Getting to Prime INC Magazine

Ichak Adizes on why some companies age prematurely while others go on to attain peak corporate performance.

We generally don't publish interviews with consultants about their management theories. OK, we ran one with Peter Drucker a few years ago, but that was a little like making an exception for God. When we began hearing about Ichak Adizes from various company presidents we knew and respected, they made no claims about his immortality or his infallibility. They simply said that he was a new breed of management consultant, one who really understood how businesses work and what could be done to make them better.

Adizes is, in fact, more than a consultant. He is a pioneer in the field of management -- a serious, insightful, and astute observer of organizational behavior, which he has been studying for 25 years. Born in Yugoslavia and raised in Israel, he received his doctorate from Columbia University and is currently an adjunct associate professor at the John Anderson Graduate School of Management at the University of California at Los Angeles. In addition, Adizes has one thing going for him that even Drucker does not: he has built his own company, Adizes Institute Inc., in Santa Monica, Calif., which he founded in 1975. In the process, he has experienced many of the trials of management about which he writes, lectures, and advises other companies.

Over the years, Adizes has developed what amounts to a general theory of management, which he presents in an unusually lucid book titled Corporate Lifecycles: How and Why Corporations Grow and Die and What to Do About It (Prentice-Hall, 1988). His basic contention is that organizations have life cycles just as living organisms do. They go through normal struggles and difficulties at each stage of the life cycle, and they face predictable problems in moving from one stage to the next. But unlike living organisms, business organizations do not have to grow old and die, he says. It is possible for them to arrive at and stay in their prime forever, and he describes a methodology that he claims will allow them to do it.

Adizes talked about getting to prime with senior writer Bruce G. Posner and editor-at-large Bo Burlingham.

INC.: We often think that any company could be like Federal Express if it only had Fred Smith as its founder. You apparently feel you've developed a methodology that allows a company to reach its competitive peak even if it isn't run by a superstar.

ADIZES: That's correct, and it is a liberating process, because in the American work culture we tend to look for individuals. When things go bad, we ask, "Who did it? Who should be fired? Who is going to save us?" I take a different approach. I say there is no savior. You have to learn how to work together if you want your company to operate at its peak. It is really a matter of getting the company to the stage of the corporate life cycle called prime.

INC.: Tell us what you mean by that.

ADIZES: A company's place in the life cycle depends on two factors -- flexibility and control. When a company is young, it is very flexible, but its behavior is erratic, which is a function of self-control. It's like a baby. You never know when it's going to smile, when it's going to wet its diaper. So what happens as the company ages? Flexibility goes down, and self-control goes up -- for a while, that is. Then it goes down, just as it does in a person. Prime is the point at which the two lines cross. The company is both flexible and controllable. You can decide to change direction, and then you can make it happen.

INC.: Are you saying that reaching prime is just a matter of time and experience?

ADIZES: No, no, no. This has nothing to do with chronological age or even size. A company can be 100 years old and extremely flexible. It can be 10 years old and bureaucratic. When I looked at Philip Morris, it had $8.5 billion in sales, but it was much more flexible than some food brokers I've seen. So when I say a company is young, I mean that it has flexibility with limited control. Old means that a company has a lot of control but little propensity to change. Every company has to be young at some point, but it doesn't have to become old. It can be in prime forever. The trick is to get there and stay there.

INC.: That's awfully hard to swallow. What about changes in the market, in technology, in product life cycles? You seem to be suggesting that a company can get rid of its problems and go merrily along its way as if nothing were happening in the world outside.

ADIZES: I didn't say anything about getting rid of problems. You can't get rid of problems, but you can make sure that you are focusing on the right ones.

INC.: Which are the right problems?

ADIZES: Look, success in business is a function of one factor and one factor only: the ratio between external and internal marketing. External marketing consists of product differentiation, pricing, delivery, everything involved in identifying customers and serving them right. Internal marketing is all the blood, sweat, and tears you have to put into the job to make sure something happens. An organization has a fixed amount of energy. If most of it is going into internal marketing, how much is left for external marketing? Very little.

INC.: So the idea is to minimize the amount of energy you're using up inside.

ADIZES: Yes, and that's a function of mutual trust and respect. If you don't have mutual trust and respect, you waste a lot of energy on internal problems and conflicts. By the time the customer comes in, you say, "Come back tomorrow. I am exhausted today." There is a big fad in the United States today about strategic planning, about solving all your problems by beating the competition. Wrong.

Success has to go from the inside out, not from the outside in. You have to solve the problems on the inside so you can deal with the ones on the outside, and then you have to make sure that you keep your internal marketing and your external marketing in balance.

INC.: You're saying that problems are here to stay.

ADIZES: Absolutely. When you stop having problems is when you stop changing, and that happens only when you are dead. Change causes problems, and problems require solutions. So you go out and solve those problems, and guess what? The solutions cause more change and more problems. All you've done is create the next generation of problems.

And the more successful you are in solving today's problems, the more difficult will be the problems you face tomorrow. My New Year's card to clients says, "I wish you bigger problems next year than this year . . . that you can handle!" Because you're as big as the problems you can contend with. Some companies cannot contend with big problems, so what happens? They stay small.

INC.: That's not a very comforting thought to someone who is feeling overwhelmed by the problems of a small business.
ADIZES: The question is, What kind of problems are overwhelming you? Are they the normal problems a company has at your stage of development? If so, don't worry. You will outgrow them. They are like childhood diseases -- unpleasant, but you must have them to build up your immunities. If you have abnormal problems, then you will need help to get over them.

INC.: How can you tell the difference?

ADIZES: You have to understand the patterns. You have to look at where you are in the corporate life cycle. The point of my work is to show that companies change according to a predictable pattern, and there is a predictable pattern to the problems they encounter along the way. The specifics will vary from company to company, and the stages overlap, but the patterns are very clear. If you know what they are, you can identify the problems that are abnormal and require special attention. This is the difference between being smart and being wise. Smart people learn from experience; wise people learn from the experience of others. You should try to be wise.

INC.: Let's take the example of a company that's just getting started. What are the normal problems, and what are the abnormal ones?

ADIZES: You're talking about a company in infancy. That's really the second stage in the corporate life cycle. The first one is courtship, when you are dreaming about your business, talking about it to everyone you can find, making a lot of noise like an airplane getting ready to take off. What you are really doing is building commitment -- the commitment you are going to need when you actually take the risk and start the business.

Then you are in infancy, and there is no more time to dream or talk. Now is the time to do. If you have to have a meeting, you hold it in the elevator going down to the parking lot, and you make the decision by the time the doors open. You are working all the time. When someone in your company says, "I've been thinking . . .," you say, "Please don't think. What have you done for me lately? Tell me what you've sold." There is no time to think because you have no money. You are undercapitalized. So everything is do, do, do.

INC.: Those sound like problems to me.

ADIZES: They are, but they are normal problems. Being undercapitalized is normal in infancy. What's abnormal is to be surprised by it -- to run out of cash and not know it. Normal is to have an autocratic, opinionated, strong-willed founder that nobody can argue with. Abnormal is to have a founder who delegates. Whom are you going to delegate to? People who are better than you? If they were better, they would not be working for you at that stage. Your company is too small. Look at the people you hired. Somebody who wandered into your office by mistake. A temporary you forgot to fire. Even if you're lucky enough to have good people, you can't delegate because you don't know what you're doing. Everything is trial and error in infancy. If you turn important responsibilities over to other people, they could make decisions that might destroy your company, and you will not even know it. Delegation at this stage is abdication. And it's a sign that something is wrong.

INC.: I thought the idea was to get everyone working together.

ADIZES: That comes later. An infant company needs a strong, opinionated leader to get it to the next stage, the go-go stage, when cash flow turns positive and the company really takes off. But you're raising a good point because what is normal behavior in one stage of the life cycle often becomes abnormal, and dangerous, later on.

INC.: How does strong, opinionated leadership become dangerous?

ADIZES: It begins in the go-go stage because the company is growing like crazy and it seems to be out of danger. Now this opinionated, strong-willed, nondelegating founder becomes arrogant as well. He thinks, I did it; I can do anything; let's go. He meets a developer on a plane, and suddenly he's in real estate. He goes to Hong Kong, and he gets into the trading business. He sees opportunities everywhere, and he's running the show. Put arrogance together with centralized management, and what you have is a Molotov cocktail.

INC.: Well, yes and no. We've seen companies go on like that for years and years without blowing up. Sometimes they become very large and successful.

ADIZES: Go-go can last for years, but eventually something is going to happen. Sooner or later the company is going to get involved in a product or a market it knows nothing about, and it will get hit over the head. The more arrogant you are, the bigger the hit will be. Because there is no structure in go-go, no clear responsibilities. The information doesn't flow very well. Cost accounting is a mess. The reward system is a patchwork of deals. Yes, the company is growing rapidly, but there is no accountability. It's a prescription for disaster.

INC.: Suppose the founder brings in professional management.

ADIZES: Founders usually do, or at least they try to. If they don't, they fall into what I call the founder's trap. By that, I mean the company cannot exist without that one person, which becomes a problem. When he or she goes in for a loan, the bank insists on personal guarantees, because it will never get its money back if something happens to him. He is the biggest asset of the company and the biggest risk. At some point he may even realize that he can't run the company as a one-man show anymore -- it's too big. He says: "I know how to start a business. I don't know how to run it. I need help. Bring me a professional manager." That is the beginning of the next stage in the life cycle, called adolescence, which is the most difficult transition of all. Starting a company is not nearly as difficult as keeping it. If a founder is going to lose his company, it usually happens in adolescence.

INC.: Why is it so difficult?

ADIZES: It's difficult because the changes are so fundamental and so necessary, and the entrepreneur often appears to be an obstacle to them. For one thing, the company has to make the transition from more is better to better is more. It's gotten this far by getting more and more sales, assuming a fixed marginal profit, but marginal profits are actually going down, down, down. One of these days you're going to make a sale and lose your shirt. The solution is to turn inward, get the place organized, increase productivity and profitability, and you don't know how to do that. You probably find it boring, maybe even threatening. You know the company has to change, but you worry about losing the entrepreneurial spirit that got you where you are. Now you bring in a professional manager who is by definition a number cruncher, an administrative type. When the old-timers start resisting him, you may side with them.

INC.: Perhaps they're right. We've seen professional managers come in and screw up a lot of good companies.

ADIZES: That can happen, but the founder hasn't solved the problem that led him to hire this guy in the first place. He's in the founder's trap, and the only way he can get out is to restructure the company. Up to now, the organization has always been structured around people, and that isn't working anymore. You need clear responsibilities; you need accountability; you need a reward system that makes sense. That means structuring people around the organization. I tell you it's very, very difficult. I've done this with all kinds of companies, big and small. I did it with Domino's Pizza and the Bank of America. Now I cannot restructure my own pip-squeak company, $3 million in sales. Why? Because every time I look at the organization, I see people. I know too much about them. I hired them. I reward them. It's very painful.

INC.: But presumably there's a payoff. What's on the other side of this transition?

ADIZES: If you do it right, you end up in prime. If you do it wrong, there are several possibilities. The most common one is called premature aging. The administrative types take over, and the entrepreneur is pushed out. The company gets under control, but it loses its flexibility, and it slows down. It may still have some momentum left over from go-go, but if something doesn't change, it eventually begins to decline. That is what's happening to Apple Computer. Another possibility is that you get stuck in the founder's trap, which is my problem.

INC.: That's interesting. Have you had all these problems of growth?

ADIZES: Of course. Being a doctor doesn't mean you don't get diseases. I have had almost all the normal problems, none of the abnormal ones really, but they have been painful anyway.

INC.: Can you give us an example?

ADIZES: In the early days people accused me of being authoritarian, nonparticipatory, arrogant. They didn't understand why I insisted on doing things a certain way. I took it very much to heart. I tried to change, and I couldn't. Looking back, I see I was fighting for my vision, which I couldn't articulate because I didn't have enough experience. There was no track record of success. Finally, I just told them, "Goddamn it, do it my way. I know what I'm doing." But it was very painful emotionally and intellectually. My present situation is just as painful.

INC.: So how does a company make the transition to prime?

ADIZES: There are 11 steps, and they go in a specific order. Do you want to hear them all?

INC.: Maybe you could give us a brief summary.

ADIZES: First, we make sure there is some mutual trust and respect among the top managers. If there is very little, we take some time to develop it, give people a sense that they are capable of making things better. Those are the first three steps. Once we've built that foundation, we can move on to the more difficult tasks. The sequence is important here. To begin with, you redefine the mission of the company. What business are you in? By the end of go-go, the company is in everything from shoes to real estate. So you need to refocus, which can be hard because it involves letting go of some dreams. After the mission comes the organizational structure, then the accountability systems and information flow. What we're doing here is building participative management at the top of the organization. In the following steps, we keep working with top management people on teamwork, performance goals, and strategic planning, but we are also bringing the lower levels into the process. Only at the very end, the 11th step, do we come up with a new reward system. That's very important. You have to follow the sequence: mission, structure, accountability, rewards.

INC.: Why is the sequence so important? We know of companies that do wonders with their compensation systems.

ADIZES: That's only because they're already clear about mission, structure, and accountabilities. A reward is meaningless if you don't understand the direction, if you don't have specific responsibilities, if you're not accountable and you don't know how you're being measured. Without those things, it's not really a reward at all. It's a bribe.

INC.: What about strategic planning? Earlier you dismissed it as a fad. Now you say it's part of your methodology.

ADIZES: It's the sequence that counts. Strategic planning is the ninth step of my methodology, not the first. Putting a cherry on top of a pile of manure does not give you a cherry pie. Some consultants come in, and they do a beautiful strategic plan, but the infrastructure is not there for delivery. The internal marketing is out of sight. People are eating one another alive, and they believe strategic planning is going to save them. You know what this is analogous to? A marriage that is falling apart, so let's have another baby. You only postpone the inevitable. Success is not outside-in. It is inside-out.

INC.: How long does the whole process take?

ADIZES: We can get most companies to prime in a year, sometimes less. It used to take longer, but we've gotten better. There are two exceptions. It will not work in a company with negative cash flow, which is like having a heart attack. What caused your heart attack is your lifestyle, but it does no good for me to stand by your hospital bed and say, "Change your lifestyle." At that point, you need a heart specialist. Later we can work on changing your lifestyle. The methodology will also not work with a manipulative, self-centered, arrogant, autocratic bastard running the company. I have had only two failures, and they were both cases that called for psychiatric intervention. I need leaders who have confidence in themselves.

INC.: Isn't that asking a lot?

ADIZES: No, not really. I don't change human beings. I change the environment human beings operate in. If people are intelligent and relatively balanced, they will read the writing on the wall. The environment changes, and they change their behavior.

INC.: But don't you also have to change people's attitudes to make this transition to prime?

ADIZES: That's exactly what I'm doing with this methodology. You have to understand there are different approaches to consulting. Some people are trained in psychology and group dynamics. They think you just get people talking to each other, working together, and everything will be OK. I don't believe it. I believe environment has an impact on behavior. If I want to make you OK, I don't talk to you. I change the environment within which you operate. I don't say, "You should be participative. You should have integrity. You should be honest." That has no value to me. Instead, I establish a system around you so you know what it means to be participative, to have integrity, to be honest. I change the behavior of a company by changing its structure and the process by which it makes decisions, and that guides the behavior and changes the attitudes.

INC.: What if people don't want to change?

ADIZES: Then they leave, which is OK. Let them go to the competition.

INC.: Let me stop you for a moment here. You seem to be suggesting that the only way people can get through this transition is to hire you.

ADIZES: Not necessarily, but if they don't hire me, I strongly recommend that they get outside help from someone they absolutely trust, someone who has experience in making these transitions and a lot of common sense. My methodology is really based on common sense. I take pride in the fact that I don't tell people anything they don't already know. Unfortunately, it's often difficult to use common sense when you are a founder or a president dealing with these kinds of problems. You form attachments -- to dreams, to people, to ways of doing things. It's not easy to see the situation clearly while you're in the middle of it. It takes an extraordinary individual. Believe me, if it were easy, I would have done it a long time ago in my own company. I wouldn't be stuck in the founder's trap right now.

INC.: Isn't it just as hard to turn your fate over to an outsider? It sounds as though you wind up playing a big role in the companies you take on as clients.

ADIZES: If you mean I make decisions for them, that is not true at all. The whole purpose is to empower them to deal with their own problems, to create an environment in which problems can be solved with trust and respect and cooperation and communication. That's why we do the methodology this way, giving people bigger and bigger problems they can solve by themselves. By the time they get to the reward system, they're ready to handle anything. We'll come back once a year to check how it's going, but our goal is to transfer the technology to the client. We're proud of every client we have lost.

INC.: I still don't see how it works. You talked earlier about making the transition from structuring the organization around people to structuring people around the organization. What actually happens in that process?

ADIZES: I'll give you an example of a recent client -- a construction and engineering company. The construction part has a unionized component and a nonunion component. Engineering is separate. They're all at each other's throats. Now the way for this company to make money is to integrate the different parts so it can provide turnkey delivery to customers, but the president cannot get the organization to change. He heard my lecture, and it took him three years to call me in. He was scared. He did not believe it could be done without risking the company. So we got the top people together, had them tell us the problems, and everyone agreed we had to solve them. Then we did a mission. What came out of the mission loud and clear was that the future is in turnkey delivery. But they are not organized for turnkey. So I started building the structure with them. By the time we finished, it was all integrated. I asked if anybody disagreed with the structure. Nobody disagreed. A guy came up to the president afterward and said, "I've got 30 years in this company. I don't know where I'm going to end up, and I'm scared. But you know what? This is exactly what we need to do." I didn't design it. They designed it with my help.

INC.: How did people get assigned to the different positions?

ADIZES: The president said, "All right, guys, I'm going to decide who goes where, but first I want to hear what you have to say." Then they talked about each person, one by one. The person would leave the room while the others were talking about him. At the end the president made the decisions, and everyone accepted. Nobody resigned. It would never have happened a couple months before.

INC.: You make it sound easy.

ADIZES: It's not easy, and it's not painless, but it's not all that difficult for us either, not at this point. You see, the methodology is very structured. It requires discipline. I believe there is no mutual respect without discipline. I spent a tremendous amount of time observing what retards and what encourages respect and trust, and I created rules -- about how to diagnose a problem correctly, for example, or how to conduct a meeting. When do you show up? Who talks? What do you talk about? Which words can be used and which cannot? It is a methodology of how to advance jointly, step-by-step, and people have to play by the rules. If you break a rule, you pay a buck. It's like poker. The reason you can play poker is because you follow the rules. I am really teaching people how to be colleagues. I am creating a learning environment. There is no colleague relationship and no learning environment unless they are respectful.

INC.: Do you use the same rules in every company?

ADIZES: I vary them a little bit. In a go-go company, four-letter words are forbidden, because that's the way people talk all the time and it promotes disrespect. In an aristocratic company, one that is past its prime, I encourage them to use four-letter words, because they are too closed. They cut each other to pieces very elegantly. And I make them take off their coats and ties. At one company they took their belts off -- I wanted them to feel vulnerable. In a go-go company, I would like them to wear a tie.

INC.: Isn't there a contradiction here? You're setting all these rules, and yet you say that you want to empower people.

ADIZES: You have to remember that these companies have no intention to empower. Empowerment is the solution, not the goal. They have an autocratic president who's deep in the founder's trap, or they're losing market share because they can't innovate. They've got big, life-threatening problems, and my job is to take them to prime. I am very strict with the methodology in the early stages because we have to develop some mutual respect and show people it's possible to change. As we go along, I relax more and more. By the time we get to the reward system, they can do whatever they like. If they want to send flowers as a reward, it's fine with me. Empowerment grows with experience.

INC.: So how does your methodology differ from other approaches to empowerment and participatory management?

ADIZES: It's the sequence again. Those programs start at the wrong place. They look at a company as a pyramid, with the line employees on the bottom and the managers on the top. It's not true. Only the people below think managers are on top. As you move up the company pyramid, you realize you are at the bottom of another pyramid, called the external environment, which includes all the people who are pressuring you from above -- bankers, regulators, competitors, suppliers, upper management, your own family. If a so-called empowerment program works, all you've done is increase the pressure from below. That's why middle management winds up killing those programs, because they're based on empowering employees and disempowering supervisors and managers. I want to empower everybody. To do that, you have to start at the top and work down.

INC.: You're saying that you empower people in spite of themselves.

ADIZES: I'm saying that my methodology harnesses the political energy of a company to make its own changes. It gives people the tools. You do not need any education to use my methodology.

As a matter of fact, I've found that the less educated you are, the better you understand it. I have the hardest time with people who have advanced management degrees. They fight every step of the way. They've been programmed with solutions that don't work, to problems that don't exist. When people are not educated in management, they are open-minded. They understand common sense very easily. What is common sense? In old English, common means everybody. Common ground means everybody can walk on it. Common law means everybody accepts it. Common sense means everybody believes it. If it makes sense to everybody, then it's common sense. What I have developed is a way to create a climate for people to find common sense through mutual trust and respect.