The negative network effect
It is an unavoidable law of growing organisations that linear growth of people leads to quadratic growth in complexity (‘quadratic’ means growing in line with the square of, it’s not exponential, but is considerably higher than linear).
This is easily understood when you think of the connections between people. In a team of 2 people, there is 1 connection, in a team of 3 there are 3, in a team of 4 there are 6, and with 5 there are 10, and so on.
To put this in an easy to understand example, think of the job description of a marketing manager. When the company is small, she is able to spread her time running marketing campaigns and supporting the team with marketing tasks. But, at a certain point, a small task, such as maintaining staff info onto the company website, becomes onerous to the point of pushing aside other work. She then has to apply for more resource to manage this task (thereby further compounding the problem). Complexity begets complexity, and it is the constant headache of entrepreneurs running scale up companies.
As a result, things which were easy, such as keeping a finger on the pulse of client feedback, or staff engagement, suddenly start to become really tricky, and all these systems and processes have to be put in to place to collect and disseminate information.
This effect becomes a considerable drag on the growth of companies. It’s not a problem of strategy, or culture per se (though they are both affected by it), overcoming it is a function of the management and execution disciplines of the business.
Verne Harnish is a consultant and author who has been working with scale up companies for over 3 decades. He is the founder of The Entrepreneurs Organisation, and author of the popular book ‘Scaling Up’. When writing the original version of the book ‘Mastering The Rockefeller Habits’, Verne studied the habits of the famous industrialist John D Rockefeller, as well modern-day high-growth teams. He identified a series of habits or best practices that all these organisations had in place in order to deal with this negative network effect.
The result is called ‘The Rockefeller Habits Checklist’, and it’s a list of 10 best practices that successful scale ups put in place, and teams can easily score themselves on each. It includes items, like ‘The Executive team is healthy and aligned’ and ‘Ongoing employee input is collected to identify obstacles and opportunities’, along with supporting explanatory bullet points.
Using the Rockefeller Habits Checklist, helps leadership teams to assess themselves regularly, and then select areas of focus and improvement in the ‘operating system’ of the business. Essentially, it allows you to answer the question ‘how well run is the organisation?’, and focus in on areas that require improvement.
David Ryan – who runs a construction company, called Xpertek is a keen implementer of the tools of the book Scaling Up and completes ‘the Rockefeller Habits Checklist’ (‘RHC’)
This habit has had a significant impact on his business. Here, he has tracked his scores on the checklist, and superimposed on it the performance of the business (both sales and profit) during the same 4 year period.
As you can see, there seems to be a clear correlation between the improvements in the scores and the growth of the business. Data can lie, of course, and correlation does not necessarily mean causation, but for David he sees the connection so clearly that he now spends much of his time helping other entrepreneurs replicate what he’s done, by using the same tool.
How can it help you?
At Scale, we’ve helped dozens of companies use the RHC to focus on, and deliver improvements, to the operating system of their businesses. It forces teams to think not of specific day to day tasks but where the whole system needs improvement. For example, item #6 on the checklist: ‘Reporting and analysis of customer feedback is as frequent and accurate as financial data’ is almost always one of the lowest scores, and leads to initiatives to start collecting and using customer feedback.