Chapter 12: PAEI And The Lifecycle: Stage By Stage

Now let us see how the dance manifests itself in the lifecycle of organizations.

Courtship-paEi

During Courtship, would-be founders develop commitment that will ultimately give birth to operating organizations. These founders identify needs and build commitment to respond to those needs. On the typical path, then, Entrepreneuring is the most important role. It provides for proactive behavior; it identifies future needs in the present; and it generates willingness to undertake risk in order to satisfy the needs. Building commitment is manifested by excitement, passion, or falling in love with an idea.

Organizations are born when commitment is tested, and they die when there is no commitment to functionality: when we don't know why we are doing whatever we are doing.

We can gauge an organization's vitality by the number of people in the organization who are committed to it and its functionality.

Since all four PAEI roles are necessary for an organization to be in Prime, there must be ingredients of each at conception.

The Performing, Administering, and Integrating roles provide reality-testing for the Entrepreneuring role during Courtship. The difference between normal and abnormal Courtship is the presence or lack of the other three roles. A normal Courtship is paEi; an abnormal Courtship is OOEO: The P, A, and I are missing. The organization experiences no reality-testing of the commitment. Reality- testing considers what we are going to do-P; how we are going to do it-A; and who is going to do it, how, and with whom-I.

A Courtship with no reality-testing is an affair. When confronted with a real test of commitment, the Courtship will dissolve. Thus, all four roles must exist, at least latently, in Courtship.

Why do Performing, Administering, and Integrating provide reality-testing of Entrepreneuring? Performing, Administering, and Integrating are incompatible with Entrepreneuring. So small doses of P, A, and I are the reality-testing challenges to Entrepreneuring.

The composition of a business plan serves as Courtship's reality test. It is as if each of the questions is a small injection of P, A, and I. The founder must answer the what, how, and who questions because the incompatibility of those roles could demolish the E idea. Although each dose of P, A, I testing has to be mild enough not to destroy E, it must nevertheless be adequate to provide an indication of what is ahead. Without that, at the first sign of a what, how, or who difficulty, commitment will evaporate, and rather than a healthy Courtship, the organization is left with only an affair. Those small injections of P, A, I act like an inoculation to develop resistance and immunity to disease. They test to see whether all those roles are there, awaiting future development.

What if there were no test of the commitment to Entrepreneuring during the Courtship phase? Later, in Infancy, the organization will come face-to-face with big Performance demands, and if it lacks adequate commitment, the organization might dissolve.

In simpler terms, the transition from romantic dreaming to actual doing is not easy. When an organization is conceived, it must simulate the reality that will confront it in the immediate future and throughout its lifecycle. It must determine whether the organization can survive the simulation before real challenges confront it. The seeds of future subsystems must exist at conception.

A healthy Courtship is thus paEi while an affair is OOEO.

lnfancy-Paei

The Producing role develops in Infancy: The focus is on what now? To allow P enough energy to develop, E goes dormant. "I want no more ideas. Give me results-now!"

A healthy Infancy is characterized by Paei.

An organization cannot survive Infancy as POOO or, in the case of repetitive innovation, with no focus on results, paEi. During a normal Infancy, the dominance of P and the relative weakness of A, E, and I allow for obsessive devotion to quantifiable results at the expense of the process. In this reactive environment, the lack of patience is regarded as normal. But, if it is not controlled later on, that impatience sows the seeds of destruction.

When commitment is tested against reality and risk is undertaken, organizations are born, and Performing takes precedence. Administering and Integrating remain suppressed as they were during Courtship. However, the increase in Perfoming decreases Entrepreneuring. Why?

What propels founders? It is their commitment to the crying need they believe they are destined to fulfill. When their organizations finally open for business and they have assumed risk, the founders plunge in with gusto. It is a do-do-do time. Founders must protect their dreams.

Infant organizations must perform the function for which they were established. If they don't deliver, they quickly die. Furthermore, the risk undertaken during Infancy must be covered by action. Hard work delivers on the commitment for which risk was undertaken.

P is the functional orientation. This functional orientation exists with all infant systems, including human infants. During the first months of life, babies focus exclusively on functional needs-eating, sleeping, and being warm and dry. Likewise, Infant organizations focus on P. They must have cash-liquidity-in order to survive.

In Infant organizations, Administering, Entrepreneuring, and Integration are low, Paei. P dances alone, and a, e, and i watch. The Performing role is dominant, and that is normal. An Infant organization managed by a Lone Ranger, who doesn't delegate and works like a one-man band, is perfectly normal. That's what the Infant requires. Think of the mother of a newborn infant. She is always feeding, rocking, and changing her baby. She wouldn't behave differently and, say, try to teach her baby Latin. She knows that her baby needs to have its functional needs satisfied first. Likewise, during Infancy, founders need to tend first and above all to the functional needs of their newborns.

Go-Go-PaEi

The Performing role eventually reaches the threshold of stabilization. The supplier list is stable, and cash flow is secure because clients have started to repeat their orders. With P fully developed, Entrepreneuring can increase. Why? In Courtship, Entrepreneuring was high and a vision emerged. Entrepreneuring fell during Infancy while the organization devoted its energies to testing the viability of that vision. Performing had to be high. Once the organization passes that test, energy is available to support the vision, which once again propels the organization with full force: Entrepreneuring goes back up.

At the end of Infancy, with both P and E roles strong and healthy in the organizational memory, the organization can expend energy to unite P and E and deal with their incompatibility. The P and the E roles need to operate together. Go-Go time is a PaEi culture. If the culture is characterized by POEO, with neither minimal A nor threshold I, both of which need to develop next, the organization will be caught in the founder's trap. The organization needs all four roles, some seemingly dormant but nevertheless there all the time. On the typical path, companies develop one role at the time, absorbing and integrating each into the organizational behavior.

This sequence is important to note. During Courtship, E is up first. In Infancy, Performing goes up and Entrepreneuring goes down. During Go-Go, both P and E stabilize together before the third role can grow: Both the what and the what for stabilize before the how role can be developed.

If the Entrepreneuring role cannot develop because the organization remains in a perpetual Performing orientation, a pathological Infancy occurs. The Infant never emerges from its functional orientation. It is preoccupied with food, sleep, and wetness even though many years have passed.

An organization that can't get past the trials of Infancy-negative cash flow, an unstable client base, a continuous fight for survival-is developing abnormally. Eventually it will die because the energy required for development is higher than the energy necessary for maintenance.

Organizations embark on the Go-Go stage when Performing and Entrepreneuring are at high levels. Those high levels of P and E explain its behavior. A Go-Go is what- and why-oriented. It is results-oriented for the short and long run. There are dreams, like during Courtship, but the organization is trying to realize them instantly, as it did in Infancy. That's why the transition from Infancy to Go-Go is a transition from management-by-crisis to crisis-by- management.

A Go-Go company expands rapidly in many different directions, intuitively and quite flexibly. In a very short time, it might find that it has overcommitted its resources. It might run out of cash, not because the situation calls for it, but because management wants to do too much. The organization has little control. The difference between the budgets and actual performance is high. Policies, if there are any, are violated, and the power is highly concentrated with the founder.

In Go-Go, the Administrative role is low. Its lack of development explains the lack of systemization, the lack of order, the lack of an organization chart, and the lack of clearly defined tasks and specialization. The organization is structured around people rather than around the tasks to be performed. In the Go-Go stage, the organization adapts to accommodate the people rather than the people having to adapt to fill the needs of the organization.

An organization finds itself caught in abnormal Go-Go if A cannot develop. A must develop next. The short-range how must precede long-range how before the Integrating role can develop. The need for A is less apparent if I derives from the social culture in which the organization exists. That is the situation in the Far East where entrepreneurial families can build huge trading companies with little A. They have abundant I.

The lack of planning processes causes Go-Gos to lose control, and the lack of patience-a trait left over from Infancy-combined with typical Go-Go arrogance lead to a lack of tolerance. That, in turn, causes a lack of mutual respect, which has the power to destroy an Adolescent organization: It won't allow I to join the dance, but without I, the A-E fight is dysfunctional.

Adolescence-PAei or pAEi

A crisis that demands the Administering role prompts the transition from Go-Go to Adolescence. On the typical path, A emerges when the organization experiences pain. A crisis in Go-Go triggers the development of Administration. The higher the Go-Go's arrogance, the bigger the crisis necessary to trigger the transition to Adolescence. The organization needs stabilization, order, and to set priorities. That means that the Go-Go's time for deciding what else to do is over. Now it's time to decide what not to do. The organiza- tion turns its focus away from the what and when, directing its atten- tion to the how. If the organization doesn't allow that to happen, it falls into the founder's trap or the family trap, abnormal situations which could, over time, spell its pathological demise.

The A-E Struggle

Many organizations that try to progress on their own dynamics lose E because the growth in Administration threatens Entrepreneurship. A and E are opposite roles, and they are in conflict. That con- flict might take the following form: To put his company in order, a founder might hire a chief financial officer or vice president of administration. The new person performs the Administrative role. He may feel hostility toward the founder, who performs the Entrepreneurial role. The E founder continuously changes direction, bringing new opportunities into the company. For an Entrepreneur, every problem is an opportunity. But, for an Administrator, every opportunity is a problem. The Administrative person is focusing on how to do it and on the repercussions of doing it. What appears to be an opportunity for E is usually a problem for A.

Eventually, the Administrative type starts to see the founder as the company's problem. The founder won't allow the system to stabilize. At that point, an alliance might develop between the chief administrative officer and the board of directors, which also seeks Administrative stability. They form their alliance at the expense of the founder, whom they perceive as uncontrollable. If their alliance is fruitful, they might squeeze the founder out of his own company. If he is not fired, he might find that with no support and enthusiasm for his leadership, the atmosphere has become unpalatable. He might well decide to start all over again with a new company. I believe that's what happened to Apple Computer's founder Steve Jobs. The earlier departure of Jobs's partner, Steve Wozniak, the creative engineer, was the harbinger of an Entrepreneurial exodus.

The struggle between Entrepreneurship and Administration is even more acute in partnerships. The founding partnership is usual- ly a complementary team, a PE and an AI. During the advanced stages of Go-Go, the PE, who took the risk and brought opportuni- ties to the company, is usually the driving force. In Adolescence, however, the AI rejects the opportunities PE wants to follow as being too expansive. So, the AI partner begins to resist the plans of the PE partner. "One more idea," A says, "and I'm going to break out in a rash." And E is thinking, "How did I get involved with such an inactive, placid, risk-averse partner? I built this company despite him, and now he is becoming a barrier to future growth."

When an E founder has neither a majority of the stock nor control of the board, by and large, the Administrative type wins the struggle. Why? For one thing, entrepreneurs believe they can always put down roots somewhere else. Furthermore, they don't like the reality of running a highly complex organization. They prefer building to running their businesses. They hate detail. Entrepreneuring is incompatible with Administrating. Entrepreneurs prefer the wide-brush approach to problem solving, but wide-brush solutions at this stage of the lifecycle are not functional. The side effects of such solutions for a company that is already operating are more threatening than the original problem.

Founders start dreaming about the good old days when their companies were small, flexible, and responsive. Now that their babies are too big to handle, they think that leaving and once again starting and leading something small and exciting seems very attractive. For their part, however, Administrative types have no place to go, and besides, they like to manage systematically. They try to buy out the Entrepreneurs. The boards, or those in power, generally side with the Administrative types. They recognize the need for order, and they know that unpredictable Entrepreneurship won't provide that. So the alliance of A with the board squeezes E out.

We see that this phenomenon affects not only founders. As systems and controls are introduced, as "no" is heard more frequently than "yes," other entrepreneurial types also start leaving. There is an exodus of Es and an influx of As. I call this phenomenon premature aging. The company got old before it reached Prime.

After Go-Go, PaEi, organizations need to develop A.

Which of the two roles, P or E, should be temporarily dormant, giving A the chance to develop?

Who should yield?

In the first edition of this book, my answer to that question was P. Now, ten more years of experience have taught me that I was wrong. PA, which I used to consider premature aging, is the right combination. EA is so prone to conflict that a dormant I can be destroyed. If, as I recommended in the previous edition, P declines, the enormous struggle between A and E prolongs the pain of Adolescence. A decline in P would cause too much trauma to an organization that still has memories of its Infancy, when P was king. E must rest for a while. It has been driving the company long enough. Also, if you reconsider the "dance," you'll recall that P dances more efficiently with A while E rests.

In a healthy transition there should be some temporary respite for E, but E should not lose control or disappear altogether. Instead, E should use its authority to enable P and A to develop. For healthy growth, the PA interval should be short. Then the E role must come back to create the PAEi culture of the organization, which is Prime. Organizations in which E insists on dominating and refuses to cool off for a while, find they are continuously innovating and never finishing anything. A PE culture can be so strong that it repeatedly rejects any attempts to grow A. What starts as an abnormal problem will become pathological. The company gets sued for violating regulations; product quality deteriorates below acceptable standards; product shipments are so late that customers no longer accept them. Eventually, the organization goes bankrupt.

The founder's trap returns by virtue of the failure to institutionalize the what and why: The company has not developed Administration or Integration of the Performing and Entrepreneuring functions. Without the A and the I roles, the organization cannot function as a system. Instead, it centers on a single individual who makes decisions as he or she sees fit, refusing to allow a system that narrows the choices. The organization depends completely on the person leading it, causing the E role as well as the I role to become monopolized.

Institutionalization of Performing and Entrepreneuring allows decentralization of those functions without loss of control. For an organization to move into Prime, institutionalization must occur. There must be rules and policies, A, and/or sound values, I. And the founder must be subject to them. Only then can the organization emerge as a system independent of the founder who established it.

Administration gains authority at the expense of either Performing or Entrepreneuring, which are already developed. The energy the new A role requires for its development must come from somewhere. If it comes at the expense of Entrepreneuring, development will be normal. If it comes at the expense of Performing, the company will follow a pathological progression.

Self-discipline

Adolescence is a time of testing and screening. Some organizations advance and flourish, and others flounder. Success is the prize for those with self-discipline.

The entire sequence starts with E. Then P rises, and E falls. Then both P and E are up. The sequence is smooth, as if dictated by the dynamics of organizational growth. The founder just follows the cues. During Adolescence, however, founders face a choice. Will management take over or be taken over by events? Does management lead or does it follow?

Over the years, I have noted that in any endeavor-the arts, sports, business, even crimechampions are made not just because they have talent. Talent is, of course, a prerequisite for excelling, but talent alone is a waste, producing no lasting impact. To really succeed, one needs self-discipline to control urges and short-term temptations.

The greater the talent, the greater is the need for self-discipline.

According to Jewish tradition: "Who is the hero? The one who can conquer his urges."

Self-discipline without talent is barren. Talent without self-discipline is a torrent of sparks that won't catch fire. For controlled burning, one needs a controlled spark. In Adolescence, the need for organizational self-discipline emerges.

Up until Adolescence, talent to sense the needs of the market is enough to manage an Infant or Go-Go. In Adolescence, discipline emerges. Will it match talent? If it does not, the organization will wander. If the rise in discipline destroys the talent, the switch has been too sudden, and the organization will become stuck.

Adolescent organizations must make conscious decisions to do less of one thing so they can spend more time doing something else. Their people must spend less time dreaming new dreams and more time in meetings and getting organized to deliver the current dreams.

This is not so simple and obvious as it might appear. I have worked with many company founders who refuse to get organized. One of them said to me, "Please, please don't put me in a box." He was referring to the organization chart. Discipline is alien to them. They succeeded, innovated, and were entrepreneurial by breaking boundaries and resisting discipline. Getting Es to accept discipline is the beginning of therapy for organizational transitions.

To allocate resources in order to accomplish fewer things better requires self-discipline. In the past, investing in more-not better- produced the desired results. An E needs the self-discipline to step back. That significant change in behavior does not occur naturally as it did when the organization moved from Infancy to Go-Go. For a successful Adolescence, organizations need to wean themselves from E. Will founders, who are strongly E-oriented, allow that? If not, the gaping jaws of the founder's trap may be inescapable.

The Significance of l

I have observed that organizations with the Integrating role present have an easier time making the switch from E to A. The higher the Integration, the easier it is for Administering to emerge. This is explained by the fact that I-the long-term how-aids A-the short-term how. Those roles support each other.

Where did the Integration function come from? I could derive from the larger culture, within which the organization develops, or from the values of the people who comprise and lead the organiza- tion. Japanese culture, for example, provides I to its organizations. The organization does not have to develop it. That means that it's easier for a Japanese company to get to Prime than it is for an Israeli or Greek company that must develop I in an intensely Entrepreneurial environment with little Integration. Using the PAEI roles for analysis and prediction, it is also easy to see that the Japanese, weak on E, can age organizationally faster than an Israeli or Greek company. (If you can find a Japanese company led by Israelis, I suggest you buy the stock in a hurry.)

The role of Adizes therapy is to move organizations from Go-Go to Adolescence-from entrepreneurial management to professional management-developing the Administrative system through Integration, which frequently has to be nourished and protected.

Prior to Adolescence, the leader as an individual-most often the founder-performs the I role. Everyone reports to the founder, and everyone waits for his or her decisions in times of conflict. That has to change in Adolescence, which calls for systematization of the decision-making process and professionalization of management. The I function needs to be institutionalized before E can be decentralized. Let me explain what that means.

Up to Adolescence, external integration is achieved by the leader, often the founder, of the organization. Then the organization runs up against the problems of Go-Go, and the company experiences external disintegration. It hyperventilates and misses some markets or goals. It aims for too much, but it gets less than anticipated. Internal integration becomes an issue especially when the A is brought in or when the A, reacting to the crisis E has brought about, starts to assert itself. Who achieves the Integration now? The organization has grown large and complex, and Integration-internal integration-is not the forte of most founders. The organization needs to develop a system of governance. It needs to hold executive meetings of a known and established membership, following rules of conduct that govern decision-making and dissemination of those decisions. People need to know what is expected of them, where to go for help with decisions they are not authorized to make, and how to get those decisions made. There need to be organizational processes that are not dependent on the availability and the mood of the leader.

The I function needs to be transferred from the individual to the organization. Also, instead of being Integrated around E, which is great for excitement but not very helpful for follow-up on deci- sions, the organization needs to be Integrated through the Administrative function. It needs the nuts and bolts of, for example, manuals for inventory control, policies on collection, and procedures for hiring and firing. "The devil is in the details," the Arabs say, and if the details are not ironed out, the devil will pay more than one visit.

I have observed American companies that are socially concerned and dedicated to the protection of the environment. Such socially conscious organizations rely on EI excitement-vision and values-to guide them to success. If those companies succeed and grow, EI is, however, not enough to make them successful for the long haul. There is excitement and passion, but their lack of attention to such details as supply management and budgetary control has a negative impact on morale and the commitment of people. Their passion for the vision eventually fades. Organizations need all the four roles. These days, E and I are in vogue. But watch out. Without A, I will suffer and eventually bring about the decline of E.

Goals

The general culture of a company is never the problem of a single individual: It's a problem of the system. When a system is built on expediency rather than on tasks and organizational needs, function rules. The organization neglects form until dysfunction reigns.

Prior to Adolescence, function is everything. Form is less important. Integration and Administration are at low levels, while Performance and Entrepreneurship are high. The organization is structured around people, and its organization chart looks like the drawing of a kindergartner, with lines going in all directions. Eventually, the organization grows too big and too complicated to manage. The interdependencies look like a Gordian knot, and the more you pull on it, the more difficult it is to untangle. Change is the company's source of success, but now change presents more problems than opportunities.

When structure is built around people, functional accountability grows increasingly convoluted. Controllable change is difficult to achieve. Form must evolve to structure the function. The driving and driven forces exchange places. Until Adolescence, the organization is compromised to fulfill its participants' needs.

In Adolescence, the organization becomes the driving force and people are compromised to fulfill the organization's needs. In Adolescence the organization turns its attention inward. The deterministic and constraint goals change places. Deterministic goals are those we aim to achieve. Constraint goals are conditions we want to maintain. Our goal is not to violate those conditions.

Sales growth is the deterministic goal of Go-Go, and as a result of the efficiency of implementation, the constraint goal is profit.

During Adolescence, the organization experiences goal displacement. Profit, the outcome of efficiency, becomes the deterministic goal, while sales growth becomes the constraint goal. "We want maximum profits, and no less than X percent annual sales growth," replaces, "We want at least X percent annual sales growth, with no less than Y percent profit margin on sales."

Profits during the Go-Go stage are happenstance rather than predetermined. A Go-Go can explain why it was profitable, but it cannot explain why it will be profitable. And even though a Go-Go can explain why it was profitable, it cannot provide assurance that it can repeat that performance. It does not have enough control to make what's desired actually happen.

If the organization survives early Adolescence, avoiding pathological behavior, Entrepreneuring will emerge again in late Adolescence. Because the organization has simultaneously been institutionalizing A, when E emerges at this stage, rather than being individualistic, it will be an organizational effort. The organization can recreate itself, developing a more professional vision. The new vision, no longer just the dreams of an eager founder, has the foundations of a plan and strategy. Now is the time to trim the young tree, funneling the energy in positive and fruitful directions. Companies that manage to accomplish that enter the beginning of Prime. P, A, and E are strong. And I, which was absolutely indispensable for making the transition, has developed as well.

Up to Go-Go, the Integration role is fulfilled by founders, externally and internally. That gives them a monopoly on the Entrepreneurial role. E needs to be emancipated from personally individualized performance. To institutionalize E, I must first be depersonalized. External I calls for matching company capabilities to market opportunities. The company has to develop strategy that is supported by management. Then the company will need internal I to implement a new structure that reflects that strategy.

Early Prime-PAEi

When systems are in place, a function of Administration, organizations are high-growth and hig—profit in orientation, and they can afford to be. Let's review the transition.

In Infancy, the goal is cash because Infant organizations are function-oriented, and to function, Infants need cash-liquidity. The typical complaint of Infant companies is "We are undercapitalized." They grow faster than their ability to secure liquidity for future growth.

The goals of the Go-Go stage are sales and market share. Go-Gos assume that more sales mean more cash and profits and that the profit margin is stable. Only a crisis alerts Go-Go organizations to their declining margins. To achieve more sales they sacrifice profits by increasing the cost of sales. At a certain point, more is not better. More is worse.

In the course of reviewing the costs and expenditures of my clients, I have demonstrated to at least one of those clients that by the time the company had paid sales commissions and customer dis- counts on its skyrocketing sales, and had subtracted the cost of cap- ital to finance those sales, there were no profits left for the company. As a matter of fact, the company was losing money. It's not unusual to find companies in the advanced stages of Go-Go awarding sales bonuses while they are losing money. What is occurring is called suboptimalization. Sales are not producing more profits, and if the company orients all rewards toward sales, profits likely suffer.

Why would a company reward individuals while it is going broke? Because it doesn't know that it's going broke. That happens in Go-Gos because most Go-Gos lack good cost-accounting systems and adequate information systems. They rely on a patchwork of organizational structures, reward systems, and information flows.

Go-Gos are opportunity-driven rather than opportunity- driving. This trait is a remnant of Infancy when organizations are so hungry they grab any opportunity that will stretch survival. Such opportunities present themselves one after another during the Go- Go stage. Remembering Infancy, Go-Gas are loathe to pass on any opportunity. They let opportunities drive the organization. It takes maturity, a sense of security, and self-confidence to pass up an oppor- tunity. Without control systems, organizations become addicted to results. They reward those who exploit opportunities, whether or not those ventures undermine the whole. To judge opportunities sensi- bly, organizations need information, budgeting systems, and control systems. During Adolescence, organizations do develop those systems, and by the time they reach Prime, they are opportunity-driving rather than opportunity-driven.

In Prime, organizations know what to do and what not to do. They know when to pass up an opportunity and why to pass on it. Prime organizations possess talent and discipline, vision and self- control. They focus on both quantity and quality. Form and function are balanced, and they can grow profitably.

Getting to Prime is difficult. Staying in Prime is even more dif- ficult. When a Prime organization starts losing its Entrepreneurship, the organization begins to leave Prime. Why is the loss of E a cause for aging? E provides flexibility; it is the proactive force that introduces change. An organization is dead when it can no longer react to its environment. It stops being proactive when it loses Entrepreneurship. Later, because of that loss, it loses the ability to react as well. It loses Performance when it stops satisfying client needs, and unless there is external subsidization, the organization becomes dysfunctional and dies. Incidentally, Robert Solow won the 1987 Nobel Prize in Economics for his 1956 work demonstrating that a nation's success is a consequence of its technological developments and not a function of the size of its labor force or the richness of its physical resources. Technological developments are a function of E.

How organizations behave after Prime and after the Fall may be attributed to a decline in E. The difference between Administrators and Entrepreneurs is that for an Entrepreneur, everything is permit- ted unless specifically forbidden. For an Administrator, everything is forbidden unless it is specifically permitted.

It's easier to be an Administrator than to be an Entrepreneur: It's less risky and less demanding. People who are only used to fol- lowing and sticking to the rules have trouble being creative and tak- ing risks. Their past experience with the reward system works against creativity. Organizations need to introduce new reward systems, developing a different style and culture.

Figure 12-1: Organizational Lifecycle

Bureaucratic behavior is like a lobster trap. It's very easy going in and very difficult getting out. Centralizing decisions is easy. Decentralizing is hard.

A drawing of the lifecycle shows that Prime is not at the top of the bell curve.Prime is on the way to the top. Why? In Prime, there is still Entrepreneurship-a source of flexibility that provides for organizational vitality as expressed in PAEI terms. Why do organizations move toward the pinnacle of the curve?

The bell curve expresses organizational vitality, and I define vitality as an organization's ability to be effective and efficient in the short and the long run. Organizational vitality does continue to rise, but it rises at a decreasing rate: The organization is losing its E. When it is green, it is growing. When it is ripe, it is rotten.

Prime is not a point in time. It is a process. Moving toward a certain point is better than being there. In human terms, it's not important what a person is; what's important is who he was and what he will be. What a person is, is transitory. We should focus on the process and not on the result.

The process predicts the results. When A develops and E returns, the three roles-P, A, and E- need to learn to act together synchronically. That is the challenge of Prime. To succeed, the organization needs to develop l-in a big way. To bring E back, it needs to recreate itself, redefine its business, and define a potent, new unifying vision. To assure the development of I, the organization should not leave that process of creation to outside consultants alone. The organization ought to work with a facilitator, but the I role, which until that point had been provided by the founder or the Entrepreneurial leader or had been subsumed by the A role, needs to be institutionalized throughout the organization. I needs to be organizational rather than individualistic. Likewise, new organizational E should not be individualistic. The process of leadership for Integrating the whole organization (paEI) should produce organizational Entrepreneurship and the paEI culture of Prime.

An organization is in Prime when it is both effective and efficient for the short and long run. Emphasis, however, is on the long run. Since no organization can be equally positioned for the short and the long run, Prime is oriented more to the long-run El than the short-run pa. And because effectiveness and efficiency are also in conflict, Prime is a condition in which the process, the form, I, is as important as the function, E.

Prime is not a location but an area on the lifecycle because the conflicts between long run and short run and between effectiveness and efficiency are such that Prime needs continuous monitoring and adjustment. Prime is not a stable condition.

How does an organization age? In the first edition of this book, I stated that aging was the result of the loss of E. E is what gives an organization its start, and its loss brings about organizational demise.

The Faii-PAel

During the Fall stage, Entrepreneurship decreases. As E decreases, Integration-people orientation-increases.

Integration is an elusive term, and it needs clarification. First, there is the people orientation, and that is what I mean when I talk about the I role. Rather than an orientation to any single individual, it is an orientation to the human element, to people in their interactions. I focuses on the decision-making style. Second, there is the integration of interests. That integration is not included in my definition of the I role. It pertains to coalesced authority, power, and influence, a concept we will discuss and explore in Chapter 13. The third type of integration refers to the organization's relationship with the external environment within which it operates. Fourth, there is internal integration, which integrates people, interests, and systems into a cohesive unity. There is even a fifth integration that integrates the external and the internal into a totality.

This subject of Integration remains elusive and an ongoing subject of inquiry. I have been laboring over it for more than 30 years. Here, let it suffice to say that, in the Fall stage of the lifecycle, the first type of integration-people orientation-increases at the expense of making change, Entrepreneurship.

Why?

I believe the internally oriented I increases as the organization loses interest in the external world and turns inward. External I, integrating with the market, has importance in a materialistic society, which aims to achieve materialistic goals. You see people undergoing the same process. As we age, our career, money, and possessions take lower priorities. Family-immediate and extended-gain increasing importance. But that is true for the typical path. Those that integrate externally for a spiritual purpose do not lose E. On the typical path, the organization, having lost its external drive, turns inward to the people component. I goes up as E goes down. In Chapter 14, we address the question of why E declines.

As I explained earlier, Integration can be high in the growing stages of the lifecycle, and we will see later in our discussion of the optimal path that I should be high during those growing stages. Such behavior, however, is not common. For an Entrepreneur, what counts? The success of the organization as validated by sales, the acceptance of the product or service by the market for which it was created. The people element takes the lowest priority. If the founder focuses on the people element, it is only as a means to an end. Only after the external passion, commitment, and the obsession with ambition subsides can organizations turn to other aims. Thus, interest in people is low in growing companies. It is considered a luxury the organization should not afford.

Let me explain this further. It is not that founders don't care for people. On the contrary. I have observed, especially in less developed countries, tremendous attention to the people element in startups. But it happens for a business reason, not humanistic: founders have no professional managerial know-how that helps them control their organizations. Instead, they rely on loyalty and true friendship to get things done. Without A they must depend on I. They hire family members or members of the tribe. Affiliation plays a significant role because founders have no other means to motivate and control. Such attention to people is not for the sake of the people. The founders nourish the people for the sake of the interests of their organizations. In contrast, companies in the Fall stage have a people orientation for the sake of the people-a goal in itself, even though it might be hurting the interests of the organization.

Consider different educational approaches. Do you want your kids to feel good even though they remain ignorant, or do you want them to endure the pain of learning? During the 1990s, education in California earned a reputation for encouraging self-esteem at the expense of learning. Children don't fail even if they haven't learned. As a result, in 1998, California's kids felt very good about themselves, but in terms of their scholastic achievement, they ranked 49th among the 50 states. The question, then, is: Are you results- or process-oriented? At the Fall stage, the answer is clearly in favor of process, and in this case, we are referring to the process of people interaction.

Why E Declines First

Why is Enterpreneurship the first factor to decline when an organization leaves Prime? Why not Administration or Performance?

Why E and not A? Administration has the highest survival rate. It is very difficult for A to join an organization, but once there, it's just as difficult to get rid of it. In Hebrew there is an expression, "Friends go and come. Enemies accumulate." Rephrasing it, I would say, "Entrepreneurs come and go, bureaucrats accumulate." Administration will not decrease on its own. It tumbles down when P is no longer there and A serves nothing. That's when it is no longer functional. Then new E surges, which gives meaning to a new P and, consequently, to a new A. So who goes down first, E or P? E precedes P. E drives P. E is the long-run effectiveness; P is the short-run effectiveness.

The long-run effectiveness has to decrease in importance before it expresses itself in the decline of the short-run effectiveness. Now, let's consider how the transition from Prime, PAEi, to Fall, PAel, occurs. It's not the increasing Integration that drives Entrepreneurship's decline. On the contrary, E's decline allows I to grow. But why is the decline in E expressed in an increase of I? Why isn't it expressed in the increase of P or A?

I increases as E declines because the organization is successful and in its full vitality: Its fight for survival is not acute. It can afford the luxuries of turning inward and paying attention to interdependencies among people and to the values that dominate behavior. When that occurs during the early stages of the lifecycle, as discussed earlier, it is not an indigenous cultural development. It either piggybacks on the extant social culture within which the organization operates, or it is nourished by a very people-oriented founder. The latter is rare because it requires excellence in three roles, PEl, and, as a company builder, the founder cannot sacrifice any P or E.

Aristocracy-pAel

Based on our discussion of the interdependency between Performance and Entrepreneurship, it should be apparent that if E is low for long enough, P will eventually decline. And that brings companies into Aristocracy. The code for Aristocracy, pAel, indicates short- and long-term focus on how, rather than on the short- and long-term what and why.

The decline in Performance implies declining attention to function and a growing emphasis on form. That's why in Aristocratic organizations, rituals take on extrEme importance. How people perform is more important than what they accomplish. How people dress, speak, relate to one another, obey organizational rituals, and heed unspoken values far outweigh the results they produce. Aristocratic organizations can afford not being function-oriented. They simply capitalize on their past successes and rest on their laurels. A comparison of the balance sheets of Aristocratic organizations and Prime organizations reveals that Aristocratic organizations are more liquid because they assume less risk. They are more numbers- and security-oriented than Prime organizations are.

Once, as I sat in an executive committee meeting of an Aristocratic organization, the financial officer reported, "We have $300 million in cash." Then, completely without guile, he asked, "Does anybody have any suggestions for what to do with it?

It's not unusual for a company at that stage of the lifecycle to have $300 million in cash. You might be surprised to read that not a single member of the committee ventured to recommend uses for those millions. I have interviewed members of other Aristocratic organizations, and they confirm that this is not an extraordinary sit- uation. Top management waits for instructions. Nobody is willing to make a suggestion, especially if doing so entails assuming risk.

Aristocratic organizations are characterized by an atmosphere of calm before the storm. People do not offend or cross each other. Everyone seems to be thinking that if he lies low for long enough, he might become the president. Let someone else reach into the fire and retrieve the chestnuts.

Salem City-OAOi and Bureaucracy-DADO

Organizational inaction in a changing world must have its repercussions. Clients do not come back. They find other ways to satisfy their needs. And because the Aristocracy was continually raising its prices, its product is not only competitively obsolete, it is also overpriced. Sales volume falls, market share shrinks, and cash flow slows down.

As liquidity dries, organizational alarm signals start screaming: Emergency! Urgently, the organization struggles to revive P. It cuts prices to encourage sales, but without cutting overhead, it sells at a loss. Cutting overhead quickly is likely to slice away not only fat but also flesh. To reduce expenditures, the company fires people and discontinues activities, but more than likely, it is reducing its capability to deliver P. The company is damned no matter what it does in a hurry.

When the organization's people can get no results outside, they turn inward and attack each other. As the Performance level sinks beyond resuscitation, Integration falls. What dominates organizations in such dire straits? Administration. And it looms over everything like a monstrous shadow.

The situation is bad, and people need explanations, solutions, and hope. How do they explain the situation? The problem, they maintain, is with the leadership. The company would revive, they say, with new, energetic leadership. They look for a person to lead the organization out of its predicament.

During the growing stages, people develop faith in the idea that new leadership can alter behavior in ways that cure problems. Under those earlier conditions, new leadership can make significant differences. Looking back, management of the Aristocracy asks, if that worked then, why wouldn't it help now? Changing leadership is easy and expedient. It's much easier to fire the president and hire a new one than it is to change organizational responsibilities, structure, information systems, and reward systems. Naturally, organizations do what is easy and expedient instead of tackling difficult and overwhelming tasks. Instead of doing what needs to be done, they do what can be done. They find easy answers and solutions: They engage in witch hunts. The first to go are those to whom the organization attributes the difficulties. And because the company's problems are the result of its having failed to adapt to change (its products are obsolete), the ones it sacrifices on the altar of organizational ignorance are those whose responsibility it was to provide organizational Entrepreneurship. The people in marketing, strategic planning, research and development, and engineering take the fall.

People are prone to confuse cause and effect. In the growing stages, new leadership can change organizational behavior, but that medicine won't work on companies in the aging stages of the lifecycle. The Administrative system, which was functional in Adolescence, stymies the organization now. Form is now stronger than function. Form has so expanded its reach that it suffocates function. To liberate function from form, the organizational system-as it is reflected in the structure of accountability, information flows, and rewards-has to change.

Aging is caused by declining Entrepreneurship. In Salem City, E does not just decline, it is ejected. The As expel and imprison the Es, accelerating the destruction of the organization. In the countries of the former Union of Soviet Socialist Republics, entrepreneurship was synonymous with market speculation, and entrepreneurs were called spekulants. If anyone called you a spekulant, you would spend a lot of time looking over your shoulder.

Death-0000

Death is close when E disappears. E imparts organizational life and its disappearance is the organization's death. An organization is born when commitment is tested. An organization is dead when no one remains committed to it.

With Administration ruling exclusively, form rules for the sake of form, as if form were itself the function. The company insists on organizational rituals with no understanding of their purpose or functionality. There is rain dancing although everyone, including the Shaman, knows it won't bring the rain. People remain for security. They cannot be judged on performance. There is no pressure to compete or undertake risk.

The organization can survive as long as there is external support. After all, clients will pay for services they don't get only if the law forces them. With limited or no functionality, organizations are not effective in the short or the long run, and they virtually die. Business organizations go bankrupt unless emergency measures are undertaken to revive them.

Some organizations-if their political importance forces external powers to take responsibility for their survival-are kept alive by artificial means. We have seen governments nationalize or subsidize organizations despite their failure to satisfy the needs for which they exist. In such situations, the organization stays alive in order to satis- fy such political needs as providing employment at any cost.

Such organizations are cancers, usurping energy. Resources that could support emerging Infant and growing Go-Go organizations are channeled to maintain nonfunctional Bureaucracies. Death occurs when the external subsidies are discontinued. What appear to be all-powerful, difficult-to-challenge Bureaucracies are nothing more than empty, dead shells. Without external financial support, they crumble for lack of internal support or reason to exist.

DIBUJO

Behavior Death occurs when external support stops. Bureaucracies cannot justify their existence by functionality. At that point, it is evident that A is pure form that yields no functionality: A new E, a new Courtship, emerges.

As one organization dies, if there is encouragement, another cause rises from its ashes. Without encouragement, the larger system will be affected, and the entire society will suffer a slow economic decline.

Having discussed problems and why they emerge and exist, in the next chapter, we turn our attention to discussing what management can do to address and solve its problems.