|Stages of Organization Model|
The Stages of Organization Model provides a system-level language for understanding the evolutionary development of organizations. It represents a synthesis of thirty years of organizational consulting experience, several conceptual models of organizational evolution, and the emerging sciences of evolutionary biology and process theory.
The model describes seven types of dynamic equilibrium, each of which can provide a coherent basis for action. They represent the increasing complexity possible when people learn the lessons of early stages of activity and incorporate this learning while tackling more advanced challenges. Progress through these stages is separated or "punctuated" by crises, or chaos points, which must be jumped as simpler solutions lose their viability due to internal or external changes.
While no organization exactly reflects these stages in their pure form, organizations that stay at one of the equilibrium points for long periods of time can be characterized as a "type". But most organizations are more productively appreciated as collections of sub-organizations, each at different stages, blending like themes in music within a larger macro structure which has its own dynamics.
The purpose of conceptual models of this kind is to make it possible for people to have constructive dialogues with each other about where THEY see their own organizations, in order to come to some common understandings that can serve as the basis of important decisions. A useful definition of organization is "a group of people sharing a common conception of how to relate to each other in the pursuit of common goals." These shared conceptions- sometimes called paradigms, world- views, or models- provide the dynamic framework in which many independent actions come together. When people share a common conception one could say "they are organized." When people hold competitive conceptions that pull in different directions, things seem "disorganized." In our experience, when people share a way of both perceiving and communicating about organizational dynamics, they have a much greater ability to "get organized" and to have choices about the evolution of their organization as conditions change.
General Structure of the Model: The Stages of Organizational (SOO) model adapts the arc framework of Arthur M. Young to illustrate how the overall evolutionary pattern found in nature is mirrored in organizational evolution. In nature, light, or photons are the fundamental units of organization. Light makes up particles, atoms, and molecules by taking on increasing constraints. Molecules, even though completely constrained by their physical bonds, somehow evolve into plants by discovering branching structures and regenerative systems that could conquer time through growth. They then evolve into animals by discovering arms, legs, and group communications, all of which help to overcome limitations of space through mobility. Humans continue this progress with complex nervous systems capable of awareness across time and space. In many ways organizations are a microcosm of this larger pattern of evolution.
Formally, the framework reflects time moving left to right, and a "freedom"-"constraint" axis top to bottom. Maximum degrees of freedom are indicated toward the top of the graphic and maximum constraint toward the bottom. Overall the model illustrates how organizations lose freedom as they grow and "bulk up", but can regain early freedoms by mastering the new constraints, and substituting appropriate complexity of understanding for more mass. This ability of living systems to utilize the laws of nature to their own ends, and overcome the inertia and bureaucracy which can lead to organizational demise, is what distinguishes organizational systems from single species of living things. In this respect the SOO Model overcomes some of the limitations of schemes which analogize that organizations follow a pattern similar to the human life cycle. Organizations, unlike human, do not HAVE to die. The SOO model explains the patterns or organization that make this possible.
In the SOO Model, each stage arises from a driving, human intention (represented by two key words surrounded by flashes of light) engaging with key constraints (portrayed as revolving platforms or vortexes of attention). This connection, when understood, provides a basis for organization for a period of time. In addition, each phase is itself a dynamic process, which starts with learning how to connect the intentions and constraints, then, finding a creative resolution in action. When the bulk of the leadership and people in an organization accept the challenge of any given stage as being the most important current problem to solve, then the organization has a basis for coherent action until factors change.
The SOO model does not imply that organizations need to evolve. If conditions are such that the resolution of creative tensions at any stage sustains equilibrium, that stage can represent a kind of "fitness peak" that can last for a long time. More often, however, especially in today's volatile economic climate, conditions change and call for a jump to a new stage. The jump does not have to be in a forward direction. Many times organizations devolve to simpler forms when those qualities need to be refreshed. Organizations may also evolve, and take the lessons from an earlier stage on to a more complex one. This is the way natural systems achieve their intricacy, by subsuming simpler, well-resolved routines into increasingly complex structures.
Any organizational stage can be profitable, if the organization is a business. In fact, a useful way to understand the internal dynamics of any single stage is the traditional "s" curve, which is another way to illustrate the growth dynamics of a product or organization. This curve is usually illustrated on an "x" and "y" axis, with upward progress showing increased size and profitability. What this portrayal obscures is the larger turn at stage four which organizations must make if they wish to reclaim the flexibility and choices they had as younger organizations. The "s" curve is, however, a nice way to think of the progress through any given stage. Jumping the curves, or transitioning through the chaos between equilibrium points, is the challenge every organization faces in direct relation to its degree of success at any stage.
As you read through the descriptions of the stages that follow, bear in mind that the distinctions are kept crisp to allow the ideas to become language elements in your inquiry. In conceptual modeling, the map is never the territory. But good maps and models can greatly increase the sophistication of understanding and communication about what you and others are observing in your specific organizations.
Stage I: STARTUP
New Ideas looking for Opportunities
The point of origin of any organization is most often someone with a NEW IDEA looking for an OPPORTUNITY to try it out. Nothing exists yet that can be accounted for, looked at, or evaluated, except the sense that there is some potential in the new idea.
Creativity in living systems, even startup organizations, is driven by the desire to resolve structural tensions between elements of that system. If a person's new idea is very vibrant, and he or she is committed to putting it into action, then finding a receptive setting or opportunity grounds the idea and provides the structural tension for figuring out all the associated problems and issues. When the idea and the opportunity stay connected, then activities in the startup find a dynamic equilibrium point for a while. Everyone circles around and around the opportunity, exploring the many possible patterns of materialization, and something stable emerges- or doesn't. In the latter case the startup dies. In the former it evolves into an organization that can begin hiring people, thinking about creating internal systems, and working on its next ideas.
Very bright people with a lot of ideas can keep sparking away at this stage for a long time. They are called entrepreneurs. Since every organization moves through this stage, there are many examples, and it repeats inside large organizations when "intrapreneurs" spark new ventures. Because the basis of stability is very simple- a good idea attached to an opportunity-and the organization is usually fairly small, there is tremendous freedom in how things get done as long as this connection holds. This is why startups are often characterizes as "chaotic", roller coaster, "anything goes" kinds of cultures.
Stage I Crisis: Lack of Direction: A common crisis eventually de-stabilizes startup organizations and successful entrepreneurs. They start taking action on too many different ideas. Before long, especially as the number of people and overhead grows, a crisis of LACK OF DIRECTION develops. Pressure for steady revenue increases. The opportunistic solutions of the startup stage no longer seem to work as well.
Stage II: GROWTH
Strong Leadership providing Financial Resources
The Startup's crisis of "direction" can be resolved through STRONG LEADERSHIP generating STAFF AND CASHFLOW. Leadership can come from having a clear lead in a market because a unique technology or lack of competitors, and having the focus to stick with a product or service until cash starts flowing regularly. Often this focus is achieved by bringing in a person or team that can provide steady leadership, discover the most profitable products and services, and focus the organization so it is not distracted by every new idea that comes along. It is challenging for an entrepreneur to be this person, so they often partner at this stage or move on.
The grounding constraint of this stage is STAFF AND CASH FLOW. If the chosen direction of growth doesn't generate cash, the organization can't growth. Cash can be provided by investors confident in the new direction and leadership, or by the marketplace itself if a real winning product is discovered, or even by an I.P.O. riding a wave of market interest, like the interactive companies trading on belief in the leading influence of the internet. In close concert with cash flow, is the need for good people to support the new direction. While making good money usually makes it easier to get the right people, in very hot industries, recruitment can be a real bottleneck.
When the connection between leadership, staff and cashflow is achieved, an organization enters into the steep slope of the classical "S" curve in organizational growth. Good examples of organizations at this stage are:
The Gap-riding the casual, sophisticated clothing wave.
Yahoo-riding the Internet wave.
Starbucks-riding the designer coffees wave
This stage, like the startup stage, is very fluid and changing. If equilibrium is achieved it is usually not because the organization as a whole understands its business thoroughly, but because of luck, good timing, and guts. High growth organizations are usually young, or new divisions within older companies. Unlike the startup, they put a lot of pressure on people to serve the "big momentum" of the lead products and services.
Stage II Crisis: Lack of Sustainability: A successful lead will attract followers. As other players enter the market its becomes harder to sustain growth, margins may shrink, and differentiation becomes an issue. As talented people are attracted to the growth company, they want more opportunities and autonomy internally. These crises of sustainability require a different response if the organization is to continue.
Stage III: SPECIALIZATION
Clear Strategies linking to Core Competencies.
In order to sustain growth for a long period, and establish an identity and niche beyond the go-go period of a hot market, an organization needs to begin to understand it's real strengths and weaknesses and keep capable people aligned. This requires planning. CLEAR STRATEGIES growing out of experience in the growth phase become drivers for specialization. The constraints are the CORE COMPETENCIES of the organization and the people involved. Connecting competencies to clear goals is the simplest way to begin working in a more sustainable way, and unleash the power of the new workforce attracted during the growth phase.
In the specialization stage an organization is constantly looking at who is good at what, and trying to build this assessment into plans so that there is some kind of rational organization to the business. If an organization decides it wants to expand into Russia, it must find people who have competencies related to Russia. If defense firms plan to start a new leg in civilian work they need to have somebody who knows civilian work. etc. And of course sustain the leadership and cash flow in each part, and keep new ideas attaching to opportunities.
Specialized organizations can be highly decentralized, giving different divisions a lot of autonomy to be startup, growth, or specialized kinds of entities with strong identities. They can also be quite centralized in their accounting and P&L reporting, but loose in other regards. This was the corporate form that General Motors invented under the leadership of Alfred P. Sloan in the 1930s. Equilibrium can be sustained in a radically decentralize stage for quite a while. By distributing the responsibility for starting and growing new business, products, and markets over a specialized set of divisions, the organization can keep growing and provide the autonomy needed to keep talented people challenged.
Focused, centralized organizations can identify niches and sustain themselves by keep attention to their "fitness peak."
Decentralized specialized organizations would include:
Big professional services firms
Some examples of centralized specialized organizations would be
Chez Panisse restaurant
Stage III Crisis: Lack of Control: As an organization continues to grow, the chances of different organizational elements getting mis-aligned and out of control are quite good, especially if different parts of the organization fair better than others. In fact, being slightly out of control is one of the ways the specialization stage achieves its equilibrium. But overhead increases as people are added. The chances of slip-ups and system disequilibrium increase. "Fresh" market identities can become "old hat." General managers and functional chiefs can start pulling in different directions, and when they become powerful these tensions can become conflicts. More often than not, "control" becomes a crisis that must be confronted and understood to evolve further.
Stage IV: INSTITUTIONALIZATION
Reliable Returns matched with Systems and Structures
For an organization to achieve real control it needs to create internal structures that mediate between owners and other stakeholders wanting RELIABLE RETURNS and match these with SYSTEMS AND STRUCTURES than can supply a long term source of capital for weathering inevitable cycles of prosperity. Moving beyond dependence on founders and star performers to real understanding of industries, such that investments come to yield steady returns is the mark of true institution.
In a high growth company which has solved some of its identity and autonomy problems through functionalizing and decentralizing, recentralizing and establishing financial and positional discipline may be necessary to last for the long term. This accounts for the common pendulum swing between centralization and decentralization. Creating the accounting structures, P&L disciplines, succession planning systems, investment portfolios, and matrix organizations that bring stability and control to large enterprises is the work of this stage.
Organizations, like government bureaucracies, which have steady incomes, or utilities and monopolies, which also have franchises that throw off a lot of capital, can grow and stay at this institutional stage for a long. Older, machine-like industrial companies that had virtual franchises worked this way.
Small organizations that have unusual niches or locations can become institutions, like the Cliff House in San Francisco or Windows on the World at the World Trade Center in New York City.
Older organizations that have simply grown and grown under favorable market conditions can take on this bureaucratic, institutionalized form. General Motors, the National Park Service and the U.S. Military are all examples of organizations stuck at this stage.
Stage IV Crisis: Lack of Productivity: If an organization gets too big and bureaucratic, and too inward looking and money oriented, it can lose its life and flexibility, just like people as they age. If people who learned the lessons of earlier, more limber stages leave and employees know only procedures and regulations, life literally drains out of the organization.
In today's business environment, the risks of losing productivity are deadly. Companies will either be bought out for their resources, die, or evolve to the next stage. Re-igniting the spark of purpose and hope, and regenerating the energy of growth is the role of leadership at his point in an organization's evolution.
As stated before, one of the assumptions in the SOO Model is that organizations can evolve, and develop greater complexity by carrying solutions and lessons from earlier stages forward into later ones. But evolution isn't a requirement; it's an option. Evolutionary success is a combination of having a workable pattern emerge out of the creative tension between the drivers and constraints of any stage, and having that pattern becoming accepted as a competitive one in whatever "fitness peak", or place in the environment, where the organization seeks to exert it.
Stage V: REGENERATION
New Growth through Adaptable Processes
The jump to Stage V is more than just a linear evolution to more complexity in organizational structure. It requires a turn in direction away from adding more mass and controls, to discovering more vital pattern of organization that rules and procedures. This is achieved by having the intention to have NEW GROWTH express itself through ADAPTABLE PROCESSES. In the SOO model this stage is portrayed as angling back toward the top of the page, to show clearly that each subsequent stage involves more and more productive use of resources, with growth in intelligence and understanding rather than sheer mass as the source of the increasingly complexity. It represents a jump from the command and control mindset of mechanistic organization, to the eco-systems mindset of a farmer or gardener.
The explosion of re-engineering projects in the early 1990's was an outgrowth of companies tackling this stage of evolution, trying to take bureaucratic companies and get them to be leaner and more coordinated. Unfortunately, many of these efforts did not understand how important people are to replicating and adapting organizational processes. Some companies like G.E., with very strong, visionary leadership, have made this turn. Welsh's focus on being " Number one, and Number two" in their chosen market is a clue to success at this stage, which is generally market driven. But focus isn't enough. This drive must be grounded in learning to adapt processes. "Processes" are a kind of organizational "DNA" supported by systems and methodologies that tie the elements of the organization together. Assuming that systems and structures are in place as a result of stage four efforts, the organization now needs to focus on how life can move through these systems in the form of robust, adaptable processes. Shifting from a structural to a process mindset is the key characteristic of stage five managers.
Coordination technologies become important in achieving this resolution. Being able to characterize and transfer technical processes is a key to any expansion. And since people are the front line carriers of organizational wisdom, learning how to generate and transfer knowledge also becomes critical. If the drive for new growth is strong, and the organization can learn to focus on the full value chain as opposed to its functional parts, then vitality can return and results begin to abound.
Hewlett Packard is a company whose individual divisions have mastered this stage, even while the macro company may be at stage three.
Sears and Roebuck seems to be engage in such a turn, with its new focus on the measurable links between employee satisfaction, customer satisfaction, and attractiveness to shareholders.
Stage V Crisis: Lack of Mobility: The crisis aspect of stage five is lack of mobility and flexibility. The very discipline involved in creating strong coordinating processes can create red tape and process rigidities, which stand in the way of innovation and adaptation. IBM in the 1980's provides a classic example of a company, which experienced this problem. Process competency became a near religion as everyone became very disciplined. This led to being blindsided by the new PC industry and its radically different ways of organizing around open architectures instead of proprietary systems. While IBM is fighting back now with new competencies in the service end of the business, the company it sustained many years of devolution. This pattern has repeated for many of the Balridge Award winners like Florida Light and Power. The very customer and process orientations that led to excellence become process bureaucracies, which keep the company from flexibly adapting to changing conditions. A diversity of ideas and approaches is needed to keep the organization fresh.
Stage VI: COLLABORATION
Trusted Partners constrained by Culture and Values.
New ideas can enter into a mature organization if it learns to partner and network across its industry. In Stage VI organizations, the drive to find TRUSTED PARTNERS becomes a key to having more influence in the market. This stage involves not just serving markets, but creating them. When this kind of drive becomes grounded in a celebration and understanding of one's own CULTURE & VALUES, and that of partner organizations, true collaborations can take place. Collaboration is illustrated at the same horizontal level as the Growth stage in the graphic model, to suggest that it seeks to regain the same kind of impact, only now with understanding and proactive influence. Prahalad and Hamel argue for this as a next stage of business evolution in their widely acclaimed book Competing for the Future as does Jim Moore in his argument for thinking of business as eco-systems in The Death of Competition. In eco-systems, those with the most diverse relationships are the strongest.
Mature growth organizations take real risks when connecting their market influence to networks and alliances. But out of these creative tensions come new ideas, growing markets, specialized capabilities, new investment, and new processes. Stage VI by definition embodies the capabilities of the earlier stages and adds the flexibility of an organization than can move and change rapidly because its resources reach beyond the boundaries of its own culture.
Part of what makes this possible in an industry is shared standards, risk and vision. The growth of standards like ISO 9000 is allowing organizations to work together in the manufacturing sectors, as well as improve quality processes at stage V. The internet and its protocols are allowing huge networks of companies to work together. Some global companies are finding that creating visions and values that are promulgated worldwide helps the organization achieve a kind of collaborative structure that transcends simple coordination.
Whole companies rarely achieve this level of organization, but smaller divisions or teams within a company often do. But with the growth of non-traditional employment and virtual organizations, the experiments are underway for creating truly successful Stage VI, collaborative organizations at a large scale. Some people think that they can jump to a high collaboration, networked style organization right away, even during the growth stage. To a certain extent, this is possible, when organizations band together as strategic alliances to enter a new market that is very hot. But this kind of stage two collaboration is very different than that suggested in stage Six. A mature, collaborating organization would be one that saw partnership as its preferred way of operating, and seeks deep, and lasting affiliations that provide sustained creativity.
Some early examples are:
Swatch and Daimler Benz
Stage VI Crisis: Lack of Meaning. The challenge implicit in extending and changing continuously is losing a sense of what it all means. The effort to collaborate across cultures can be depleting. If conditions fluctuate, as they often do, the arrangements between partners can find themselves unsupported and crises emerge. This happens regularly within the electronics industry, as it seeks to influence the creation of whole new markets through partnering on chips like the Pentium and the Power PC. Cross-cultural challenges make this stage complex and difficult. In company after company attempting to sustain high growth across a huge enterprise issues like work-life balance are chronic. Smaller units have an easier time of it, but also face energetic challenges.
Stage VII: CO-CREATION
Higher Purpose channeled by Collective Awareness.
In the long haul, the most evolved organization would have to be considered ones that operate with a minimum of resources and maximum impact, having the whole range of evolutionary stages as choices for organization.
Is this possible? There are people driven by a sense of HIGHER PURPOSE, that are willing to rise above narrow interests and co-create new realities with others to see the same possibilities. This COLLECTIVE AWARENESS becomes the basis of this stage, and constraints what can be done at this level of organization.
We considered calling this stage the learning organization, or renewal stage, but these labels miss the point a bit. Learning occurs at every stage, as does renewal, as organizations jump through crisis points to new stages. What is unique about a stage seven organization is having the choiceful ability to co-create new realities.
The co-creative organization is the form of many informal change networks that exist within larger organizations and provide a sense of meaning to those who are involved. Membership is a result of sharing a common awareness of having a mutual purpose. People reach out and recognize each other beyond organizational titles and duties. These networks are often the source of new, entrepreneurial initiatives, thus seeding a renewal cycle.
People in the co-creative stage of organization are usually more interested in shifting perceptions by sharing and contributing rather than by owning and defending. Thus it may be a trap to try and characterize Stage VII organizations by the formal processes and structures. Co-creative organizations are, more than likely, composed of people deeply committed to giving up these kinds of attachments. Some of the global networks of people who are working on problems of sustainability and spiritual renewal have these qualities. They are hard to analyze because the basis of their organization lies on an immaterial plane, allowing them to keep adapting and changing to the new conditions. The Tibetans are interesting examples, who sustain their organizations and culture in spite of concerted repression.
Stage VII Crisis: There isn't a crisis named for Stage VII, although this level of organization is inherently unpredictable and dynamic. More likely than not this stage is ephemeral, and experienced only for brief periods as actual "organization." Persons who have reached this level, however, may well work in organizations that are less evolved, and use their awareness to help provide the co-creative sparks that will stimulate evolution at earlier stages.
The SOO Model suggests that understandable periods of equilibrium and crisis characterize organizational evolution. Periods of equilibrium are those times when drivers and constraints are joined in a creative tension around which organizational energy can move with some consistent dynamic. Crises are periods when latent shadow elements emerge internally or environmental conditions change and the equilibrium is disrupted.
Evolution expresses the paradox of life, which thrives on action, inspiration and chaos, but needs to be bounded by constraints to have any equilibrium. Resolutions are only stable for a time. The central challenge for organizations goes beyond consistency and coherency, which can only be achieved temporarily, to choice- the choice to recreate oneself around old learning on a new fitness peak, or accept the changes on the old fitness peak and embrace new learning, or do both in extraordinary cases. Being able to respond to these kinds of challenges intelligently is what makes us human.
People become very frustrated when they cannot see choices, or have no language to talk about them, or when leadership has no language to understand the larger context of their challenges and predicaments. In these cases organizations are truly adrift, at the mercy of their environments. But it is increasingly possible to understand larger systems. With the help of models and language that allow knowledgeable people to dialogue about what they know and see, we can marshal the powerful intuition, thinking, feeling and sensing capabilities of organizational members. Then it becomes possible to appreciate that different parts of our organizations may be at different stages, and require different leadership and resources.
As stated before, the function of the SOO Model is to provide a meta-map to the dynamic territory of organization development. By illustrating the development of organizations on a freedom-constraint axis, using the framework so brilliantly described in Arthur M. Young's work on reflexive organization, we can begin to understand the feeling of heaviness and bureaucracy that accompanies organizational "descent" toward becoming an institution. We can also begin to understand the turn away from this structuralist, materialistic focus that is required to gain the more mature freedoms of latter stages of development.With practice, a language like that embedded in the SOO model can help more mature companies understanding evolutionary dynamics, and provide a way for people to talk about and anticipate the changes that they face. The environment and future remain unpredictable, but ones' understanding can evolve to optimize the range of choices one has when new developments occur. Isn't this what all great, improvisational disciplines provide? Is not this the way of the great jazz musicians, the finest artists, and the most inspirational business leaders? When whole organizations gain this kind of understanding, possibilities expand dramatically, conceivably well beyond anything we have experienced before.