By Bruce Johnstone, Director of the Business Growth and Development Programme at Cranfield School of Management

Why do some entrepreneurs succeed, while others with ventures that seem equally promising, experience difficulties and even failure?

Eric Flamholtz, Professor of Human Resource Management & Organizational Behaviour in the Anderson Graduate School of Management, suggests that firms that succeed in the long term have progressed successfully through six key tasks:

- Identification and definition of a viable market niche

- Development of products or services for the chosen market niche

- Acquisition and development of resources required to operate the firm

- Development of day-to-day operational systems

- Development of the management systems necessary for the long-term functioning of the organization

- Development of the organizational culture that management feels necessary to guide the firm

These tasks form Flamholtz’s Pyramid of Organizational Development which is built on the foundation of a clearly defined Market. Developing Products and Services must be built on that Market base, and these form the next layer in the pyramid. Once Markets are established and Products and Services are developed, the firm must focus its attention on a higher level of the pyramid which is Resource Management. Financial, Technological and Human Resources must be up to the task. Then systems must be established to operate those resources, these Operational Systems are the next layer.

Management Systems sits above Operational Systems on Flamholtz’s pyramid. This is the level where planning, organisation, management development and performance management takes place. Finally, at the top of the pyramid is Corporate Culture, where the values, belief and norms of the organisation reside.

Fig 1. Flamholtz’s Pyramid of Organizational Development (click for bigger image)

Flamholtz’s view is that, while all six tasks are vital for the health of the firm, the relative emphasis on each task or level of the Pyramid will progress upwards according to the organization’s stage of growth. A new venture should emphasise Products and Services. In an expansion stage, it must focus on Resources and Operational Systems. The professionalization stage requires Management Systems, and Corporate Culture becomes important at the consolidation stage.

Flamholtz’s pyramid gives us a useful way of looking at a firm that is failing or has failed. We can ask at what level of the pyramid the failure has occurred. It also provides a useful mental model for understanding how a successful organisation can be constructed.

Dr Bruce Johnstone is a director of the Business Growth Programme at Cranfield School of Management (BGP). He can be reached on bruce.johnstone@cranfield.ac.uk

Designed specifically for the development of owner-managers, the BGP helps you create the future you want for your business and for yourself. This programme provides a unique opportunity for you to step back from the day-to-day demands of running your business. By the end of the programme you will have developed a comprehensive and robust strategy and plan for the future. Find out more, and attend a special briefing event, by visiting www.som.cranfield.ac.uk

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