Growth Strategies

Not So Small, Still Beautiful

As companies grow in size and complexity, they must preserve the creativity and open communication that helped them flourish in the first place.
Helen ShawMarch 3, 2006

For GoldenGate Software, a privately held software company based in San Francisco, its first formal occasion came in 2004 upon the arrival of chief executive officer Ali Kutay.

“Formal,” in this case, had nothing to do with a black-tie affair. Senior executives at the nine-year-old company thought the time was right to formalize GoldenGate’s organizational structure and embark on the pursuit of scalable growth, recalls senior vice president of finance and operations Deborah Eudaley. But like many small companies gearing up for expansion, GoldenGate faced a choice: How much creative informality should it retain?

To be sure, a small company’s flexible operations and blurred job functions aren’t the stuff of readily measured business expansion. But there can be a downside to an approach dictated solely by organizational charts, says Eudaley, who observes that “if people think only within their function, they miss the very important work in building a company.”

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Indeed, as a small business increases in size and complexity, it runs the risk that its newly formalized organizational structures will stifle the innovation and cross-functional communication that helped the company flourish in the first place. Finding ways to balance the formal and the informal is a challenge companies often face when they approach $1 billion in annual revenues, says Zia Khan, a principal at management consulting firm Katzenbach Partners.

At about the $1 billion mark, he observes, a company becomes big enough to introduce formal systems aimed at improving efficiency and reducing costs, but formal and informal must stay in equilibrium. Says Khan, “The informal helps keep innovation and change alive, while the formal structures promote efficiency and speed.”

To achieve the latter, GoldenGate now clearly spells out its job descriptions, and it holds quarterly meetings to spotlight corporate goals. But with an eye toward keeping its structure loose, the company has set up internal-project teams to maintain lines of communication between departments. For example, the company encourages product developers to learn from salespeople about customers’ needs. Sales reps produce a wish list of product ideas for the development team; in turn, developers incorporate the ideas in their project schedule and inform marketing about forthcoming products.

GoldenGate also holds informal meetings “for people to blow off steam,” notes Eudaley, who says that these sessions prepare people to work together during times of company stress.

Sometimes, however, the formal aspects of a company need tweaking to remain nimble. Cadence, an electronics design and engineering company with 2005 revenues of $1.33 billion, did away with an organizational structure that aligned business units according to the technology they produced, says chief financial officer Bill Porter. Cadence now organizes its operations along functional lines such as research and development, engineering, marketing, and sales. The San Jose-based company also holds an annual meeting of 850 of its 5,000 employees, including people from all four functions, to strengthen the network of connections between these groups and help them to move in step.

One way to look at the informal organization of a company is “social-network analysis,” notes Khan. Like a map of airline flights and connection points, such analysis illustrates the connections between people in an organization and reveals the “hubs.” These connections also reflect the ways people are motivated, says Khan, who observes that “people always seek community and to connect with others, whether based on a shared identity or task.” Compared with formal work teams, he adds, “networks are a more natural way to relate to one another.”