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PARP: Trends in Management
Trends in Management
Presented by:
Eric G. Flamholtz, Ph.D.
Professor, UCLA Anderson School of Management
President, Management Systems Consulting Corporation
Polish Agency for Enterprise Development
May 14th, 2015
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Trends In Management
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2
What does this suggest?
• Risk
• Change
• Uncertainty
• Transitions
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Trends In Management
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3
Transitions
At Different Stages of Growth
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4
Four Stages of Transitions
1) Planning
2) Getting started
3) Letting go!
4) Completion
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Purpose
• Identify some key changes in the business environment.
• Discuss some global trends in management and
• Provide an overview of the framework of managing growing pains.
• To discuss the transitions required to create sustainably successful organizations.
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Trends In Management
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Global Trends in Business and Management
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Trends In Management
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Global Travel Since 2000
• Australia
• Austria
• Cambodia
• China
• Hong Kong
• Ecuador
• Egypt
• Kazakhstan
• Germany
• Great Britain
• Greece
• Italy
• India
• Morocco
• The Netherlands
• Peru
• Rwanda
• Russia
• Switzerland
• South Africa
• Tanzania
• Turkey
• Ukraine
• Vietnam
• Venezuela
• Zimbabwe
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Trends In Management
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Global Trends in Business lead to trends in management
• There are three key “mega-trends” in business that are driving changes in management:
1) The aftermath of the global crisis that occurred in 2007-09:
1-1 Low interest rates for much longer than many people expect
1-2 An excess of resources (commodities, capital and labor).
2) Consolidation of industries.
3) The end of the super cycle of growth in China.
• The “bottom line” implication: Greater competition in business for survival and growth
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Trends In Management
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Global Trends in Management
• The number one trend is an increasing analytical approach to management:
– Away from the what is termed “seat of pants” style of management that characterizes unsophisticated companies and under-developed nations.
– Driven by increasing global competition attributable to the internet.
– Even seen in sports:
• NFL Combine uses the Wonderlic Cognitive Intelligence test
• “MoneyBall” in baseball
• Statistical analysis in basketball
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Global Trends in Management:More Powerful managerial Tools
• The development and use of managerial tools:
– Methodologies for Strategic Planning
– Methodologies for Performance Management
– Methodologies for Culture Management
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Trends In Management
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Global Trends in Management:Big Data
Big Data
Big Data, IoT At Heart Of GE Predictive Analytics
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Global Trends in Management: Business Assessment Data
• A related trend is the use of data from measurements of previously unmeasured aspects of business:
– Growing Pains
– Degree of Strategic development of business
– Culture’s impact upon financial performance
– The value of human capital and intellectual property
– “Big Data”
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Global Trends in Management: New Roles
• A trend toward appointment of new roles such as:
– Chief Culture Officer (e.g.: Google)
– Chief Infrastructure Officer (Predicted)
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There are two Strategic Choices for Businesses
• Try to become one of the top three to five largest organizations in and industry, or become an elite boutique.
• Learn to manage more scientifically by using measurements and data and not intuition, hunch or “by the seat of your pants.”
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Trends In Management
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Managing Growing Pains
Building Sustainably Successful Organizations
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Trends In Management
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OBJECTIVES:To provide an understanding of
• What are organizational growing pains?
• What causes growing pains?
• How to measure growing pains
• How to and assess their degree of severity (risk) and
• How to manage them to minimize risk to continued organizational success.
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What are Growing Pains?
• Growing Pains are symptoms of organizational distress.
• They are a symptom that something has gone wrong in the process of developing an organization.
• They are a warning that future problems will be encountered, including (at an extreme) the possibility of organizational failure.
• They are a signal to make a transition in the way an organization is being managed.
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Ten Classic Growing Pains
• People feel that there are not enough hours in the day.
• People are spending too much time “putting out fires.”
• Many people are not aware of what others are doing.
• People lack understanding of where the company is heading.
• There are too few good managers.
• Everybody feels “I have to do it myself if I want to get it done correctly.”
• Most people feel our meetings are a waste of time.
• When plans are made, there is very little follow-up and things just don’t get done.
• Some people feel insecure about their place in the company.
• The company has continued to grow in sales, but not in profits.
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Trends In Management
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What Causes Growing Pains?
• Growing pains occur when something has gone wrong in the process of “organizational development”.
• Growing Pains occur when the “Organizational infrastructure” is not consistent with the size of an organization (measured in revenues).
• Conceptual Definition: “Infrastructure” refers to the organizational resources, systems required to support both the day to day and longer term operations and growth of an enterprise.
• To understand growing pains we must understand the process of “organizational development”.
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Trends In Management
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Causes of Organizational Growing Pains
Organizational
Size
and
Development
Time
Organizational
Development
Gap =
Growing Pains
Revenues
Infrastructure
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Organizational Success and Failure
• Research on organizational success and failure
• The Ultimate Objective: to provide some frameworks and tools you can use to create sustainably successful organizations.
Performance Management
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Research on Organizational Success and Failure
Financial Performance• Gross Margin (Gain)• EBT• ROI• Shareholder Value
Model for Strategic
Organizational Development
The “Pyramid of Organizational Development”
A Life Cycle Model
7 Key Stages of Organizational
Growth
Measures of Organizational
Health/Distress
•Growing Pains•Organizational Effectiveness
•Degree of Risk
Tools:• Strategic
Planning • Management
Development• Performance
Management• Culture
Management
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Research:Three Fundamental Questions
• What is required to build a successful organization?
• Why are some organizations successful and others not successful over the long term?
• What can be done to increase the probability of building a sustainably successful organization over the long term?
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Trends In Management
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Organizational DevelopmentSuccesses and Failures:
Paired Comparisons
Successes Failures / Difficulties
Starbucks Boston Market
PacifiCare MaxiCare
Southwest People Express
Nike L.A. Gear
Walmart K-Mart
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Trends In Management
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Walmart vs. K-Mart, 1990’s
* Adjusted for splits
$-
$50,00
$100,00
$150,00
$200,00
$250,00
$300,00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Sto
ck P
ric
e*
Year
Walmart K-Mart
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Walmart vs. K-Mart, 2000-2003
$-
$50,00
$100,00
$150,00
$200,00
$250,00
2000 2001 2002**
Sto
ck P
rice
*
Year
* Adjusted for splits
** K-Mart filed for Chapter 11 bankruptcy during 2002.
Walmart K-Mart
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Trends In Management
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Walmart vs. K-Mart
Key Building Blocks Walmart Kmart
Culture andCulture Management
+ -
Management Systems
+ -
Operational Systems + -
Resources + -
Products Same Same
Markets Same Same
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Trends In Management
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Starbucks vs. Boston Market, 1990’s
* Adjusted for splits
$-
$20,00
$40,00
$60,00
$80,00
$100,00
$120,00
1994 1995 1996 1997 1998 1999
Sto
ck P
rice
*
Year
Starbucks
BostonMarket
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Trends In Management
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Starbucks vs. Boston Market, 2000-2003
* Adjusted for splits
** Boston Market’s last day of trading was May 27, 2000. The company filed for Chapter 11 bankruptcy in October of 1998.
$-
$50,00
$100,00
$150,00
$200,00
$250,00
$300,00
2000** 2001 2002 2003
Sto
ck P
rice
*
Year
Starbucks
Boston Market
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Trends In Management
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The Strategic “Lens” for Building Successful Organizations
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Critical Tasks of Organizational Success
• Development of an appropriate Business Foundation.
• Identification and definition of a viable market to serve.
• Development of appropriate products and/or services.
• Acquisition and/or development of resources required to operate and grow the organization.
• Development of the operational systems necessary for the organization to function on a day-to-day basis.
• Development of the management systems required for the overall functioning of the organization on a long-term basis.
• Development and effective management of the organizational culture.
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Trends In Management
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Pyramid of Organizational Development™
Personnel:
• Hiring• Compensation
Corporate Culture
Values Beliefs Norms
Management Systems
Planning OrganizationManagementDevelopment
Perf.Mgmt.
Operational Systems
Resources Management
Products & Services
Markets
Accounting:
• Billing• Payroll
Production:
•Shipping
Marketing:
• Selling
Financial Resources
Technological andPhysical Resources
Human Resources
Develop Products (Services)
Define Market Segments and Niche
Business Foundation Business Definition Strategic Mission Core Strategy
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Trends In Management
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Six Key Drivers of Financial Results, “Building Blocks” of Organizational Success, and Sources of Potential
Competitive Advantages
Resources
Management Systems
Operational Systems
Corporate Culture
Products
Markets
FinancialPerformance
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Organizational Infrastructure
• The top four variables comprise the “organizational infrastructure”
• The top two (management systems and Culture) comprise the “management infrastructure
• The middle two (resources and operational systems) comprise the “operational infrastructure.”
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Organizational Infrastructure
• Operational definition: Infrastructure consist of the top four variables comprising the key strategic building blocks of an organization, which we call the Pyramid of Organizational Development.
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Cause of Growing Pains
• Growing Pains occur when the “Organizational infrastructure” is not consistent with the size of an organization (measured in revenues)
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Trends In Management
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Causes of Organizational Growing Pains
Organizational
Size
and
Development
Time
Organizational
Development
Gap =
Growing Pains
Revenues
Infrastructure
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Trends In Management
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Implications of infrastructure
• This has important implications for competitive strength
• Infrastructure is the key to understanding growing pains.
• Growing pains occur when infrastructure is not sufficient to support the size and complexity of organizations
• Key implication: You win with infrastructure
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Trends In Management
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Levels of Strategic Organizational Development and
Organizational Success
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Type 1
OS
R
P
M
Type 2
C
OS
R
P
M
Type 3
C
MS
OS
R
P
M
Three Types (Degrees) of Organizational Development
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Trends In Management
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The Management System
Planning System
Compensation
Organization
Operations
Performance Review Meetings
Performance Appraisal
ResultsPerformance Measurement
System
Management Development
System
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CULTURE
MANAGEMENT SYSTEMS
OPERATIONAL SYSTEMS
RESOURCES
MARKETS
PRODUCTS/SERVICES
5 = High 1 = LowStrengths Opportunities to Improve
Quantitative Assessment of Strategic Organizational Development
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Standard Pyramid Development Scores Required for Different Levels of Success (Operational
Excellence) Over the Long Run
Level SuccessRequired
Pyramid Score
I Global Leaders 4.50+
II Superior 4.00+
III Successful 3.50+
IV Marginally Successful 3.00+
V Unsuccessful < 3.00
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Sample Companies of Level of Success
Level SuccessRequired
Pyramid Score
I SBUX, Apple, Exxon 4.50+
IINike, Ritz-Carlton, Amgen, Wells Fargo Bank, Toyota
4.00+
IIIMövenpick, Li Ning, Techcombank, ThompsonReuters, Allianz
3.50+
IV GM, Nokia, 3.00+
V K-Mart, Sears < 3.00
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Measuring
Organizational Development
The Management Systems Organizational Effectiveness Survey©
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The Management Systems Organizational Effectiveness Survey©
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Organizational Effectiveness Survey (OES)
• The Management Systems Organizational Effectiveness Survey© is a validated instrument.
• The survey consists of 65 items that measure the extent to which an organization has developed the systems and structures needed to support its growth and/or stage of development
• For an organization to have the highest probability of success over the long-term, it needs to effectively manage all six levels in the Pyramid of Organizational Development plus Financial Results, individually and as a system.
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Survey Scoring
• Items on this survey are scored on a 5-point Likert scale, with the following meanings:
Score Meaning
1 To a Very Slight Extent
2 To a Slight Extent
3 To Some Extent
4 To a Great Extent
5 To a Very Great Extent
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Mean (Average) Scores
Results and Analysis
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OES Mean Score Interpretation
Score Range Color Interpretation
4.5-5.0 Green To a Very Great Extent
4.0-4.4 Yellow To a Great Extent
3.0-3.9 Orange To Some Extent
2.0-2.9 Red To a Slight Extent
1.0-1.9 Purple To a Very Slight Extent
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Management Systems’ Database:Distribution of Overall Strategic
Organizational Development Scores
Mean Score Percent
4.5-5.0 Less than 1%
4.0-4.4 3%
3.5-3.9 26%
3.0-3.4 50%
< 3.0 20%
< 2.0 Less than 1%
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The Pyramid and Financial Performance
Our research indicates a strong statistically significant relationship between the variables included in the Pyramid and financial performance:
• Gross Margin
• EBIT
• ROI
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Empirical Research Summary
• The extent of development of the Pyramid (organizational development) has a direct impact on financial results.
• The development of the Pyramid has a direct impact on Growing pains:
– High Pyramid (OE) Scores result are associated with lower growing pains (GP) scores & vice versa.
• Growing pains have a direct inverse impact on financial results.
• A “leadership molecule” is associated with higher organizational development (Pyramid) scores.
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Managing The Stages of Growth
• There are seven stages in the life cycle of organizations.
• Our research has indicated that the stages can be identified by revenue levels.
• At each stage there is a key developmental problem or task.
• At each stage all of the variables of the Pyramid must be managed individually and holistically.
• At each stage the key task accounts for approximately 70% of success.
• When organizational size (measured in revenues) exceeds the capacity of the infrastructure, growing pains occur.
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Management EmphasisDepending on Stage of Growth
StageOverall Strategic
MissionManagement Should Focus On:
I Proof of Concept Markets and Products / Services
II Scale Up Resources and Operational Systems
IIITransition to Professional
ManagementManagement Systems
IV Complete the Transition Culture
V New Growth Opportunities Replication of Cycle
VITransition to Multidivisional
BusinessesIntegration of Multiple Businesses
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Stages of Growth ($)
Stage DescriptionSIZE OF ORGANIZATION (REVENUES)
Critical Development Area
Manufacturing Distribution Service
I New VentureMarkets and Products/Services
Less than $1 million
Less than $500,000
Less than $300,000
II ExpansionResources and Operational Systems
$1 to $10 million
$500,000 to $5million
$300,000 to $3 million
III ProfessionalizationManagement Systems
$10 to $100 million
$5 to $50 million
$3.3 to $33 million
IV Consolidation Corporate Culture$100 to $500million
$50 to $250 million
$33 to $167 million
V DiversificationReplication of the Cycle
$500 million to $1 billion
$250 to $500 million
$167 to $333 million
VI Institutionalization Integration $1 billion + $500 million + $333 million +
VII Decline Revitalization Any Size Any Size Any Size
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What happens when an organization has not made the successful transition from one
stage of development to the next?
Growing Pains
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What are Growing Pains?
• Problems which occur as a result of inadequate organizational development in relation to business size and complexity.
• A common set of symptoms that something has gone wrong in the process of organizational development.
• A signal of the need to make the transition from one stage of organizational development to the next.
• A set of leading indicators of future financial performance.
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Classic Growing Pains
• People feel that there are not enough hours in the day.
• People are spending too much time “putting out fires.”
• Many people are not aware of what others are doing.
• People lack understanding of where the company is heading.
• There are too few good managers.
• Everybody feels “I have to do it myself if I want to get it done correctly.”
• Most people feel our meetings are a waste of time.
• When plans are made, there is very little follow-up and things just don’t get done.
• Some people feel insecure about their place in the company.
• The company has continued to grow in sales, but not in profits.
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Trends In Management
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Measuring Growing Pains
The Management Systems
Growing Pains Survey©
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The Management Systems Growing Pains Survey©
● The Management Systems Growing Pains Survey© consists of 10 items that measure the
extent to which an organization is experiencing growth related problems in moving from one stage of development to the next.
● Scores range from a low of 10 to a high of 50.
● For an organization to have the highest probability of success over the long-term, it must control (minimize) the extent of its Growing Pains.
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Measuring
Growing Pains Severity (Risk)
How to interpret Growing Pains Scores
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Growing Pains Scoring Interpretation
Score Range Color Interpretation
10-14 Green Everything is “OK”
15-19 Yellow Some things to watch
20-29 Orange Some areas need attention
30-39 RedSome very significant
problems
40-50 PurpleA potential turnaround
situation
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Management Systems Global Database:Percentile Scores for Overall Growing Pains
GP Score Percent
10-14 3%
15-19 7%
20-29 50%
30-39 38%
40+ 2%
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Growing Pains vs. EBIT*
* The regression equation is y = -0.8857x + 28.107, R2 = 0.4936, and is statistically significant at 0.0035.
y = -0.8857x + 28.107R² = 0.4936
-15
-10
-5
0
5
10
15
20
10 20 30 40
% E
BIT
Growing Pains Score
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Growing Pains and Financial Performance
• High growing pains= low financial performance
• Low growing pains= high financial performance
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Trends In Management
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Predicted Future Global Trends in Management
• Development of a Chief Systems Officer responsible for infrastructure development and management.
• Development of a Chief Organizational Development Officer responsible for organizational development.
• Increasing sophistication of mangers requiring validation of managerial frameworks, methods, and tools.
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Results for Companies in Poland
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Management Implications
• The key drivers of organizational success are the variables comprising the Pyramid of Organizational Development.
• When the Pyramid is not build well and the infrastructure is not appropriate to the stage of growth (“size” ) of the business, growing pains will occur.
• The faster a company grows, the more difficult it will be to create an equilibrium between size and infrastructure.
• Ultimate an organizational “wins” with infrastructure!
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The Pyramid of Organizational Development™
• Helps companies continue to grow successfully.
• Helps companies avoid the pitfalls that lead to under performance and even failure.
• Helps focus development of competitive advantage.
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Organizational Infrastructure
• The top four variables comprise the “organizational infrastructure”
• This has important implications for competitive strength
• It is the key to understanding growing pains, which occur when infrastructure is not sufficient to support the size and complexity of organizations
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Trends In Management
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Final Comments• All new ideas and approaches have these two characteristics:
– Threat or danger
– Hidden opportunity
• There are dangers to change.
• However, there are hidden opportunities and great benefits as well.
• These methods just described are a source of sustainable competitive advantage
• Example: Starbucks
– Starbucks’ product is a commodity.
– Yet Starbucks has become a global brand and a dominant company.
– Starbucks used this approach during its early years.
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The Challenge for Business Enterprises in Poland
• Which companies will take leadershipin applying these methods in Poland?
• Which will become global leaders like Starbucks?
• The Polish Agency for Enterprise Development has issued a challengeand provided a first step.
• The next step is yours!
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Further Reading in Building Sustainably Successful Organizations
• Eric Flamholtz and Yvonne Randle, Growing Pains, 4th edition, Jossey-Bass, 2007
• Eric Flamholtz and Yvonne Randle, Growing Pains, 5th edition, Jossey-Bass, 2016, (forthcoming)
• Eric Flamholtz and Yvonne Randle, Creating Successful Family Businesses, Stanford University Press, 2016 (forthcoming)
• Eric Flamholtz and Yvonne Randle, Corporate Culture: The Ultimate Strategic Asset, Stanford University Press, 2011
• Eric Flamholtz and Yvonne Randle, Leading Strategic Change, Cambridge University Press, 2011
• Eric Flamholtz and Yvonne Randle, Changing the Game, Oxford University Press, 1998
• Eric Flamholtz, Effective Organizational Control, Kluwer Academic Publishers, 1996.
• Eric Flamholtz, Human Resource Accounting, Third edition, Kluwer Academic Publishers, 1999.
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Further Reading
• Flamholtz, E. (1995). Managing Organizational Transitions: Implications for Corporate and Human Resource Management. European Management Journal, 13 (1), 39-51.
• Flamholtz, E. (2001). Corporate Culture and the Bottom Line. European Management Journal, 19 (3), 268-275.
• Flamholtz, Eric. Towards Using Organizational Measurements to Assess Corporate Performance, Journal of Human Resource Costing & Accounting, 2009
• Flamholtz, E. (2003). Putting Balance and Validity into the Balanced Scorecard. Journal of Human Resource Costing and Accounting, 7 (3), 15-26.
• Flamholtz, E.G., Bullen, M.L., and Hua, W. (2003) Measuring the ROI of Management Development: An Application of the Stochastic Rewards Valuation Model. Journal of Human Resource Costing & Accounting, Spring, pp. 21-40.
• Flamholtz, E. (2005). Conceptualizing and measuring the economic value of human capital of the third kind: Corporate culture. Journal of Human Resource Costing and Accounting, 9 (2), 78-93.
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