Building Sustainably Successful Organizations: A Briefing Document

This briefing document reviews the main themes and key ideas from excerpts of "Growing Pains
Building Sustainably Successful Organizations" by Eric G. Flamholtz and Yvonne Randle. It
highlights critical factors for building enduring businesses, drawing on a variety of examples like
Starbucks, Southwest Airlines, and 99 Cents Only Stores.
Key Themes:
1. Sustainable Success: This extends beyond short-term gains and requires flourishing
across multiple leadership generations. Companies like General Electric, Heineken, and
Toyota exemplify sustained success over decades.
2. The Pyramid of Organizational Development: This model outlines six levels essential
for sustainable success:
 Identify and Define a Market (and a Niche): This foundational step involves
understanding customer needs and potentially carving out a defensible market position,
as demonstrated by Microsoft and Amgen.
 "A market niche is a place within a market segment where an organization has
developed a sufficient number of sustainable competitive advantages to control a portion
of that market."
 Develop a Product/Service: This involves not only creating a product that meets
market needs but also establishing an effective production and delivery system.
Starbucks redefined the coffee experience by incorporating ambiance and customer
service.
 Acquire Resources and Build Operational Systems: This includes securing financial
resources, building efficient operational systems, and assembling a capable team.
Starbucks' emphasis on robust infrastructure from its early stages facilitated its rapid
national expansion.
 "If you are going to build a 100-story building, you’ve got to build a foundation for 100
stories." (Howard Schultz)
 Develop Management Systems: This encompasses planning, performance
management, and cultural management systems. Robust management systems create
alignment and drive consistent results.
 Diversify and Integrate: As companies mature, they need to diversify their offerings to
maintain growth. Successful diversification, as seen in Starbucks' expansion beyond
coffee, requires careful integration of new businesses while preserving the core brand
and culture.
 Institutionalization: This stage involves building a self-perpetuating organization
capable of adapting and thriving over the long term. This requires embedding the
company's values and operating principles into its DNA.
1. Stages of Growth: The book examines seven distinct stages of organizational growth,
each with its own challenges and key areas of focus.
 Stage I (New Venture): Entrepreneurs in this stage focus on identifying a market,
developing a product, and acquiring resources. Examples include PowerBar, GOJO
Industries, and Noah’s Bagels.
  Stage II (Expansion): This stage centers on building operational systems and
developing basic management practices. 99 Cents Only Stores' transition from a single
store to a franchise operation illustrates this stage.
 Stage III (Professional Management): The emphasis shifts towards formalizing
management systems, developing leadership, and delegating responsibility.
 Stage IV (Consolidation): Companies at this stage focus on consolidating gains and
achieving a sustainable competitive advantage.
 Stage V (Diversification): Companies seek new growth opportunities through
product/market expansion, often through acquisitions or new ventures.
 Stage VI (Integration): The focus is on integrating diverse divisions into a unified entity
while maintaining an entrepreneurial spirit.
 Stage VII (Revitalization): Companies facing decline must honestly assess their
situation and implement significant changes to regain momentum.
1. The Importance of Culture: Culture plays a critical role in shaping organizational
behavior. Companies like Southwest Airlines and Johnson & Johnson demonstrate the
power of positive, aligned cultures in fostering success and integration.
2. Leadership Development: Building a strong leadership pipeline is essential for
sustained success. The book highlights the concept of the “leadership molecule,”
emphasizing the importance of cohesive leadership teams capable of navigating the
complexities of growth.
Key Takeaways:
 Building a sustainably successful organization is a complex, multi-faceted journey
requiring attention to all levels of the Pyramid of Organizational Development.
 Strong leadership, robust management systems, and a positive culture are critical
ingredients for long-term success.
 Understanding the unique challenges of each growth stage allows companies to
proactively address potential roadblocks and seize opportunities.
Next Steps:
To assess your own organization's readiness for sustainable success, consider the following:
 Analyze your position on the Pyramid of Organizational Development. Where are
your strengths and weaknesses?
 Identify your current growth stage. What are the specific challenges and opportunities
you face?
 Evaluate your leadership team and culture. Are they aligned with your strategic goals
and capable of driving sustainable growth?
By applying the insights and frameworks from "Growing Pains," businesses can chart a course
for enduring success.
Source 1: Excerpts from "Growing Pains Building Sustainably Successful Organizations"
by Eric G. Flamholtz and Yvonne Randle
Chapter 2: The Challenges of Building a Successful Organization
 Sustainable Success and the Challenge of Building Enduring Enterprises: This
section introduces the concept of sustainable success as demonstrated by long-lived
organizations like General Electric, Heineken, and Toyota. It differentiates between
fleeting success and enduring success that transcends leadership generations. (approx.
150 words)
 Medco's Early History: This case study illustrates the initial steps of building a
successful organization. Bob Mason identifies an untapped market for medical products,
leading to the rapid growth of his company, Medco. (approx. 100 words)
 Starbucks vs. Diedrich Coffee: This section contrasts the trajectories of two coffee
companies. While Starbucks grew to dominate the market, Diedrich Coffee struggled
and was ultimately acquired. It highlights the challenges of building sustainable success
even within a seemingly lucrative market. (approx. 150 words)
 The Pyramid of Organizational Development: This section introduces a foundational
framework for understanding organizational development. It emphasizes six key
elements: market identification, product development, resource acquisition, operational
systems, organizational structure, and culture. (approx. 200 words)
 Building the Business Foundation: The Starbucks Story: This section delves into
Starbucks's strategic approach to building a sustainable organization. It covers the
company's initial focus on market and product development, followed by meticulous
attention to resource acquisition and operational systems. (approx. 200 words)
Chapter 3: Stages of Organizational Growth
 Stage I: New Venture Creation: This section focuses on the initial stage of
organizational growth. It emphasizes the importance of identifying a viable market and
product, using examples like PowerBar, GOJO Industries, and Google. It also highlights
the role of transformational technologies like the internet in spawning new ventures.
(approx. 250 words)
 Case Example: 99 Cents Only Stores - From Accidental Launch to Entrepreneurial
Success: This case study details the growth of 99 Cents Only Stores. Starting with a
single store, the company strategically diversified its product offerings and expanded its
market reach, becoming a dominant player in the discount retail sector. (approx. 300
words)
Chapter 6: Strategic Planning
 Strategic Planning for Sustainable Success: This section introduces the concept of
strategic planning as crucial for long-term organizational success. It advocates for a
proactive approach that involves a detailed analysis of the market, competition, and key
trends, and emphasizes the importance of a well-defined business concept and strategic
mission. (approx. 200 words)
 Environmental Scan: Analyzing the Strategic Landscape: This section explains the
three core components of an effective environmental scan: market analysis, competitor
analysis, and trend analysis. It provides concrete examples of market segmentation and
 emphasizes the importance of understanding customer needs at each tier of the market.
(approx. 300 words)
 Business Definition/Concept and Strategic Mission: Charting the Course for
Success: This section defines the crucial elements of a robust strategic plan. It
underscores the importance of a clear business definition/concept that guides decision-
making and outlines a strategic mission that provides measurable, time-bound targets to
direct the organization's efforts. (approx. 250 words)
 Key Result Areas, Objectives, and Goals: Setting Targets for Achieving the
Mission: This section delves into the process of establishing key result areas, setting
SMART goals, and developing action plans. It highlights the importance of measurable
goals that align with the strategic mission and provide a roadmap for success. (approx.
150 words)
Chapter 7: Designing and Managing the Organizational Structure
 The Role of Organizational Structure in Achieving Success: This section introduces
the concept of organizational structure as a critical factor in achieving organizational
goals. It discusses the advantages and limitations of the functional structure, particularly
as organizations grow and face increasingly complex challenges. (approx. 150 words)
 Divisional Organizational Structure: Adapting to Growth and Complexity: This
section explores the divisional organizational structure as a solution to the limitations of
the functional structure. It highlights the benefits of grouping related products,
customers, or technologies into divisions, and offers examples like General Motors.
(approx. 200 words)
 The Matrix Organizational Structure: Balancing Functional Expertise with Project
Focus: This section presents the matrix organizational structure as a way to combine
the strengths of the functional and divisional structures. It explains how the matrix
structure fosters collaboration and allows for flexibility in resource allocation. (approx.
150 words)
Source 2: Index Excerpts from "Growing Pains Building Sustainably Successful
Organizations" by Eric G. Flamholtz and Yvonne Randle
 Key Terms and Concepts: This index provides a comprehensive list of important terms
and concepts discussed in the book. It includes entries like “Competitive Advantage,”
“Culture,” "Leadership Molecule," "Market Niche,” "Performance Management Systems,"
"Strategic Planning," and "Stages of Growth," allowing readers to quickly locate specific
topics within the book.
Source 3: Yvonne Randle’s Foreword to "Growing Pains Building Sustainably Successful
Organizations"
 Endorsement of Flamholtz's Framework: This section provides an enthusiastic
endorsement of Eric Flamholtz’s work as outlined in "Growing Pains." Randle highlights
the book's value as a “gold standard” for building sustainable organizations. She
emphasizes the practicality and effectiveness of Flamholtz’s frameworks and tools in
guiding both strategic and tactical decision-making. (approx. 150 words)
1. What is "sustainable success" and why is it so difficult to achieve?
Sustainable success, in a business context, refers to an organization's ability to thrive and
maintain its success over multiple decades and leadership generations. It goes beyond short-
term gains and fleeting triumphs, aiming for lasting impact and enduring value creation.
Achieving sustained success is challenging due to the ever-changing business landscape,
market volatility, and internal organizational complexities. Many companies, even those that
experience rapid initial growth, falter in the long run due to factors such as:
 Failure to adapt to market shifts: Companies that become complacent or fail to
anticipate and respond to evolving customer needs, technological advancements, and
competitive pressures often struggle to sustain their success.
 Lack of robust infrastructure: As companies grow, they need to develop and scale
their operational systems, including finance, human resources, and technology, to
support expansion and manage complexity.
 Leadership transitions: Successfully navigating leadership changes and ensuring the
continuation of a strong vision and culture are crucial for sustained success.
 Inability to innovate: Companies that cease to innovate and bring forth new products or
services risk becoming irrelevant in a constantly evolving market.
2. What are the key elements of building a sustainably successful organization?
Building a sustainably successful organization necessitates a comprehensive approach focusing
on key elements:
 Identifying and Defining a Market Niche: Thoroughly understanding customer needs
and creating a distinct value proposition within a specific market segment are essential
for differentiation and competitive advantage. A niche doesn't have to be small; it can be
quite large, as demonstrated by companies like Microsoft and Apple.
 Developing a Strong Business Foundation: This foundation consists of a clear
business concept, a compelling strategic mission that outlines long-term aspirations, and
a well-defined core strategy that guides the organization's competitive approach.
 Acquiring Resources and Developing Operational Systems: Securing the necessary
financial, human, technological, and physical resources to support growth and
establishing robust operational systems are crucial for scaling the business effectively.
 Effective Leadership and Management: Strong leadership that sets a clear vision,
fosters a positive culture, and empowers employees is vital. Establishing effective
management systems, particularly in areas like performance management, helps align
efforts and drive accountability.
3. What is the "Pyramid of Organizational Development" and how can it help
organizations succeed?
The Pyramid of Organizational Development is a framework that outlines the critical stages of
growth that organizations typically experience. It provides a roadmap for building a sustainably
successful enterprise:
 Stage I: New Venture Creation: The emphasis at this stage is on identifying a viable
market and developing a product or service that meets customer needs.
 Stage II: Functional Growth: As the company grows, it develops functional areas such
as sales, marketing, and operations to manage increasing complexity.
  Stage III: Controlled Growth: Focus shifts to establishing control systems and
processes to ensure efficiency and effectiveness as the organization scales.
 Stage IV: Strategic Integration: Developing a cohesive strategy that aligns all
organizational elements becomes crucial for achieving a competitive advantage and
sustaining growth.
 Stage V: Diversification: The company explores new markets and products or services
to expand its reach and reduce reliance on a single offering.
 Stage VI: Institutionalization: Building a self-sustaining enterprise with a strong culture
and leadership pipeline ensures long-term viability.
 Stage VII: Revitalization: Adapting to changing market conditions and revitalizing the
business model become essential for companies facing decline or stagnation.
By understanding the challenges and priorities of each stage, organizations can proactively
address potential growing pains and build the necessary infrastructure to support their evolution.
4. How important is a company's culture to its long-term success?
Corporate culture plays a pivotal role in shaping an organization's identity, influencing employee
behavior, and driving long-term success. A strong, positive culture can:
 Attract and retain top talent: Employees are more likely to be drawn to and stay with
companies that have values and practices that align with their own.
 Boost morale and productivity: When employees feel valued, respected, and
connected to a shared purpose, they are more motivated and engaged.
 Foster innovation and creativity: Cultures that encourage collaboration,
experimentation, and risk-taking tend to be more innovative.
 Enhance customer relationships: A customer-centric culture translates into better
service and stronger customer loyalty.
Leaders must carefully cultivate and manage their company's culture, ensuring that it supports
the organization's strategic goals and values.
5. How does the concept of a "leadership molecule" contribute to organizational
success?
The "leadership molecule" is a framework that highlights the importance of collaborative
leadership, suggesting that successful leadership often involves a team of individuals with
complementary skills and perspectives who work together to guide the organization. This
approach recognizes that no single leader can possess all the necessary qualities to effectively
navigate complex challenges. By forming a cohesive leadership team, organizations can
leverage the diverse strengths of its members and create a more robust and adaptable
leadership structure.
Key characteristics of an effective leadership molecule include:
 Shared Vision and Values: Members of the team are aligned on the organization's
direction and guiding principles.
 Complementary Skills and Expertise: Each individual brings unique strengths and
knowledge to the table.
 Trust and Mutual Respect: A strong foundation of trust allows for open communication
and constructive conflict resolution.
 Collective Decision-Making: Decisions are made collaboratively, taking into account
diverse perspectives and expertise.
6. What are some common pitfalls that can hinder a company's growth and how can they
be avoided?
 Failing to Define a Clear Business Concept: Organizations need to articulate what
business they are in and the value they provide to customers. A vague or poorly defined
business concept can lead to confusion and misaligned efforts.
 Neglecting to Develop a Strategic Plan: A lack of a comprehensive plan outlining
long-term goals, strategies, and action steps can result in reactive decision-making and
missed opportunities.
 Inadequate Resource Allocation: Failing to secure the necessary financial, human,
and technological resources to support growth can stifle expansion and limit the
company's ability to execute its strategy.
 Ineffective Leadership and Management: Lack of strong leadership, poor
communication, and weak management systems can create internal conflicts, hinder
productivity, and damage morale.
 Ignoring the Importance of Culture: A toxic or misaligned culture can undermine even
the most well-crafted strategic plan.
To avoid these pitfalls, organizations should proactively address these challenges by investing
in strategic planning, leadership development, and robust management systems.
7. What are the key considerations for managing a company's growth through different
stages of development?
Managing growth effectively requires adapting leadership styles, organizational structures, and
management systems to match the evolving needs of the business. Here are some key
considerations for each stage:
 Stage I & II: Entrepreneurial leadership is essential for driving innovation and
establishing a foothold in the market. Flexibility and adaptability are paramount as the
company refines its offerings and finds its niche.
 Stage III & IV: As the company grows, establishing more formal control systems and
processes becomes crucial for maintaining efficiency and consistency. Developing
strong functional leaders and fostering collaboration across departments helps manage
increasing complexity.
 Stage V & VI: Diversification and the creation of distinct business units may require a
shift to a divisional organizational structure. Developing general management talent and
ensuring clear accountability for each division's performance are essential. Cultivating a
strong culture that unifies the diverse units helps maintain cohesion.
 Stage VII: Revitalizing a stagnant or declining company may involve reassessing the
business model, identifying new market opportunities, streamlining operations, and
fostering a renewed sense of innovation.
8. What resources are available to help organizations navigate the challenges of building
a sustainably successful company?
A variety of resources are available to assist organizations in their quest for sustained success:
 Management Consulting Firms: Firms like Management Systems Consulting
Corporation provide expert guidance on strategic planning, organizational development,
leadership development, and performance management.
 Business Books and Publications: Books like "Growing Pains: Building Sustainably
Successful Organizations" offer valuable insights and frameworks for understanding the
challenges of growth and building enduring businesses.
 Industry Associations and Networks: Connecting with peers in the industry and
joining relevant associations can provide opportunities for sharing best practices,
learning from others' experiences, and gaining valuable insights.
 Executive Education Programs: Programs offered by leading business schools can
help leaders enhance their skills in areas such as strategy, leadership, and
organizational development.
 Online Resources and Communities: A wealth of online resources, including articles,
webinars, and forums, can provide access to expert advice and connect businesses with
valuable tools and information.