The Pyramid of Organizational Development

Managing the Steps of Growth

The Pyramid of Organizational Development - Managing the Steps of Growth

© iStockphoto
Gargolas

Imagine that you've just been put in charge of a small, entrepreneurial company. Although the company is still in its infancy, it has incredible potential.

You want to ensure that it grows and realizes this potential, but you're aware that there's a huge amount to do to transform it into a strong, successful, mature business.

So, how will you guide the company through this process?

At key stages in their development, entrepreneurial companies need to perform certain actions and put in formal systems, if they're going to grow further.

This is where a model like the Pyramid of Organizational Development is useful. The model creates a route map that young and growing companies can use to manage the activities necessary for growth or development. By using the pyramid, leaders can ensure that they address key issues, and can avoid the sometimes serious problems that can come with not having done this.

In this article, we'll look at the Pyramid of Organizational Development, and we'll think about how you can address each step in the pyramid.

About the Model

After two decades of management systems consulting experience and research, Eric Flamholtz and Yvonne Randle developed the Pyramid of Organizational Development, and published it in their 2000 book, "Growing Pains."

The Pyramid presents seven key developmental steps, or tasks, that the authors say must be completed successfully for an organization to develop into a mature, successful business.

The seven steps show the order in which you should construct the pyramid, starting with its foundation:

  1. Define the business concept.
  2. Identify and define a market.
  3. Develop products and services.
  4. Acquire resources.
  5. Develop operational systems.
  6. Develop management systems.
  7. Manage the corporate culture.

You can see the pyramid in figure 1, below:

Figure 1 – The Pyramid of Organizational Development

Pyramid of Organizational Development. Reproduced with permission of John Wiley and Sons, Inc.

From ‘Growing Pains: Transitioning From an Entrepreneurship to a Professionally Managed Firm' by Eric G. Flamholtz and and Yvonne Randle. Fourth Edition. © 2007. Reproduced with permission of John Wiley and Sons, Inc.

If leaders understand the steps in the pyramid, they can help their company grow at a healthy, steady rate, and they can ensure that they don't overlook any important tasks.

Note:

See also our articles on The Greiner Curve and Adizes' Corporate Lifecycle – these provide subtly different views of company growth. You'll do best as a leader if you understand and use all of these models at the same time.

Applying the Seven Steps

Let's look at each step of the pyramid in detail, and examine how you can apply each one.

1. Define the Business Concept

According to Flamhotz and Randle, companies should start by defining their business concept, which is the reason that they are in business. Your business concept defines what your organization wants to do, and also clarifies what it stands for.

Application

Whether you're starting a new organization or leading an existing one, it's essential to have a clear business concept and a well thought-through strategy. These are often expressed within a company's business plan, and they give your team the focus and purpose they need to succeed.

If you don't have one already, create a mission and vision statement for your organization. In a simple and easy-to-understand way, your mission statement defines what your organization wants to accomplish, and its objectives. Your vision statement then defines your organization's values and purpose.

It's important to communicate these regularly to your people, so that all members of your company have a clear idea of what you're trying to achieve, and of your organizational goals.

2. Identify and Define a Market

Your organization can't be everything to everybody. You need to define your target market, and think about how you can meet the needs of this market. You also need to create a strategy to determine how your organization will beat competing suppliers.

Application

Start by thinking about the people who you want to buy your product. Which groups are most likely to want, need, and pay for your products or services? How old are their members? Where do they live? If your organization isn't already targeting clearly identified and reachable groups, our article on market segmentation has many useful questions that will help you identify focused, target markets that you can address.

For example, one of your products might be geared toward older men, while another might fit the needs of younger women. You could develop different products for each group, and market differently to each, in a way that addresses their specific needs and different outlooks.

Having identified target segments, you need to understand how to compete in them. Our article on Porter's Five Forces helps you understand who has "power" in the segment, while the articles on Core Competence Analysis, USP Analysis and SWOT Analysis help you think about how you can compete effectively.

3. Develop Products and Services

The third step is to develop meaningful, useful products and services, so that you can meet the needs of your target segments.

If your organization is already established, then you'll have existing products and services in place. However, are you sure that those products and services fully address the needs and tastes of customers in each segment? Or, could the products be too generalized, with a poor fit for differing groups?

Application

Your products or services must be desirable for a large enough number of people in each segment, and they must satisfy an important need. First, talk to enough people in each target audience to understand how they think and what they want, in detail.

Consider using focus groups or surveys, as well as confidential interviews to gather the data you need. Also, test your products with these people to see how they react to them.

To ensure that your products and services meet the needs of your target market segments, successful innovation is essential. Use Doblin's 10 Types of Innovation to identify different areas within your organization where you can focus on innovation. The Four-Step Innovation Process can help you generate innovative solutions to problems, and tools like Kano Model Analysis can help you improve your existing products and services in line with what your customers most want.

4. Acquire Resources

In this step, you identify and acquire the resources that your organization needs for growth. These might include machinery, working capital, inventory, retail space, or other business-critical resources. This also includes getting the right people on board with your organization.

When evaluating your resources, consider those that you need now, and those that you might need in the future. This will ensure that you make the right decisions, and purchase efficiently.

Application

To determine the financial resources that you'll need, do a cash flow forecast for, say, the next 24 months to identify any potential cash shortfall; and use appropriate project evaluation techniques to identify project-related cash requirements.

Conduct a VRIO Analysis to understand which resources are most important to you, and ensure that you secure the right level of access to these. Then, focus on your supply chain and ensure that it's lean, while at the same time robust enough to survive reasonably foreseeable risks.

Where you need to expand your staff numbers rapidly, appoint a manager whose job it is to drive recruitment, and put appropriate recruitment processes in place. Your emphasis has to be on getting plenty of great candidates coming through the door – "good enough" candidates will ultimately only disappoint. Outsource non-core activities, and use contractors and freelancers where you need expertise, but don't want to employ someone full time.

5. Develop Operational Systems

Many fast-growing organizations overlook the importance of having solid operational systems in place. These are the systems that take care of day-to-day activities, such as accounting; billing; workflow, inventory and helpdesk management; transportation logistics; recruiting; training; customer relationship management; production; and advertising, to name a few. (The systems you need clearly depend on the industry you're in.)

Without an appropriate systems infrastructure in place, organizations can quickly descend into chaos and confusion. As well as initially installing systems, established organizations must strengthen and change these systems over time to handle increased demand. In a growing business, people and systems can quickly become overwhelmed, meaning that key parts of your business become "broken" until you fix them, with sometimes damaging consequences.

Tip:

Specialist systems can be expensive for small businesses, and, in the short term, you can often manage these areas on spreadsheets. This is fine – until it isn't. You may want to get started with informal systems, but, then, try to upgrade these proactively, before they are overwhelmed.

Application

Our article on Swim Lane Diagrams shows you how to map processes, so that you can identify inefficiencies, and ensure that appropriate systems are in place.

And, look for stressed people and bottlenecks in your organization; these are often a sign that processes are failing to scale appropriately, and need attention. Our article on the Theory of Constraints will help you locate these bottlenecks.

You can also use tools like Business Process Reengineering to transform processes, or even create entirely new ones.

6. Develop Management Systems

Your organization's management systems determine how your leadership team manages your organization. There are four key parts to this:

  • The Planning System: This includes operational planning, scheduling, budgeting, and contingency planning.
  • The Organizational Structure: This is your organization's hierarchy.
  • The Management Development System: This determines how your organization trains and develops managers.
  • Control or Performance Management Systems: This includes the systems for performance appraisal and employee motivation. It also includes formal control mechanisms, such as responsibility accounting.

Many young organizations get by without these management systems in place. However, in order to remain in control as your organization grows, it's important to develop these systems, and it's important to maintain them properly in established organizations.

Application

Share your organization chart so that everyone can see how the organization's management is structured.

Then use the McKinsey 7S Framework to make sure that all of the elements of your business are working together efficiently. (You can also use Mintzberg's Organizational Configurations to understand your organization's structure, analyze whether that structure is appropriate, and ensure that it fits with your overall strategy.)

Next, look at how your organization is addressing training and development. Do your people have the skills and resources that they need in order to improve? Do you have a process to address these needs? (If you're not sure about where your team members stand, conduct a Training Needs Assessment to gain a better understanding of their needs.)

Lastly, make sure that you provide regular feedback to let your people know that they're on the right track, or point out where they can improve. This feedback can be more formal, as a Performance Appraisal, or more informal, as a quick chat or email conversation. (See our article on Stop – Keep Doing – Start for a simple, effective way of doing this.)

7. Manage the Corporate Culture

If you had to write about your organization's "personality," what would you write? What values, beliefs, and behaviors does your organization expect of its people?

Your culture needs to align with and contribute to your strategy. Ideally, your corporate culture should inspire and energize your team as well, and this is why managing your culture is the final task in organizational development.

Application

First, explore your organization's current culture with the Competing Values Framework. This tool helps you define your culture and improve its effectiveness.

You can also use Deal and Kennedy's Cultural Model to understand your organization's culture and to see which of four cultural types your organization fits with; and our article on The Cultural Web will help you align your organization's culture with your overall strategy.

Last, as your organization grows, you might find that some people resist change. Our article on Change Management shows you how to overcome these barriers, so that you can grow together.

Key Points

Eric Flamholtz and Yvonne Randle developed the Pyramid of Organizational Development, and published it in their 2000 book, "Growing Pains."

The seven steps in the pyramid are:

  1. Define the business concept.
  2. Identify and define a market.
  3. Develop products and services.
  4. Acquire resources.
  5. Develop operational systems.
  6. Develop management systems.
  7. Manage the corporate culture.

The Pyramid helps leaders successfully manage the stages of growth and development in their organizations.

It can also be used to evaluate whether the organization needs to strengthen systems in key areas, in order to develop further.

Rate this resource

Comments (4)
  • Over a month ago Michele wrote
    Hello eggzos,

    You ask an excellent question. Before I can respond, I need to understand more about the social project. Engaging in a discussion here is not very interactive and other members of the club will not see your question. I encourage you to come over to the Forums and start a new topic. If you need some assistance, let me know. We're happy to help!

    Michele
    Mind Tools Team
  • Over a month ago eggzos wrote
    What are the differences when concept of OD is applied in social project situation and not on business?
  • Over a month ago Yolande wrote
    Hi Zuni

    It's always great to hear from you and we always love hearing that a tool was timely for one of our members. Going forward using the pyramid of organizational development to develop your strategies, will certainly provide great structure. Your insight into your company coupled with your ability to use tools such as these may make for interesting developments. We're watching this space...please share with us as you go along.

    Kind regards
    Yolandé
View All Comments