1. M AY 2 0 11
Don Kilpatrick
o r g a n i z a t i o n p r a c t i c e
Preparing your organization
for growth
Martin Dewhurst, Suzanne Heywood, and Kirk Rieckhoff
Companies that address their organizational weaknesses as they
implement growth strategies give themselves an advantage.
Most senior managers pay close make it impossible to meet them.
attention to the strategic side of Likewise, key employees may lack
growth—the “wheres,” “whens,” and the skills needed to cope with the
“hows.” Yet many underestimate the additional complexity that growth
importance of organizational factors brings. By reviewing the experi-
in translating a growth strategy into ences of three organizations that
reality. This oversight can dampen a faced the stresses imposed by new
company’s growth plans: growth initiatives, this article seeks
organizational processes and to illustrate such “pain points” and
structures that are well suited to suggests some approaches for
today’s challenges may well buckle coping with them.
under the strain of new demands or

2. 2
Stifling structures: European retailer
1
Well-defined organizational needed to become a meaningful
structures establish the roles and growth platform. The executives
norms that enable large companies were concerned, for example, that
to get things done. Therefore, when the company’s existing team of
growth plans call for doing things store designers would have
that are entirely new—say, difficulty making the new format’s
expanding into new geographies or essential trade-offs, such as
adding products—it’s well worth the working with unfamiliar, lower-cost
leadership’s time to examine flooring and lighting products.
existing organizational structures to Likewise, the executives were
see if they’re flexible enough to concerned that the existing supply
support the new initiatives. chain would not cope easily with
Sometimes they won’t be. larger products, items with a short
shelf life (such as adult fashion
A European retailer, for example, clothing), or the demands of new
decided to expand beyond its base suppliers.
of small-format stores in urban
areas by including a number of So the company launched the large-
large-format stores in suburban format stores as a separate
ones. To serve suburban customers, business unit, with its leader
the new stores would require a new reporting to the CEO. The new
mix of products, including adult stores’ management team was
clothing, larger housewares (such as independent of the parent company
furniture), and additional electrical and included mostly newcomers
appliances. The new stores would who would not seek to replicate its
also offer lower prices than the old culture or processes. Still, the
ones. All this meant that the new retailer also set the goal of bringing
stores would have special supply the new business unit back into the
chain requirements and that the original structure once the first six
stores’ managers would need to new stores were up and running
focus more intently on price and and the new retail concept was
cost than had been customary for firmly established.
the retailer.
The new stores’ managers
As the company’s senior executives developed their own local
planned the new stores, they began distribution centers and store
questioning whether to operate designs, at a significantly lower cost
them as part of the existing per square meter than the
organizational structure or at arm’s company’s other stores had
length. Although launching them achieved. They also found new
within the existing structure would suppliers; modified some existing
be simpler, the executives systems, such as IT; and created a
concluded that doing so would deny different overall customer
the new stores the unique resources experience that was more focused

3. 3
on lower costs. The stores therefore In our experience, such separated
had fewer floor employees per approaches work best when a
square meter, for example, and company can develop a convincing
larger shelves that needed to be business case that existing
refilled less frequently. structures and processes will make
it very difficult to launch a new
Keeping the new stores separate undertaking. This can be true when,
helped get them up and running for example, the new model is
quickly but also made some inconsistent with the old one (as
processes at the corporate level with the European retailer) or could
more complex than they might have cannibalize it—say, if a high-tech
been. The IT systems supporting the firm introduces a new generation of
new stores, for example, handled a technology. Companies need to
number of processes differently, decide how much, and when, local
including store-level profit-and-loss customization should trump global
statements. It was therefore difficult standards and the benefits of scale,
to consolidate sales figures, cost of taking into consideration factors
goods sold, or wages across both such as the product or service
types of stores. being created, market conditions,
internal culture, and the skills of the
Nonetheless, in just two years, six of managers involved. In some cases,
the new-format stores were firmly the necessary customization can be
established and meeting their as minor as enabling people to work
financial targets. At this point, as in a local language; in others, as
planned, the parent company large as creating a whole new
integrated all of the stores—large business unit with different
and small—into a single business suppliers and customers.1
unit. Because the new stores were
past the start-up phase, executives Deliberately making these
determined that the benefits of using approaches temporary, as the
common systems and processes European retailer did, is critical. In
outweighed those of maintaining an our experience, two to three years is
entrepreneurial subculture. usually enough time for new
Therefore, many of the larger stores’ operations to gain sufficient
modified processes, such as the maturity to hold their own within the
amended financial and supply chain organization. It is also crucial for
systems, were replaced by those the companies to reintegrate these
parent company used. The only innovative pockets before they
remaining operational difference reach substantial scale, or they will
was the local distribution centers simply create an additional layer of
because the company’s overall complexity that makes the company
product mix was easier to handle as a whole harder to manage and
through them even in the longer could inhibit its next growth spurt.
term.

4. 4
Unscalable processes: European biotech company
2
Business processes are another process. This move, in turn, meant
area that companies often overlook, rethinking the scientists’ governance
to their detriment, when they are processes—determining, for
growing. It’s important for a example, who would attend, lead,
company to determine which and set the agenda for meetings.
processes will come under particular Scientists would now have to
stress when it grows. The case of a prepare and distribute briefs in a
European biotech company standardized format ahead of each
illustrates the dangers of not meeting and break into subgroups to
addressing potential problems early. make decisions on related research
projects. The company established
Before the company began an clear decision rights and decision-
ambitious growth strategy, it used a making protocols, including formal
small group of ten key scientists to stage-gate mechanisms to
make decisions about its product determine, for example, if products
portfolio. The group’s culture of were ready to enter large-scale
collegiality, informality, and communal clinical trials. It also worked to
decision making worked quite well, ensure that there were clear, strong
and each scientist actively helped to links between portfolio decisions
shape and refine every project. and the way scientists and other
Quarterly reviews of the research resources were assigned to projects.
portfolio took one or two days.
Getting the large—and frustrated—
But as the company grew and the group of scientists to accept these
volume and diversity of its projects changes was much harder than it
increased, the number of scientists would have been had the company
involved in portfolio management addressed the issues before it grew.
also had to expand. The meetings This was particularly true because
grew in length, and no clear the changes involved culture and
decisions were made. By the time mind-sets, not simply different
the company had 40 scientists documents or meeting formats. The
involved, the process had become scientists had, for example, enjoyed
unmanageable. The scientists—and receiving and giving input on the full
business leaders—were intensely set of research projects and initially
frustrated, the collegial culture was found it difficult to accept more
disintegrating, and there was no defined responsibilities and a sense
agreement about which projects of exclusion from important
should proceed or what level of discussions.2 It took two years to
resources they required. The implement these changes, and not
scientists became defensive and all of the scientists were comfortable
territorial, and the company was with them. Within nine months,
saddled with a bloated, expensive, however, most of them saw that the
and slow-moving set of projects. projects with the greatest scientific
interest were getting more resources,
Fixing these problems required which boosted morale and corporate
formalizing the portfolio review results.3

5. 5
Unprepared people: Technology manufacturer
3
Growth naturally creates new base, for example, found itself
interactions and processes, limited by the surge in complexity
expected and unexpected, and associated with operating under
often at a fast pace. To manage several different national regulatory
them, the employees who face the regimes. The company’s cautious
greatest complexity—for example, legal department rejected deviations
those in functions or businesses from home country procedures. As
that will see increased activity— a result, the department tended
must have “ambidextrous” to add new legal constraints in each
capabilities. These enable people to new jurisdiction but was unwilling
take initiative beyond the confines of to remove constraints that didn’t
their jobs, to cooperate and build apply to it. The expansion plans
linkages across the organization, stagnated until senior executives
and to complete many tasks in realized that the company’s legal
parallel. department needed new leaders
who felt comfortable assessing and
Companies sometimes forget to mitigating the risks in these new,
think about these capabilities in the ambiguous environments. The
units immediately involved in growth company responded by hiring new
and very often don’t do so beyond lawyers—a few in the home country,
them. A manufacturer of cutting- as well as new legal leaders in the
edge technology products that was markets where they were seeking to
seeking to expand from its domestic expand.
The specific organizational done within organizations: simplifying
processes, reducing duplications of
challenges companies face as they
accountability, and building capabilities. For
grow will differ according to their more, see Julian Birkinshaw and Suzanne
growth strategies. By managing Heywood, “Putting organizational complexity
in its place,” mckinseyquarterly.com, May
organizational complexity early, 2010; as well as Julian Birkinshaw and
however, any company can improve Christina Gibson, “Building ambidexterity
the odds that its growth plans will into an organization,” MIT Sloan Management
Review, Summer 2004, Volume 45, Number
succeed—while making it less 4, pp. 47–55.
difficult than ever to get things done.
1
The outcomes will vary markedly. For Martin Dewhurst is a director in
more on how companies can approach
these decisions, see Giancarlo Ghislanzoni,
McKinsey’s London office, where
Risto Penitten, and David Turnbull, “The Suzanne Heywood is a principal;
multilocal challenge: Managing cross-
Kirk Rieckhoff is an associate
border functions,” mckinseyquarterly.com,
March 2008. principal in the Washington, DC, office.
2
For more on managing culture change,
see Carolyn Aiken and Scott Keller, “The
irrational side of change management,”
Copyright © 2011 McKinsey Company.
mckinseyquarterly.com, April 2009.
3
More broadly, we know from our research All rights reserved. We welcome your
and client work that only a few steps are comments on this article. Please send them
really critical to making it easy to get things to quarterly_comments@mckinsey.com.