Reorganizing for Growth
When rapid growth becomes unmanageable, a change in corporatestructure may be just the ticket to get control
Four years ago CMP Publications Inc. looked from the outside like a company that didn't know how to make a mistake -- not a fatal one, anyhow. The 10 business newspapers and magazines it produced were tops in their respective markets, and their markets -- computers, communications technology, business travel, and health care -- offered plenty of room for growth. There was competition, to be sure, but no one was about to eat CMP's lunch.
Plus, the family-owned business headquartered in Manhasset, N.Y., had a bunch of hotshot managers running its publications -- "superstars," says cofounder Gerard G. Leeds. The company's top-line growth was on target at a rate exceeding some 30% per year.
Today the superstars are still there, and from the outside CMP still looks agile. That's because on the inside, it has changed.
If CMP had behaved as more young growth companies do, it would probably be in trouble now -- its growth stalled, its market share slipping, or its management plagued by defections -- or the company might even have been sold.
Gerry Leeds and Lilo, his wife and cofounder, started CMP Publications in 1971 and did right just about everything entrepreneurs are supposed to do.
However, although Gerry Leeds had picked the right products in the right market and produced them well -- in fact, precisely because of the products' success -- in late 1986 CMP was about to experience a problem that easily could have tripped the company up. The problem had nothing to do with publishing. It was something that every young fast-growth company eventually runs across. The symptoms showed up first on the inside, mostly in annoying little ways.
For instance, the Leedses became harder to see. People wanting to meet with Gerry would start queuing outside his office about 8:00 in the morning. The publishers found it harder to move requests through the corporate support departments -- accounting or human resources, for instance.
"The answers to day-to-day questions," says Kenneth Cron, one of the publishers then, "were less and less easy to get." It took longer to get action on ideas for new publications, too.
Well, what could you expect? Every company has growing pains. But often glitches that can be written off as annoyances are symptoms of issues far more serious. That was exactly the case at CMP. The company had grown too big for the skeleton of its own organization.
Symptoms like these begin to show up in virtually every growth company. When they do, chief executive officers everywhere tend to react the same way. They'll try to work harder, but they're probably already working as hard as they can; they'll decide that entrepreneurs don't make good CEOs and bring in a professional replacement, who will usually do worse; they'll nag and harangue managers, then fire the ones who don't quit; or they'll ignore the symptoms.
But the Leedses reorganized, restructuring their company so it had the capacity to handle the next stage of growth. CMP's restructuring had two facets. First, they broke the company into manageable and growable groups -- creating companies within the company, in essence -- and placed a manager in charge of each. They made sure that these managers, called group publishers, had the authority to run and grow their divisions.
Second, the Leedses created a way to relieve the chief executive of part of the executive burden. They set up a board called a publications committee. The group publishers sat on the committee and assumed the added titles and responsibilities of vice-presidents.
So now, after the reorganization, CMP has a second tier of management -- not just another group of individuals to line up outside Gerry Leeds's door, but executives who can act on their own within the corporate strategic objectives that they themselves, as the publications-committee members, helped formulate.
The Leedses, like many entrepreneurs, had been sitting at the top of a highly centralized organization perfectly suited to one stage of the company's growth but not to the next. The restructuring has allowed CMP to accommodate more growth: last year the total publications at CMP numbered 14, and its sales climbed another 11%, to $174 million. But the Leedses had one other thing in mind when they restructured: retirement and passing the reins to son Michael, a group publisher.
If the succession plan they created hadn't involved restructuring the company for growth, if they had tried only to substitute Michael or another younger manager for Gerry, the new CEO surely would have failed. The old one was already handling almost as much as one executive could. It's doubtful that any less experienced person could have done as well. "My parents had 40 years of business experience," says Michael, "and I didn't."
And if, rather than restructure the company to give all five key managers more authority to grow their own portions of the company, the only move had been to slip Michael into the CEO's position, some if not all of the nonfamily senior managers eventually would have quit. None of them did. "They're not worried about Michael taking over," says Gerry. "They're too busy with their own challenges."
TIME TO REGROUP
What to look for
When an entrepreneurial company's growth stalls, it's customary to look outside for new opportunities. The reasons for the slowdown, however, may lie inside the company. Maybe the organization simply can't handle any more growth. Does the CEO personally have to consider every decision? Do all the ideas come from her or him? If so, before looking for new products or services to develop or new markets to sell them in, think about creating a multi divisional structure for the company that will
* Remove administrative roadblocks and bottlenecks that slow the information flow or the decision making. At CMP Publications Inc. every major problem had to go up to the CEO for a solution. Now most division problems stay at the division level, where they belong.
* Shift some of the executive burden from the CEO to the divisional vice-presidents. For instance, when limited resources have to be shared by two or more divisions, CMP's publications committee can work out the allocation.
* Give key managers the authority and resources they need to grow individual divisions of the company.
When CMP Publishing Inc. wanted to shift from a highly centralized organization to a multidivisional one, it called in as a consultant an expert on the issue, William Ouchi. "CMP Publishing was operating with a U-form, or functional, organization," says Ouchi. "That kind of structure can't work well beyond a certain size. That's the point at which you have to switch to a multidivisional form so the company can continue to grow."
For a less expensive dose of Ouchi's advice about management structure, consider his two books on the topic: Theory Z (Addison-Wesley Publishing Co., 1981) and The M-Form Society (Addison-Wesley Publishing Co., 1984).