Chapter 5. The Second Birth and the Coming of Age: Adolescence

During the Adolescent stage of the organizational lifecycle, companies are reborn. The transition from Courtship to Infancy is comparable to physical birth. In Adolescence it's an emotional rebirth: companies find life apart from their founder or from any management that behaves like a founder. In many ways, the company is like a teenager trying to establish independence from family-any family.

Rebirth is more painful and prolonged than the physical birth of Infancy. Conflict and inconsistency characterize the behavior of Adolescent organizations. They are recognizable by their

• Us-versus-them/old-timers-against-newcomers mentality

• Inconsistency in organizational goals

• Inconsistency in compensation and incentive systems

Those traits mean many unproductive meetings, and they can bring about the departure of entrepreneurial leadership and the demise of the organization. In Figure 5-1, the Z symbol on the curve between Go-Go and Adolescence pinpoints this transitional stage.

DIAGRAMA Figure 5-1: Adolescence

Why is the transition from Go-Go to Adolescence so difficult? There are three principal challenges:

• Delegation of authority

• Change of leadership

• Goal displacement

Delegation of Authority

The move to Adolescence requires delegation of authority. In a soci- ety, this move is analogous to the transition from an absolute monar- chy to a constitutional monarchy, headed by a king who abides by a constitution. The founder must say, "I am willing to subject myself to the policies of the company rather than have the company be subject to my policies, which frequently change. I will be bound by the same policies that bind everyone else." It is rare that a king voluntarily yields his absolute power. To the best of my knowledge, only the King of Thailand-and maybe King Carlos of Spain-yielded absolute power without the pressure of a revolution. By and large, such changes are accompanied by revolutions. Revolution erupts not just because the king loves power and does not want to relinquish it, but also because the king has developed behavior based on circum- stances that may no longer be relevant. He has trouble changing his behavior to fit the new environment.

In the Adizes Institute, I am subject to this phenomenon too. Being a doctor does not make one immune to illness. At the Institute, we spend a lot of time developing rules that I am often the first to break. Why? When there is a change in the circumstances upon which a policy was based, I find myself changing the policy then and there, rather than requesting that the person with that par- ticular responsibility attend to the problem. My behavior is a remnant of Infancy, when I had to make on-the-spot decisions by myself. And I loved that sense of power and independence. Now, with the company in its Adolescence, when I seek the same thrill, it's no longer appropriate.

This desire to impose rules and policies without being subject to them has its price. When I violate policies, others follow my example. We end up with a set of policies that no one follows, causing the organization to behave unpredictably and emphasizing my sense of losing control.

You can't command your teenage daughter the way you did when she was a cute little baby. If you demand and insist too much, she will likely rebel, and you might lose her altogether.

Some leaders have the role of president, but they insist on act- ing as chief salesperson, bill collector, product innovator, and financier. They must move away from their Lone Ranger style of management. Specialization is required now that the business has outgrown the founder's individual capabilities. There are not enough hours in the day for anyone to manage the organization as a one-person show. The trick is to delegate authority without losing control. It's not easy. Founders want to do it; they just don't know how, and they fear the potential repercussions.

During Infancy, founders don't and shouldn't delegate responsibility for major decisions. As a result, they become the major depository of critical information on company decision-making. This, however, is a double-edged sword. Employees probably don't have enough information to make decisions of the same quality as the founders, and that means the founders must take charge at crucial points. The longer founders hold on, the longer it takes others to learn how to make and implement their own good decisions. The lack of del- egation creates an environment which prohibits further delegation.

From crisis to crisis, leaders of Adolescent organizations begin learning how to delegate. They give the troops chances to prove themselves. In the beginning of this process, they are as incompetent at delegating as their subordinates appear to be at making decisions.

With the first signs of a potential mistake, the leaders quickly recen- tralize authority. Such behavior is normal-up to a point. It becomes pathological when leaders continue to repeat the behavior, no mat- ter how competent their people are: They are falling back into the founder's trap. In despair, founders often resolve to find profession- al managers who can lead them through the nightmare of decentralization. This step can happen either by hiring an individual or by selling the company to a more professional "parent." Let us focus on the difficulties that stem from bringing in a professional manager. I will discuss the difficulties associated with selling out in the section on acquisitions and takeovers.

Change in leadership-From Entrepreneurship to Professional Management

Bringing in a professional manager changes the leadership of the company. 2 In this context, leadership implies a process of changing organizational culture-taking the company from one stage of the The Second Birth and the Coming of Age: Adolescence 81 lifecycle to the next. In reality, it means taking the organization from one set of problems to another. Leadership calls for resolving today's normal and desirable problems and preparing the company for the problems it will face tomorrow. The new manager must be a leader, not another gofer imported to carry out the founder's decisions. This new person is a chief executive officer, a chief operating officer, or an executive vice president, whose purpose is to take over from the founder.

DIBUJO

She or he is there to get the gorilla off the founder's back and solve the problems of the Go-Go organization. The company must become more professional-less intuitive in its decision-making- opportunity-driving rather than opportunity-driven. This new leader should create systems, design compensation packages, redefine roles and responsibilities, and institutionalize a set of rules and policies. He will be saying "No! No! No!" to a company used to hearing only "Go! Go! Go!" from its founder.

What type of leaders do Adolescent companies need? Infant organizations need leaders oriented toward risk-taking and results- results-oriented doers willing to step forward and make commit- ments: "Here is my $10,000. Who else is in?" Go-Go companies have achieved some success with their original ideas and have started to explore new options. They need to get past their product-oriented myopia. In addition to their short-term orientation, they need a mar- ket orientation. The Go-Go leader's job description matches the profile of a typical business entrepreneur: creative and results-oriented. But Go-Gos run into problems as they approach Adolescence. That's when emphasis must switch to systems, policies, and administration. Adolescent companies need leaders with a totally different set of skills.

Many founders recognize that the needs of their companies have changed, and they realize that they lack the requisite skills and interest to continue to lead their companies. They try to satisfy the need by hiring professional managers from the outside. It doesn't take long to discover that the "hired guns" are not like them. The professionals come to work on time, and-heaven forbid-they leave on time. They sit in their offices all day long with their computers and paperwork. They don't talk much, but when they do, they usually say what not to do. They're not particularly open or friendly.

Gradually, it dawns on the founders how different the hired guns are from themselves: "This guy is not like me. If I had run the82 What Is Going On? company like he does, we never would have gotten this far." Such logic starts a revolving-door syndrome. The hired managers get fired because they "don't fit in." That's when founders try a different kind of administrator, someone who "is like us and doesn't sit in his office all day."

That solution doesn't work either. Everyone may like the new administrator who is out selling now, but there seems to be no leadership. The new guy isn't getting the company organized, and, still, there are no systems in place. But the biggest problem is that the new leader is not controlling the founder. "We need someone stronger than that person," the people say. However, when a stronger person is brought in, it is too upsetting to the organization's culture. The founder feels threatened, and, once again, the revolving door is turning. The paradox is that the founder is looking for "someone like us," who will "do the things we do not do." Inconsistent demand, right?

The founders are looking for pilots who can fly submarines. What they must realize is that the leadership style required for Adolescence is different from that required in the earlier stages. For this critical transition, Adolescent companies don't need leaders like their founders; the new leaders need to complement the founders' style.

To ensure healthy transitions into Adolescence, founders must pass the baton to the administrators at precisely the right time.

Good management is not a marathon race. It is a relay race.

When is the right time? The right time should be when the com- pany is doing well, so there are no excessive pressures to go out and sell. The situation should not force the wrong style of leadership.

Are you puzzled? Are you asking, "If the revenues are fine and the company is doing well, why change the leadership?" It's time just because there is no pressure! If the transfer occurs when the company is facing a crisis, inwardly turned leadership is not popular.

It's difficult to pass the baton. At this stage of the lifecycle, the organization is disorganized, and, to an outsider, everything appears confused and confusing. The company's organization chart can't possibly fit on one piece of paper. Everyone and his brother report to the founder for one reason or another. The compensation system is a patchwork of special deals that have turned into policies through default. There is no management depth. Organizational behavior mirrors the founder's behavior, and the style is best compared to a guerrilla or partisan culture.

Employees are always talking about the old days, and they have their own rituals and pecking order. Seniority is often rewarded by founders desperate for stability. 4 Because there are no documented policies, the senior people serve as the organizational memory. If they leave, their departure throws everything into chaos until someone else figures out how to do their jobs. Their indispensability gives those senior people immense political power.

Furthermore, the founders-who remember that the senior people stuck with them through Infancy-value loyalty. The seniors and the founders carry the same scars. Founders listen to their old- timers.

Such is the environment that must now receive new managers charged with "professionalizing" operations. Their efforts to develop rules and policies are perceived as direct attacks on partisan seats of power. Long-time employees generally resist the newcomers' efforts. When a newcomer tries to grasp the levers of power, the real battle begins. The old power structure bypasses the new chain of command, going directly to the founder to complain about the new boss.

"He is ruining morale."

"She doesn't understand how this company works."

"He is going to destroy this company."

And the final blow: "He or she doesn't do it the way you do it."

Whom does the founder support? The new administrator? Probably not. So, the new person is forced to resort to hiring his own supporters to outflank the "old boys" in the organization. Sides are chosen and guerrilla tactics prevail. Antagonistic cliques create an us-versus-them culture.

Some administrators try to establish new incentive systems that remove personal bias in favor of objective rewards based strictly on performance. Such systems arouse opposition from the old-timers, who risk losing their special deals. The new administrators may also want to restructure jobs and reassign responsibilities. That, of course, is attacked by the old-timers, who fear losing their power bases. New managers face opposition everywhere they turn.

In most companies, however, the biggest source of problems is the founder who hired the manager in the first place. It is the founder who supplies all the priorities for new projects and products; and, as usual, those ideas are neither fully planned nor articulated. The new manager is requested to develop a budget, and goes to great lengths to prepare it. It's probably the first budget the organization has ever prepared on time, but the new activities the founder wants or has already started are not included. The founder changes his mind faster than the professional manager can change budgets. The founder is the first to violate the administrator's newly established policies and procedures.

The old-timers watch "the game." When the founder sets the example with the first violation, they assume the professional manager is a lame duck and that all rules are subject to violation. Guess who gets called on the carpet? Guess who has to explain why the new budgets, rules, and policies are not being followed? Of course it's the new manager. Such treatment is enough to cause the manag- er to develop a strong persecution complex, as well as intense dislike for the founder and his or her old buddies. The manager sees herself in a no-win situation and begins to wonder why she accepted the job in the first place. She feels impotent, exhausted, disliked, and completely unrecognized for her attempts to make a contribution to the organization.

In some companies, we see a reverse syndrome occurring when their entrepreneurial leaders realize they can no longer drive their companies from the back seat. Their professional managers tell them so. Their boards of directors tell them to get out and let the company be. Even some employees openly hint that a transfer of leadership is absolutely necessary.

So the founders abdicate. They truly pull away. But their companies, having been structured around their founders' preferences, lack task-based structures and institutionalized systems of governance. Because those companies have no systematic way to make decisions or make course corrections, their new managers find them- selves with virtual blank checks. I have seen situations where the new management goes on shopping sprees: buying computers, hiring consultants, appointing administrators, and spending money, all in the name of controls and systems.

While those controls are necessary, revenues might not support such profligate spending. The professional managers are used to control-they aren't sellers-and they often spend the money to increase controls on companies with flagging sales. The founders feel the real pain now. They feel as if someone has hijacked their companies. They are damned if they get involved and return to back-seat driving, and they are damned if they sit on the sidelines watching their companies get ruined.

The pain of raising an organization in Adolescence is real and often prolonged.

Goal Displacement

A further complication in the transition of authority is that companies must undergo a displacement of goals.

They must switch from a more-is-better goal to a better-is-more goal: from working harder to working smarter.

If you ask leaders of Go-Go companies how business is going, they typically answer, "Great! Sales are up 35 percent." If you ask about profits, they are less expansive. "Gee, I don't know. Ask accounting." The orientation of Go-Gos is toward more sales; they assume that higher sales mean more profit. They run their business- es as if the profit margin on sales were fixed. That attitude can get Go-Gos into trouble.

Many actually lose money when sales increase. When someone finally adds up all the direct and indirect costs of sales, it often turns out that the companies are losing money. Why did nobody know that? Typically, it is because Go-Gos have so many products, in so many markets, with so many special (and continuously changing) price deals that it is impossible to keep up with all the data. The accountants usually figure it out-about six months too late to make a difference.

Due to such turbulence, morale starts to decline, and good people leave or show signs that they might leave. Founders, desperate to keep the show together, try to buy employees' commitment and offer stock and/or profit sharing. Those moves create a new set of problems: political problems. Whereas in the past the employees had tried to control their founders' behavior, now, they believe they should control it. After all, now they own a piece of the action, and the founders are endangering their assets. The employees start to confront the founders.

Profit sharing presents additional problems. To create new incentive systems, organizations must develop clear responsibilities, authority structures, and information systems that evaluate individ- ual performances. Without those guidelines, profit sharing is like a windfall, and unless the windfall is very high, it neither creates higher commitment nor controls management turnover. It functions more like a bribe.

Although everyone wants the business to run smoothly, most people have negative responses to those organizational initiatives: "My department's fine. Go work on sales, that's where the problems are." But to make the transition, everyone must participate in the restructuring, and to be effective for the long run, the reorganization must be based on trust and respect.

For a transition to be effective, it must follow the correct sequence of events. It takes time to effect changes-lots of thinking time in the office, away from the firing line, where most of the action has been taking place. But leaders of Adolescent organizations don't want to spend time in the office. They are still really Go-Gos at heart. They want to get organized, while sustaining the same rate of growth. The problem is, they must relax the hectic pace of sales in order for systematization to take place. A typical Go-Go solution to this problem is, "Fine, we'll just get organized faster." So they buy computers to speed up the process, often calling it reengineering. But not having devoted time or energy to consideration of their organizational needs, they merely computerize their ignorance. Now they have the ability to make mistakes faster.

Furthermore, in the absence of a task-based structure that specifies responsibilities and authority for making decisions, the computer produces plenty of data and no useful information. Information is organized data upon which people can base decisions. In Adolescence, it is far from clear who actually makes decisions. So, although the computer works overtime, it's producing data, not information.

Many times, I've had to insist that my clients abort their com- puterization process or their reengineering project: They were designing processes without having aligned the structure. The process of reengineering and its computerization were actually unhealthy for their organizations. They froze their companies to certain structures that were dysfunctional. They were institutionalizing the wrong power structures. They were legitimizing what was ratherThe Second Birth and the Coming of Age: Adolescence 87 than realigning components to achieve the future. Later, when the structure has to change, it's impossible. The computerization and process engineering has to be redone to reflect the new structure, and, because the organization needs to reengineer systems that have already undergone reengineering, the process becomes so financial- ly and emotionally taxing that people avoid it. If attempted, it caus- es all hell to break loose. Everyone warns, "The computer systems and the business processes cannot handle it." Like a badly set broken arm, it needs to be broken again before it can be fixed properly. Who wants to endure that pain?

The end result of these three factors-delegation of authority, changes in leadership, and goal displacement-is conflict with a capital "C." This conflict has many dimensions. It includes the conflict between:

• old-timers and newcomers

• founders and professional managers

• founders and their companies

• corporate and individual goals

Normal vs. Pathological-The Divorce

Founder's Trap Infant Mortality Affair Figure 5-2: The Divorce

DIAGRAMA

he conflicts manifest themselves in cliquish behavior. Management and employees gravitate into cliques-factions for and factions against any particular project, system, or individuaP The conflict and resultant pain causes personnel turnover, especially among entrepreneurial types.

"It's not fun anymore."

"We're not dealing with clients or with the products."

"We've forgotten why we're here. We're only fighting."

The energy that was dedicated solely to the market and promulgation of service, now turns almost totally inward. People waste energy on internal fights, regulating conflicts that are feeding, or being fed, by the rumor machine.

In companies that were established by a partnership or cofounders, the more creative, risk-taking partners may be perceived as threats to the efforts for stabilization. The more stable, better-organized partners, the administrators, resist their creative partners and fight to oust them.

In companies where the entrepreneurs retain control, they fire the administrator, once again starting the revolving door for administrators.

If an external board of directors has control, the professional manager or the administratively oriented leader and the board develop an alliance. When that happens, there is a good chance that the entrepreneurial founder will be squeezed out and the administrator will become chief executive officer.

An alliance with the administrator develops when the board realizes that the power struggle is not only between the administrator and the entrepreneurial leader. The conflict is also raging between the board and the entrepreneurial leader. As long as the entrepreneur was successful, the board didn't mind that, in reality, it had limited authority. Now that the entrepreneur's results are less impressive and the mistakes of the Go-Go leader are having a bad effect on the company, the board insists on having control. By the time the board has installed the administrator as chief executive officer or president, it has the authority it wants. And unlike the entrepreneurial leader, the new president is willing to accept that.

The most painful transition occurs when the leaders' partnership also involves family-spouses, parents, children, and other relatives. When the lawyers are called in, close families break up, and people stop talking to each other. The Dart family owned Crown books. Two years before everything blew up, I warned Robert, the son who challenged the authoritarian father, that they would soon find themselves in a struggle for control.

The restaurant chain Carl's Junior provides another example. Carl Senior built the company from nothing, peopling the board of directors with his friends and cronies. They, he believed, would vote with him and for him no matter what. But, when his company entered the Go-Go stage, Carl Senior started to hyperventilate managerially. Success went to his head, and he went into new concept development and real estate development. He started borrowing money from the company as if it were his own. Granted, it was his-but not all of it. The board started to worry. It was liable and responsible for the company. So the buddies of yesterday became the enemies of today, and the board initiated a palace revolt to force their old pal out. I followed the newspaper accounts of the story, imagining the pain Carl Senior was experiencing. His own baby was turning against him.

It was all predictable. Nevertheless, did I predict it when it happened to me?

As the Institute was doing well, I got the idea-or should I call it the knee-jerk idea-of opening a first-class restaurant. Why? Why not? I had no problems. I was doing well, and I had the right experience: I had been a consultant to many restaurant chains. Why shouldn't I let my expertise serve my own organization? My wife also loved the idea. The location I had chosen had enough space to accommo- date her dream: a gallery for contemporary art.

In reality, what did I know about restaurants? Nothing. I knew all about management of chains that employed ranks of experienced executives. Did I know how to control wine and liquor? Did I under- stand how to control pilferage? What did I know about service and synchronizing cooking with customer demand?

"So," you say, "it's obvious. Hire a manager."

That advice is easier given than taken. My wife developed a taste for the excitement of running a real-time feedback enterprise. And that requires creativity and sensitivity, both of which she has in abun- dance. But it also requires time-lots of time. What do you say to 8 A.M. to midnight? "Who needs that?" I wondered. But by that time, we were caught in the baby-versus-family conflict I described in the chapter on Infancy. Our dream was becoming a nightmare. We were saved by our real four-year-old baby at home. He's the one who put up the fight. He wanted to see more of his mother, and so the family won.

But when the family won, we were back to needing a professional manager. I knew what our restaurant needed: somebody who would treat it as if he owned it. We needed a cost-conscious police officer who could track pilferage, a psychologist who would know how to treat the enormous egos of the chefs, a theater director who could create the right atmosphere, a purchasing director who would watch that suppliers not overcharge us, and a public relations wizard who could handle the rich old ladies whose talk can ruin a restau- rant's reputation. In other words, we needed a very capable person who would really care. Such people better be owners. In other words, for a restaurant like ours, we needed an owner-manager, not just a hired gun. And guess who I hired? A complementary team member, as this book prescribes? Surely not. (Do I read the books I write?) So I hired someone I was excited with, someone full of ideas and not at all control-oriented. As I should have expected, such a person had his own ideas, and synchronizing his with mine required time, time, time.

So there I was, dealing with menus and questions about lamb, fish, or chicken. You won't be surprised to learn that while I was spending so much time overseeing my demanding restaurant, I became a seagull to my own Institute! In my despair, I hired a profes- sional manager for the Institute. He's a man I have known for years, and he is complementary to me in style. I trust him, but can I be sure that he will share my vision for the Adizes Institute? Stay tuned.

Conflict in the three dimensions I describe above is normal in the Adolescent organization. Pathology occurs when those who have formal and informal control of the company's decision-making process suffer a critical loss of mutual respect and trust. 1The entrepreneurial people leave feeling they have many other ideas and opportunities to realize. Why, they ask, should they put up with the nonsense? They liked the company when it was small and flexible. When it became too inflexible or political, it stopped being fun. They get paid off and leave the company. Their exit can produce a pathological phenomenon.

Having lost the entrepreneurial component that gave it flexibility and the environmental awareness that provided its vision and driving force, the organization falls into premature aging. When the numbers people take over, the system becomes more efficient but loses effectiveness. Profits might go up, but sales after a while either go flat or fall. That, depending on which sales are eliminated, is not necessarily bad. The Organization Man is the behavioral model, and the motto is, "work with the system, and follow the rules." I describe that condition as premature aging. Although the organization has enjoyed the momentum and entrepreneurial energy of Go- Go, it never achieves its full potential: It never entered Prime.

If, however, the company creates effective administrative systems and institutionalizes its leadership (later in the book, we will see how this should be done), the organization moves to the next stage of development, entering Prime.

Problems of Adolescence

Normal	Abnormal
Conflicts between partners or decision makers	Return to Go-Go and the founder's trap
Temporary loss of vision	Inconsistent goals
Founder's acceptance of organizational sovereignty	Founder's removal
Incentive systems rewarding wrong behavior	Bonuses for individual achievement while the organization is losing money
Yo-yo delegation of authority	Organizational paralysis during endless power shifts
Policies made but not adhered to	Rapid decline in mutual trust and respect
Board of directors' attempt to exert controls	Board's dismissal of the entrepreneurial leader
Love-hate relationship between the organization and its entrepreneurial leadership	Excessive internal politics
Difficulty changing leadership style	Unchanging, dysfunctional leadership style
Entrepreneurial role monopolized and personalized	Entrepreneur's refusal to delegate the role to a depersonalized role
Integration role monopolized	Divide-and-rule management
Lack of controls	Imposition of excessive and expensive controls
Lack of accountability	Profit responsibility delegated without capability to manage it
Low morale	Excessive salaries to retain employees
Lack of profit-sharing scheme	Premature introduction of a profit- sharing scheme
Rising profits, flat sales	Rising profits, falling sales