Evolving to Keep Growing

Today, the business world is experiencing an unprecedented transformation. Young companies -whose history often began in garages- grew very quickly in a short time and achieved such great expansion that it led them to become the most important organizations worldwide.

These companies possess unique characteristics and cultures that marked the beginning of a new era. They were born from software in the digital age and, therefore, since their very foundations incorporated “agile” ways of thinking into their operations. Unlike corporations from almost a century ago, which emerged in the analog era at a time when control, processes and hierarchies were key, the new digital giants represent a significant breakthrough in terms of innovation and new ways of working.

Some of these companies have been market leaders for several years, like the tech giants Google, Amazon, Microsoft or Meta, which have market capitalizations exceeding one trillion dollars. However, the technology sector also consists of other large organizations, such as Booking, Netflix or Airbnb, to name a few examples, which have already left their startup stage and are now relevant players in constant expansion, and leaders in technological innovation.

The magnitude of all these companies can be seen by observing that 28% of NASDAQ’s total market capitalization corresponds to the tech sector, making up the fourth largest sector with 836 companies in the index.

The Beginnings: Talent and Freedom

In general, the growth story of companies that emerged in the digital age tells of a beginning with a few founders who, as they began to develop, made a great effort to maintain some core values that allowed them to grow quickly and scale at an accelerated pace.

There are some common factors that seem to have helped them gain traction and that we can observe recurrently.

On the one hand, they are companies that have focused on giving decision-making freedom to their members, which has ensured them speed of action to capture opportunities as soon as they detected them.

Along that line, it is that same liberty that has stimulated employee autonomy and enabled an independent and decentralized way of working. To achieve this, what is usually observed is that the organizational models are very horizontal and are guided by ambitious objectives hand in hand with guidelines that allow operating with very few processes. Based on having the right talent and trusting individual judgment, decisions are made with great liberty, but with high responsibility.

In these companies, the culture often has roots in a philosophy focused on accepting errors, understanding that making mistakes and learning is often more valuable than not daring, as a result of constantly trying to prevent risks.

In this way, based on a strong culture generated by the presence and role modeling of the founders and their first lines of employees, the initial steps of growth are achieved by operating with high levels of trust among its members, who feel empowered thanks to the founders’ singular vision.

The Challenge: Increasing Complexity

As the level of operation grows (new countries and products, and more customers and employees) several elements begin to change, and the enablers that allowed initial growth do not necessarily propel moving to the next level. On the one hand, the number of challenges and new decisions to be made is much greater, and on the other, the impact behind the risk of decision-making starts to be on another scale.

The maximum autonomy that worked at the beginning begins to generate ambiguities that impact the business and the work environment. What typically happens is that many people find themselves doing the same thing; or that sometimes, it is not clear who makes what decision, generating a lot of back and forth that slows everything down.

Sometimes, the growing and natural lack of trust -due to the rapid growth of teams- generates the need of escalation of several decisions and things end up with the same leaders as always. Faced with increasingly complex problems, the important and current need for collaboration between areas runs into an absence of coordination mechanisms, due to years of operating independently.?

On the other hand, the “leap of faith” decisions that were natural in the early startup stages given the high levels of uncertainty are now risky. The implications of decisions are much greater and compliance with legal, financial, political and other regulations and standards is required to meet the quality standards demanded.

These and other challenges make these types of organizations see the need to review their governance model to incorporate rules that – counterintuitively – will allow them to gain speed. Given that the apparent freedom and autonomy can become counterproductive, adding flexible processes, routines and mechanisms is beneficial.

Despite the logical fears pressing founding teams to the idea of becoming one of the large bureaucratic corporations, today it is necessary to design and implement new decision capabilities that allow them to have the right balance of speed and risk they need to grow to the next level.

The key question then is how to generate a new system that allows them to grow faster while preserving the essence of their DNA, culture and way of working?

The Next Step: Enhancing Decision Making

Successful teams, like successful organizations, require a designed way of working. Think of a soccer team. Its eleven players, no matter how extraordinary they are, do not know how to play ball together simply because of their individual talent. Similarly, many talented leaders do not make up an organization that makes good decisions. The organizational ability to decide and execute quickly must be built.?

We have seen that companies that have managed to overcome these challenges have defined certain principles and ways of working that allowed them to go from founder-driven decisions to a scalable leadership system. Few companies in the mid-2000s tech boom foresaw incorporating a degree of order and structure at the organizational level in view of the long road ahead. However, today there are several examples of companies that effectively consolidated their expansion by implementing agile decision management systems.

Amazon, for example, encourages individual decision-making within teams through guiding principles called “tenets”, that they can rely on when facing a challenge. The goal is to empower teams to make decisions by eliminating long chains of permissions. Thus, before starting a large project, thanks to this framework, team members spend a lot of time with the leadership team establishing the rules of the game.

On the other hand, Apple is known for promoting collaboration between different functions when making decisions through debates and with an organizational design that limits the number of managers participating in them. In this model, called single threaded owner, technical expertise and knowledge of the area, together with a high commitment to collaboration, enable managers to make coordinated product decisions with a lot of information and exchange of opinions.

In 2016, Spotify was growing rapidly, but the onboarding of new engineers was taking over 60 days and causing a decrease in productivity. Upon joining, they did not know where to start or how to decipher the company’s code without asking a colleague for help. What used to work before was no longer the case: small, autonomous teams building quickly with an agile focus that, when multiplied, produced more confusion. As a solution, Spotify created an open-source code development portal where engineers and members of compliance and security teams can access all software in its ecosystem, find out who owns it, and view technical documentation in one centralized location.

While there is no universal formula that works for all companies equally, generating an operating model that extends decision-making approaches and culture seems crucial. Sometimes, methodologies or processes can help, other times the key lies in establishing a different know-how, or in generating a common language.?

There are many ways to address these challenges and it is essential to choose the one most suited to enhancing the existing narrative. There are companies that, for example, focus on dynamically ordering roles, or on generating a unique way of working in meetings or squads.

What is certain is that, to keep growing, something must change. And that something does not necessarily imply becoming one of the big elephants from the old era. Today, a new and much more agile organization is required – one that must leverage the DNA that originated it in order to maintain its identity.?

Just like how current market leaders did in the past, those who respect their essence in design and decision making, articulating decision-enabling elements to unlock their growth speed will be the future winners.

Ernesto Weissmann

Partner at Tandem.