Scaling Up - Book review
1 December 2016
Dr. Moria Levy
"Scaling Up: How a Few Companies Make It... And Why the Rest Don't" is a book authored by Verne Harnish in 2014 in collaboration with his team. It is considered a classic management text, encompassing comprehensive principles associated with scaling up businesses.
The book offers management tools tailored to help companies expand their scale and become industry leaders. Serving as a follow-up to a similar publication from a decade ago, "Mastering the Rockefeller Habits," this book takes the form of a guide, providing precise operational directives for navigating this context.
The book explores several key areas, including:
1. Infrastructure: Emphasizing the significance of having the right people in place.
2. Planning: Focusing on strategic thinking and formulation.
3. Execution: Highlighting effective implementation of the devised strategy.
4. Enabler: Discussing the role of cash flow in facilitating growth.
In addition to explanations and insightful content, the book is filled with real-world examples of companies that have successfully applied these principles. While rooted in classical concepts, it also demonstrates its relevance in our contemporary world. It's undoubtedly a valuable read for those interested in effectively scaling their businesses.
Infrastructure: Emphasizing the significance of having the right people in place.
The nucleus of the organization's leadership resides in its top management. As the company strives for expansion, the importance of this leadership intensifies. The three paramount considerations in selecting the leadership team and defining their roles encompass responsibility, authority, and, preceding these, accountability. The CEO is encouraged to complete the OPPP form as a personal guide. In this form, the CEO delineates their relationships with colleagues, the achievements they aim to spearhead, vital routines to maintain in their lives, and factors contributing to their well-being. Significantly, this form extends to the leader's personal life beyond the professional sphere.
To ensure the company possesses sufficient managerial resources, it is imperative to delineate each of the nine critical roles essential in every organization (CEO, marketing, development/innovation, sales, operations, finance, control, computerization, human resources, learning and development, customer retention) via the FACe form. This form outlines the individuals responsible for each role, how their performance is measured (KPIs), and the expected outcomes. While it is permissible for one person to assume multiple roles, taking on more than three positions poses a potential risk to the company's growth. A parallel analysis should also be conducted for critical departmental functions within the organization using the PACE form. This process aids in mapping the primary approaches, their indicators, and the desired results.
Harnish places significant emphasis on recruitment when discussing staff management. He advocates an integrated approach, merging marketing strategies with recruitment efforts to attract top talent to the company. In the selection process, four key parameters should be considered in the following order:
1. Will: The candidate's motivation to take action, act courageously, learn, and innovate.
2. Values: The alignment of the candidate's values with the organization’s.
3. Results: The candidate's ability to drive the company's metrics and achievements.
4. Skills: This is the final assessment parameter, as necessary skills can be developed and refined over time.
Managers hold a critical role primarily because they influence over 70% of the employee engagement factor. Successful managers engage in coaching and guiding the employees under their purview. Their responsibilities include establishing clear and consistent expectations for their team members and granting them the flexibility to apply their skills. Managers play a pivotal role in helping employees comprehend what is expected of them while harnessing their abilities and strengths. Learning, trust, and nurturing are fundamental aspects of advancing employee development.
Planning: Focusing on strategic thinking and formulation.
The strategy encompasses several layers:
The core represents the organization's personality, encompassing:
- Values that govern the company's conduct.
- The mission is ideally encapsulated in a word or two (e.g., 3M – innovation; Disney – happiness).
- The company's unique and challenging-to-replicate competencies serve as a driving force for reuse and growth. It is advisable to analyze these core components using the OPSP framework. Pro tip: Link employee rewards to the organization's values every time they are recognized.
The formulation of the strategy is based on the 7STRAT tool, which includes the following vital chapters (detailed in the book):
1. Identifying keywords associated with the company (searching them on Google should lead to the organization). These keywords should hold significant meaning.
2. Articulating branding promises, such as high quality, affordability, or convenience in doing business.
3. Defining the company's responsibility – something it is committed to guaranteeing or offering a refund.
4. Concisely stating the money creation strategy.
5. Identifying the company's differentiating activities in comparison to competitors.
6. Highlighting a unique advantage that can drive the company's growth, often found by addressing industry pain points.
7. Setting a Big Hairy Audacious Goal (BHAG) for the organization 25 years ahead.
Vision and Action Plan:
Developed based on the OPSP framework and aligned with core values, this includes:
- Long-term, medium-term, and short-term goals.
- Defined actions.
- Perception of remuneration.
- Responsibility for realizing each of these factors.
These components collectively shape and steer the organization's strategic direction.
Execution: Highlighting effective implementation of the devised strategy.
Ten essential habits have been defined to ensure the successful implementation of the strategy. Adhering to these habits ensures consistent and sustained execution of the strategy over time:
1. Health of the Leadership Team:
o Management members acknowledge their differences in priorities, character, and conduct style.
o They engage in collaborative strategic thinking.
o Continuous learning, especially in management skills, takes priority.
o They excel in integrative and productive negotiation, creating a comfortable environment for all.
o All employees are well-informed and aligned regarding the most critical objectives for the upcoming quarter.
o The organization emphasizes the importance of "keeping the main thing the main thing," articulating it clearly, measuring progress, and providing appropriate rewards.
3. Regular Meetings:
Communication plays a pivotal role in successfully implementing the strategy, and meetings are vital for advancing goal achievement. Harnish recommends the following meeting schedule:
o Two daily meetings involving all employees (at least 15 minutes): Focused on tactical discussions.
o Bi-weekly meetings for all teams (60-90 minutes): Providing a quarterly progress overview and focused brainstorming on 1-2 key topics.
o Bi-monthly meetings for managers at all levels (half a day to a full day): Focused on collective learning around significant topics.
o Quarterly and annual meetings (1-3 days away from the office): Involving top leadership. These meetings involve updating strategy tools and detailed implementation planning.
4. Defined Responsibilities:
o Each role within the organization is clearly defined, encompassing processes, metrics, and expected results. Refer to the "People" section for more details.
5. Employee Feedback:
o Ongoing collection of employee feedback to identify obstacles and opportunities.
o Weekly conversations with employees to manage data and discuss insights with management.
o A designated individual within the company is responsible for closing the feedback loop.
6. Customer Feedback:
o Managers at various levels engage in weekly conversations with customers.
o Insights from these interactions are shared at the management level.
o Employees actively participate in the feedback collection process.
o There is a designated individual responsible for addressing customer feedback.
7. Core Values and "Life" Mission:
o Values are defined and integrated into the strategy chapter.
o Employee compensation aligns with these values.
o HR processes are synchronized with core values.
o Quarterly proactive actions are dedicated to strengthening core values.
8. Clear Understanding of Key Strategy Elements by Employees:
o This includes BHAG (long-term goals), core customers and their business profiles, branding promises, and an elevator pitch explaining the company's mission.
9. Metrics for Everyone:
o Each employee can assess their performance against metrics daily and weekly.
o Each employee manages 1-2 weekly metrics.
o Employees have individual goals (with quantifiable indicators) aligned with the company's objectives.
o Management and middle managers have access to coaching support for managing behavioral changes.
10. Result Boards (Metric Compliance) Everywhere:
o A situation room, whether physical or virtual, enables weekly meetings and follow-ups.
o Core values, mission, and prioritization are visible throughout the organization.
o Scoreboards display progress toward goals transparently.
o A system is in place to track and manage prioritization and metrics effectively.
Enabler: Discussing the role of cash flow in facilitating growth.
This chapter introduces various financial tools, although we will only detail some of them. Here are some fundamental principles to emphasize:
1. Cash plays a critical role in fueling growth.
2. The need for cash significantly increases during periods of growth compared to when a company is stable.
There are several avenues to enhance your cash strategy, including:
- Optimizing sales processes.
- Streamlining production, development, and inventory management.
- Improving processes related to product realization and customer delivery.
- Enhancing invoicing and collection procedures.
When exploring ways to generate cash, consider the following:
- Increasing sales volume.
- Reducing material costs.
- Trimming overhead expenses.
- Shortening customer debt repayment periods.
- Minimizing inventory holding days.
- Extending credit days for payments to suppliers.
Numerous practical tips are available for each of these aspects. Summarizing everything comprehensively is challenging, so we sincerely apologize for the brevity.