What makes an organization succeed?

When I covered startups and venture capital, investors would sometimes ask me if I’d see any promising new companies they should know about. The idea was that I, like them, was tasked with staying on top of the constant flow of new startups in the area, so maybe I knew something they should know. I found the question difficult, for multiple reasons. First, reporters and investors are often looking for different things in companies. Second, I was writing so many stories a day I seldom had much time to reflect on which companies I thought had promise. And third, having studied political science and worked in nonprofits prior to the job, I knew more about policy than business, and lacked a clear framework for thinking about what it was that made a startup likely to succeed.

Since joining HBR, I’ve occasionally asked colleagues to describe in as few words as possible what makes a company successful. I used my answer to that question as the lede to a piece about Snapchat:

To be successful, a company needs to provide something customers want. It must be able to do so for less than they’re willing to pay. And there must be some reason why competitors can’t just copy it when it succeeds. In management terms, it needs a value proposition, a business model, and a strategy.

Kevin Boudreau offered a similar answer in his writing on strategy and business design for entrepreneurs. In this view, companies are likely to succeed to the extent they have compelling answers to these questions:

W170830_BOUDREAU_ASKTHESE1-850x365

Since this is part of my series on thinking about organizations, it’s worth going back to my first post that lays out market-based views of organizations alongside managerial and sociological ones.

The outlines I’ve given so far are, to my mind, mostly market-based views of firm success, maybe with a bit of the managerial view mixed in.

So are there concise answers to “What makes an organization successful?” that do justice to those other views?

It’s not easy to sum up “good management” in a paragraph, but this is a nice attempt to do so, by Nick Bloom, Raffaella Sadun, and John Van Reenen:

  • Targets: Does the organization support long-term goals with tough but achievable short-term performance benchmarks?

  • Incentives: Does the organization reward high performers with promotions and bonuses while retraining or moving underperformers?
  • Monitoring: Does the organization rigorously collect and analyze performance data to identify opportunities for improvement?

So the managerial view might say organizations are likely to be successful to the extent that they do these three things well.

I have no concise explanation of how to answer the question through the sociological lens, except by repeating the common business refrain: culture eats strategy for breakfast.

The next post in this series will be about what organizations are for — what purpose they serve in society.

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