Tuesday, December 18, 2007

STARS Model of Business Evolution

You can't figure out where to take a new organization if you do not understand where it has been and how it got to where it is. In The First 90 Days: Critical Success Strategies for New Leaders at All Levels, Michael Watkins writes about using the STARS model of business evolution for analyzing your business.

The Stars Model
The key point is that businesses (and, for that matter, projects, processes, products, and plans) tend to move predictably from one type of situation to another.

Growth Cycle
Watkins writes:

"Successful start-ups grow and eventually become sustaining-success situations. Often the individuals who managed the start-up move on to tackle new start-ups, and managers more experienced at running larger businesses take over. Theses successful businesses may in turn give birth to internal start-ups as they diversify into new products, services, processes, or technologies. In this way, healthy companies enter a growth cycle."
Recovery Cycle
Watkins writes:
"But entropy increases. Successful businesses tend, because of internal complacency or external challenges or both, to drift toward trouble. Even if the organization is not yet in crisis, acute observers see gathering storm clouds that signal a need for realignment. Realigning an organization usually means redirecting its resources, such as by abandoning aging product lines and developing new technologies. It often means changing the organization's strategy, structure, skills, and even its culture in fundamental ways. Realigning the business returns it to a sustaining-success state, designated in the model as the recovery cycle."
Crisis Cycle
Watkins writes:
"If efforts to realign the business fail, it can end as a full-scale turnaround. This happens when prior leaders failed to see the need for realignment. (After all, businesses rarely go directly from sustaining success to turnaround.) No matter why this happened, there is rarely argument about the need to make big changes fast, if the situation is dire, the business is losing money, and its best talent is jumping ship. Turning around a failing business requires the new leader to cut it down to a defendable core fast and then begin to build it back up. This painful process, if successful, leaves the business in a sustaining success situation, as illustrated by the crisis cycle. If efforts to turn around the business fail, the result is shutdown or divestiture."

Key Take Aways
Here’s my key take aways:

  • Know the three cycles: Growth Cycle, Recovery Cycle, and Crisis Cycle.
  • Know the four situations: Start-up, Turnaround, Realignment, and Sustaining-success.
  • Use this model to figure out the history of your business and where to take it.