approach to management requires managing and working with peers and with the subordinates of others (or with superiors) outside formal chains of command, while balancing multiple viewpoints and demands.

In the consensus approach, the manager is seen as willing to relin­quish his or her priorities and power in the interests of an overall goal, and the appropriate people are included in setting cross-functional or cross-departmental goals and in making decisions. Participation and lis­tening are emphasized.

In addition, the most effective managers are committed to dealing with and resolving problems by seeking a reconciliation of viewpoints, rather than emphasizing differences, and by blending ideas, rather than playing the role of hard-nosed negotiator or devil's advocate to force their own solution. There is open confrontation and a willingness to talk out differences, assumptions, reasons, and inferences. Logic and reason tend to prevail, and there is a willingness to change opinions based on consensus.

Communication. The most effective managers share information and are willing to alter individual views. Listening and participation are facilitated by such methods as circular seating arrangements, few inter­ruptions or side conversations, and calm discussion versus many inter­ruptions, loud or separate conversations, and so forth, in meetings.

Encouragement. Successful managers build confidence by encour­aging innovation and calculated risk taking, rather than by punish­ing or criticizing what is less than perfect, and by expecting and encouraging others to find and correct their own errors and to solve their own problems. Their peers and others perceive them as acces­sible and willing to help when needed, and they provide the neces­sary resources to enable others to do the job. When it is appropriate, they go to bat for their peers and subordinates, even when they know they cannot always win. Further, differences are recognized and per­formance is rewarded.

Trust. The most effective managers are perceived as trustworthy and straightforward. They do what they say they are going to do; they are not the corporate rumor carriers; they are open and spontaneous, rather than guarded and cautious with each word; and they are perceived as being honest and direct. They have a reputation of getting results and are known as the creative problem solvers who have a knack for blend­ing and balancing multiple views and demands.

Development. Effective managers have a reputation for developing human capital (i.e., they groom and grow other effective managers by their example and their mentoring). David Bradford and Allan Cohen1 distinguish between the heroic manager, whose need to be in control may actually stifle cooperation, and the postheroic manager, a developer who actually brings about excellence in organizations by developing entrepreneurial middle management. If a company puts off developing middle management until they make the growth decision, the organi­zation may come unraveled when the plan is executed. Linking a plan to grow human capital at the middle management and the supervisory levels with the business strategy is an essential first step.

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