It’s a business success story: you are the chief executive of a company that has launched a new product that has really taken off. Sales are growing, profit margins are impressive and expansion into new markets is progressing well.
That may mean it’s time for you to move on, say Paul Nunes and Tim Breene, the authors of Jumping the S-curve.
“It’s a rare chief executive who would be willing to step down when revenues are surging and profits are healthy,” they write. “But that’s exactly when a change in top management might be most needed.”
Nunes and Breene, who are both executives at Accenture, argue that the only way for businesses to sustain high performance over the long term is to recognise when they need to move to the next opportunity rather than trying to wring ever-smaller returns from the last one. And, as it turns out, this can mean moving on before financial returns peak.
They describe business success as an S-curve: growth that starts slowly, ascends rapidly and then starts to flatten out as the market nears saturation and imitators or better products appear. The climb is exhilarating, but stay on the same curve for too long and your company will hit the flat spot. The trick, then, is finding and jumping on to the next S-curve before the one you are on starts to disappear. This is not so easy. “Most executives have trouble recognising that time starts running out well before results start to taper off,” say Nunes and Breene. “The secret ... [is] not about what you do at or near the top of the curve, but what you do to prepare for the next jump on the way up.”
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Aligning the top management team with the company’s development is critical, Breene said. “Leadership needs to change as the nature and scale of the company changes.
“If you are trying to jump an S-curve and get into a new area and you don’t change your leadership ... by adding to it or bringing new experience and insights, the odds are that you won’t have what you need to sustain that journey.”
Some senior executives are good at managing existing businesses, for example by expanding geographically or making incremental changes. Others are better at the more entrepreneurial part. Leaders should recognise that they are brought in to do a particular job and understand that when it is done the time might be right to move on, Breene said.
And don’t get too focused on the chief executive, he added. “Leadership is a team sport. You can’t build a theory of long-term success that’s based on the genius of the chief executive. Like any good sports team you need to keep renewing and evolving that team.” In other words you must think about what you will need to get to the next stage, not simply what you need to make the most of now.
This need for renewal applies to staff at all levels, not simply top managers. Businesses will need more talented people, with different skills, at the development stage of the curve than they do when they are scaling up, Nunes said.
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For the first it’s all about innovation, entrepreneurialism and ideas. At the growth stage, process starts to take the upper hand and talent becomes less important. At this point companies can come under pressure to reduce head count or to find other ways to cut the amount they spend on paying and developing very talented people, but the best businesses resist this.
A bit of slack in the system gives people the capacity to come up with new ideas and thus open up new opportunities in a way that the leanest organisations simply do not.
“Having a ‘talent surplus’ may seem expensive but this spare capacity is what will help your business prepare for the next jump,” Nunes said. “They are the people who will staff new ventures rather than simply look at repeating the current business in new markets.”
A talent surplus also gives a company enough flexibility to give people “growth assignments” that may not add much to the bottom line straight away but will develop them for the next stage of the company’s growth. Those operating on very tight margins, however, will only ever be able to have people doing what’s important now.
In fact Breene would prefer companies not to think of this as a talent surplus at all. Instead, organisations that cannot do this should think of themselves as having a shortage. Of course it’s easier to focus on short-term results, particularly for the individual being judged by them, but the organisation as a whole will be more successful in the long run if you look beyond this, he said.
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“It’s about willingness to invest, to maybe take a tiny hit on the profit margin,” Breene said. “That’s not an especially welcome message but the fact that it’s not welcome does not mean it’s not relevant.”