10 January 2021 Uncategorized

Growth-phase or error-phase?

Why a high-performance organisational structure is crucial for scale-ups!

Every year thousands of entrepreneurs attempt to translate their business idea into a successful enterprise. Whether they succeed in this endeavour or not depends on various factors. Usually, financial resources and market potential are seen as the key drivers for success. However, we want to shine a light on an often-overlooked factor for success: an efficient organisational structure. The transition from a business idea to a mature enterprise follows several stages. The first stage is the start-up phase, it is usually characterised by hard work and efforts to reach the first million euro in turnover. This initial stage is often set in motion by the founder/CEO and the initial team. After the start-up phase, comes the scale-up phase. During this stage, the ambition is usual to achieve 2.5 to 10 million euros in turnover. Stronger management and employee expansion (to 50 – 100 people) are often also important aspects during this stage.

Dealing with complexity

During the scale-up phase, the development of an efficient organisational structure becomes crucial. Research indicates that employee expansion raises the level of complexity within an organisation. This can become a great challenge for entrepreneurs since they often lack insights and skills to develop the organisation efficiently.

Therefore this phase is often dubbed the “error-phase”. If not executed properly the scale-up phase can result in low efficiency and decreasing growth, which in turn can inhibit the realisation of market and financial targets.

An organisation that supports value creation

Learning to set priorities and time-management are important challenges for scale-ups. Clear strategic objectives can help allocate limited time resources to the right tasks.

The organisational structure is equally important. Moreover, the design of the organisation can facilitate the achievement of strategic objectives. When the organisation is not functioning optimally, it will be difficult to realise the strategy. After all, the strategy follows the design and not the other way around.

When designing the organisation a common mistake is to rely on existing organisational structures an models, such as the classic top-down approach. However, in the context of fast-growing companies with a high degree of complexity these structures are not always optimal.

It is, therefore, better to start from the company’s primary activities. The management’s main attention should be dedicated to the operations that create customer value. Regretfully many companies operate inversely, dedicating too much attention on internal operations, which increases costs and hinders the creation of added value.

Recruit or develop existing potential?

Given the time pressure, many scale-ups resort to highering new employees instead of focussing on the development of existing talents.

It is worth aligning the required roles to the organisational design in terms of objectives. This approach can promote efficiency and cohesion between roles.

I would like to, again, stress the importance of focussing on the desired value creation, rather than the required activities or skills. Once this is defined, the roles can be used as a benchmark for both existing and future employees. It also illuminates the real blind spots in the organisation. To successfully map out (future) potential, the roles should include the level of complexity employees and candidates are required to handle, as well as their social-emotional maturity. Both aspects are essential for determining the agility with which they will be able to carry out their role. Additionally, they also give insights into the evolution potential and form the basis for personal development plans.

The impact on cash flow en efficiency

Lastly, we would like to point out that a sub-optimal organisational design can be very costly for scale-ups. Research has shown that bad organisational decisions can mount to efficiency losses of 15 – 25 %, which can be a heavy burden for organisations that are already strapped for cash. A bad organisational design can cost up to 2150 euro per FTE, and every miss-hire up to 32.250 euro.

Start-ups inevitably encounter ‘learning fees’, however, attention to positive cash flow and efficiency are essential.

Fast-growing companies can benefit from aligning the relationship between their strategy, the required organisation, and the potential of employees.

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