Change Management for Business Life Cycles 223.0

The life cycle of firms conform to that of its underlying product, service or innovation.

This life cycle follows the typical curve shown at left (Chart credit: Wikipedia).

This same curve presented cumulatively is an S-curve with four identifiable stages: start-up, hypergrowth, maturity, and decline. These stages roughly correspond to the four technology phases.

Management scholars are not unanimous on whether life cycle concept applies to firms. There are too many exceptions; firms that succeed or fail at each stage.

Thus, to find opportunities, it is logical to look at the firm as a portfolio of its products or innovations.

The S-curve and Life Cycles. For each individual product, the S-curve is the cumulative representation of the same technology curve above with all points above the horizontal axis.

As I have written in a post elsewhere in SYNTHESiST, the S-curve applies even to the process of business innovation itself.

Startup Stage. Technically, the first stage involves R&D, or more generally product development, as in the chart above. And at this stage there may be no firm at all; just an entrepreneur with an experiment or a project.

If there is a group working together in a firm, the corporate culture is still at the nascent stage. There is possibly a high level of trust among the pioneers, even if just at the expertise level. This trust takes the place of organizational structures, systems or procedures that are often set at the next stage.

Other than that of the product itself, the opportunities lie mainly in efficient design and development processes. Rapid prototyping in combination with market testing are key.

For new product categories, it may be alright to launch ‘beta’ products that are not perfected as the market itself has no reference or benchmark for the category.

Flexibility in capturing market feedback and incorporating them as new features into the ‘product’ are important as we have highlighted here in the previous post on the iPhone 4.

In the Philippines, the start-up stage, if the venture does not collapse earlier, can be as long as ten years in owner-managed firms before the next stage happens. As in a previous post, a process of organizational learning has to be installed in the company that codifies the tacit knowhow learned from trial-and-error so mistakes do not repeat themselves for the critical mass to the next stage to happen or to prevent a competitor from winning the business.

The Hypergrowth Stage. This stage represent the steep growth curve that happens after passing through a successful startup (though the boundary may be blurred between the stages).

Especially for new product categories, the challenges and skills here may be totally different from the previous stage where the product development was paramount.

On skills, sales and supply chain as well as working-capital management come to the forefront compared to the other previous functions of design and product development.

As opportunity, sales management is important as the product becomes successful to allow the market to take the lead. This ability to supply market demand is provided by good supply chains including the ability to provide the resources to fund such growth.

The other functions though provide important supporting roles like manufacturing and quality management, management information and control systems, and human resource management.

Near the end of the hypergrowth stage, these other functions will need to be strengthened so that the capabilities are at par with the lead ones.

This quick growth spurt can last from two to five years for a product or innovation before it starts to moderate.

The Maturity Stage. For the product, the maturity stage is indicated by obsolescence. For the firm, its final indicator is slowing or flat growth. Early indicators include sluggish organizational response to change or initiatives.

At this stage, the challenges and opportunities become more nuanced and complex than just better functional management.

These could include product line rationalization and the addition of new product, refreshing the organization possibly including removing dead wood from the organization, and set up of more robust management information and control systems all residing in a working middle management to run the bigger size and older venture.

Knowing the reality of changes that emerge from life cycles, change management can be ameliorated through the proactive and judicious implementation of right life cycle decisions. It ought to involve preparation for the entrepreneur-manager in terms of the compound skill sets, way beyond the functional.

Failure to adapt and change can lead to the eventual decline or even demise of the venture.

The Decline Stage. For the firm, I prefer to call this the Next stage even if the underlying, original product may be in extremis. This is because, the brilliant entrepreneur may have by this time developed a new lead product or refreshed the organization for more challenges, or installed a working middle management.

To me, this Next stage for the firm, therefore, can involve such decisions as succession, mergers and acquisitions, sell-out, philanthropy, or further growth and expansion. Any of this can involve new products.

Each of these decisions representing opportunities require a different set of skills, beyond the functional, that the entrepreneur-manager needs to be prepared for in advance.

Conclusion. Each of the stages, for the firm, is fraught with challenges. The products involved are better managed to come, stay and go as part of portfolio of opportunities that the firm takes advantage as it goes through a managed approach to a cycle of growth and more growth.