Improper Scaling

Years ago, I worked with a business that achieved a mark of success. The economy was in an expansion, and adding a new department that would essentially be a subsidiary was successfully accomplished. With a new facility that would house all of the existing operations, things looked to be very promising for the future, so much so that the organization obtained a long term lease for the business.

Five years later, the organization needed to downsize substantially. Of all people, I was the most surprised. There was no reason for this to have failed. Everything was going for it at the end of the day. What could have happened that caused a company that was growing to need to downsize in such a few short years?

Two words: improper scaling. This article is one that I had to learn from a difficult experience. It is also one full of lessons that, if handled carefully, can help others avoid a situation in which your business contracts. At this point, I feel that it is imperative that, should the owner of this company read this article, it is important that they understand that this article is not singling them out for criticism. I would have made the same choices initially that they did. Therefore, this article is intended to be an autopsy of my mistakes in reasoning as well as what I learned from it.

Improper scaling is a concept that needs much better attention than it normally receives. One of the newsletters in the Perspectives series is titled Scaling. While careful attention is paid to how things should be scaled (with some mention on how things should not be done), the focus of that newsletter is how to scale properly. Therefore, the focus here will be on what improper scaling looks like.

Thankfully, improper scaling can be boiled down to one strategic failure: misalignment with your company's mission. However, the ways that this can happen look completely different. In the case of the story I told at the beginning, the misalignment that caused the problems had to do with the new department of the company requiring substantially more resources than initially required. This translated into higher operating and payroll costs, greater storage space, and in some situations pulling personnel from other departments to work on projects.

None of these issues were optimal, and all of them contributed to the company needing to be downsized. At this point, hindsight truly is 20/20. Therefore, the recommendations that I make are not intended to be a referendum on this individual's decision making. Here are the key lessons that I learned, as well as how to prevent them from becoming a problem in the future:

Acquisitions become bigger than the Parent Company: an acquisition that becomes a subsidiary should never become bigger than the parent company. If it needs resources that the parent company requires, the parent company should not defer. Better management of resources for the subsidiary is going to be a must, since this is likely not happening.

Acquisitions do not adapt to the parent company: One key problem that his department had was doing things the way that it had under a company that they had previously functioned with. The new organization tried to get them to change, but they simply would not do so.

Acquisitions communicate poorly: I remember dealing with one of the people in this department the day of my wedding rehearsal. I asked them specific questions to plan accordingly. I even told them that I had a specific cutoff and had to leave. Five minutes before I left, they brought a customer into the office (even though they told me it would not happen). Sadly, this was the norm, with production and customer communication very poor to nonexistent.

The one thing that I would have done differently with all of this knowledge would have been to have this situation not be a long term set up. Instead, I would have had a shorter lease (one year) with the understanding that success needed to be achieved through results. All of these issues manifested themselves early on, and multiple attempts to fix the problems were made (with token efforts to fix the problems.) Had we reached the year mark and things were not improving on all counts with a clear interest in improvement, I would have downsized then or rehired a different team.

In conclusion, this article is different because I am writing from the vantage point of having had to live through  this, and I can tell you from painful experience that improper scaling can be extremely difficult. Plan very carefully to make sure that if you are scaling, everything is in proper alignment with your current organization. Otherwise, you could find yourself in a very bad situation that might take you years to recover from (if you ever can.)