Understanding the History

The relationships among these four business situations are depicted in the ST _A RS model of business evolution shown in figure 3-1. The key point is that businesses (and, for that matter, projects, processes, products, and plants) tend to move predictably from one type of situation to another. Understanding the history of your new organization will help you grasp the challenges and opportunities of your situation.

Figure 3-1: The ST _A RS Model

Let us start, fittingly, with start-ups. Successful start-ups grow and eventually become sustaining -success situations. Often the individuals who managed the start-up move on to tackle new start-ups, and managers more experienced at running larger businesses take over. These successful businesses may in turn give birth to internal start-ups as they diversify into new products, services, processes, or technologies. In this way, healthy companies enter a growth cycle .

But entropy increases . Successful businesses tend, because of internal complacency or external challenges or both, to drift toward trouble. Even if the organization is not yet in crisis, acute observers see gathering storm clouds that signal a need for realignment . This was the situation facing Claire Weeks, who failed to recognize it early enough. Realigning an organization usually means redirecting its resources, such as by abandoning aging product lines and developing new technologies. It often means changing the organization s strategy, structure, skills, and even its culture in fundamental ways. Realigning the business returns it to a sustaining-success state, designated in the model as the recovery cycle . One of the main hurdles of realignment is that many in such organizations, like Claire Weeks, are in denial about the situation. They continue to believe they are sustaining success even as they are heading for trouble.

If efforts to realign the business fail, it can end as a full-scale turnaround. This happens when prior leaders failed to see the need for realignment. (After all, businesses rarely go directly from sustaining success to turnaround .) No matter why this happened , there is rarely argument about the need to make big changes fast if the situation is dire, the business is losing money, and its best talent is jumping ship. Turning around a failing business requires the new leader to cut it down to a defendable core fast and then begin to build it back up. This painful process, if successful, leaves the business in a sustaining-success situation, as illustrated by the crisis cycle in figure 3-1. If efforts to turn around the business fail, the result is shutdown or divestiture.

It is important to understand these cycles. You cannot figure out where to take a new organization if you do not understand where it has been and how it got where it is. In a realignment, for example, it is essential to understand what made the organization successful in the past and why it drifted into trouble. To understand your situation, you have to put on your historian s hat.