The rate of growth of medium-size businesses often slows considerably as they attempt to scale their operations further.  In this second in the series of articles, we’ll discuss the likely causes.

In our first article, we looked at some of the signs that there are operational constraints on the growth of a business, including clues to be found in organisational structures and behaviours, operational performance and the use of technology.  But why do many medium-sized businesses often hit a growth ceiling?

How did this happen?

So what are the forces at play that cause businesses to struggle to progress at certain stages in their growth?

External influences

Obviously, the macroeconomic environment has a major impact on a business’s ability to grow, as does the state of the specific markets within which it operates.  Successful organisations manage risk and take early actions to ensure that they stay relevant.

However, all too often this critical leadership role is overwhelmed by other operational issues emerging as the business grows.

As organisations grow, the number of external constraints and requirements increase.  Smaller organisations have a free pass when it comes to some procurement requirements, particularly in the public sector.  But expectations change rapidly once they are perceived to be able to afford to implement robust certified management systems.

At the same time, the scale of these businesses is such that they are less likely to be independent.  Whether through investments from private equity or venture capital, acquisition or floatation on AIM, investors demand visibility and assurance.

Organisational complexity

A common constraint to growth is delaying the development of a capable and effective management organisation.  In the early days, founders are in direct control of their teams.  Eventually, often with some resistance, they relinquish aspects of the business to trusted managers.  As the organisation grows, these managers find themselves having to trust others to manage part of their areas of accountability.  And so on as layer after of layer of management is needed, on a reactive basis.

The problem is that the organisational structure that evolve are rarely optimal.   Spans of control vary dramatically, often with the CEO having over 12 direct reports whilst junior managers may only have one or two.

Capability and capacity lagging behind demand

All too often, people in senior leadership roles in large organisations are spending 80% or more of their time on operational tasks – client management, sales, running projects, solving problems, etc.  After administration tasks, there’s not much time to develop the people, processes and systems needed to scale the business.

On the left is a system diagram demonstrating the negative cycle that developms when resource management processes are not aligned to business growth.

Similar cycles exist when there is insufficient investment in processes and systems.

It’s easy to blame individual managers for letting this happen. After all, the constraint usually shows up in just one department or section (read The Goal, by E.Goldratt).  However, in our experience this is a symptom of a systemic, limiting failure of the business to treat resource planning as critical to driving growth.

In the next article, we’ll look at some of the key strategies to breaking down the operational barriers to growth.