The COVID-19 pandemic created unprecedented growth for Zoom. In December 2019, the video conferencing app had an average of 10 million users. By April 2020, that number climbed to 300 million. The sales of the app soared 326%, and profits jumped from $21.7m to $671.5m.
Despite Zoom’s astronomical success, organizational development experts would agree that the tech company went through a major crisis—a crisis it might still be grappling with.
The reason? Growth, while welcome for most companies, almost always comes with its own problems. The sole fact that the company doubled in size would have been enough to usher in a period of revolution, as per Larry E. Greiner’s model of how organizations develop.
According to Greiner, when a company increases its headcount and sales volume, new management issues arise. “Problems of coordination and communication magnify, new functions emerge, levels in the management hierarchy multiply, and jobs become more interrelated,” he says.
To tackle these issues, companies need to upgrade their management style just like they like they would old machinery or outdated information technology.
Upgrading management practices is key to growth
There is no doubt that Zoom upgraded its management practices. It was the only way the company could grow.
According to professor Larry E. Greiner, organizations go through a series of predictable developmental phases, much like humans do.
These phases are characterized by periods of calm, steady growth (“evolution”) that alternate with periods of turmoil and change (“revolution”).
In their lifespan, companies may experience five phases of growth: Creativity, Direction, Delegation, Coordination, and Collaboration.
In each phase, the evolutionary period is characterized by a dominant management style, while the revolutionary period is characterized by a dominant management problem the company needs to solve if it wants to continue to grow.
Take a startup, for example. In the early days—the Creativity Phase—the startup is marked by an individualistic and entrepreneurial management style that has one sole focus: to create a product and a market for it.
As the startup grows, a crisis of leadership inevitably ensues, and the implementation of new management practices—a process that begins with the hiring of a skilled business manager—leads it into Phase 2, Direction, which sustains the startup until the next revolution.
(For a list of the management actions that characterize each of the five phases—and to identify the phase your company is in—check out this table.)
Greiner’s model of organizational growth shows that:
- Growth cannot happen without a change of management style.
- Survival depends on 1) a change of management style or 2) a conscious decision to stay small to preserve a certain way of doing things
- A new management style is always a response to the demands of the previous phase’s revolution
Greiner’s model also confirms that Zoom more than likely has navigated a crisis, responded to it with updated management practices, and is entering a period of steady growth.
Upgrading management practices improves company performance
Although companies often change their management practices out of necessity—you can’t stop a revolution—the changes often result in improved organizational performance.
Research shows that management practices have a direct impact on productivity and profitability.
When researchers from Harvard Business School surveyed 11,000 firms from all over the world to understand if and how they were using best management practices recognized by consulting firm McKinsey & Co, they found that the organizations that scored the highest were the most profitable and productive.
They also found that quality of management accounted for 30% of the differences in productivity across countries.
“The point for practitioners is that managerial processes are as important as other inputs in production and can create significant competitive advantage,” said one of the authors of the study, Harvard Business School professor Raffaela Sadun.
Management is a technology—are you due for an upgrade?
We’ve all heard that investing in technology can improve company performance. But this isn’t just true of hard technology such as new machinery, or of information technology such as hardware or software.
Soft technology, which encompasses human activity such as management, can impact productivity and profitability just as much.
In fact, researchers say that information technology is more likely to increase productivity in companies that have an appropriate managerial structure in place to take full advantage of it.
Like hard technology and information technology, management technology also depreciates over time.
But while a company may live on in spite of outdated software and hardware, it may not survive, and it certainly will not grow, with outdated management practices.
What stage of growth is your company in? Are you due for an upgrade?
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