Hayagreeva Rao.
Hayagreeva Rao.

Q&A | Hayagreeva Rao

Giving employees a chance to speak up can help firms expand without making blunders

Growing pains

Hayagreeva Rao, Atholl McBean professor of organizational behaviour and human resources at the Stanford Graduate School of Business, US, says it can be difficult for companies to scale up because it sometimes requires executives to give up ideas that have worked well in the past. “What got you from 0 to 100 will not work if you want to go from 100 to 500," says Prof. Rao, who has co-authored Scaling Up Excellence: Getting To More Without Settling For Less.

He was recently in Mumbai to organize a five-day programme on scaling up for Indian chief executive officers, to be held at Stanford in January. Edited excerpts from an interview:

What drew you to the problems of scaling up?

Robert Sutton (professor of management science and engineering, Stanford Engineering School) and I started a programme at Stanford in 2006 on customer-based innovation. We take 60 executives from all over the world, put them in teams and give them a real-life problem to solve.

For example, the airline JetBlue asked us to improve their customer experience. So we sent teams of executives to the airport to observe passengers, talk to them and take movies. On the basis of this observation, they had to identify a problem and come up with a solution that didn’t spend extra money. The executives found elderly passengers at JetBlue a little disoriented at San Francisco airport. The obvious solution to this was to have concierges, but that costs a lot of money, as does giving extra sky miles to passengers who help out. Finally, the executives came up with a clever idea that volunteer passengers who helped these elderly passengers would get to board the plane early. Executives love this programme, but they always ask how do we take this knowledge back and scale it, to spread constructive beliefs and behaviours from few to many. So we became interested in this challenge of scaling up excellence.

After you wrote ‘Scaling Up Excellence’, you also scaled up your class size, from 60 to 27,000. Can you tell us about this?

Yes, we did a Mooc (massive open online course). We had to completely rethink everything. Everything we did in a classroom of 60, none of it would work when you had 27,000 people taking the course. The people taking the Mooc are very needy, very motivated people who want to build ventures, but don’t have the knowledge. Which makes your role not that of a teacher in a sage mode, but more of a curator in a museum, or a civil engineer, where you build ramps that help people get on the freeway of scaling up.

Can you give some examples of the “ramps" for scaling up?

When an organization scales up, decision makers think in a very abstract way like x% market penetration, y% rate of growth or an acquisition, rather than the path to get there. This leads to disasters or “clusterfugs". The ramp we provide is the “pre-mortem". I’ll explain this with an example. Imagine there are six of us planning an acquisition. Three people will be asked to imagine what happens if the acquisition turns into a failure and write a one-page story on how that happened. The three others write a pre-mortem of success. The story here becomes a sophisticated format to provide causal knowledge. It also solves the problem of silence in large organizations. People have all this knowledge but they don’t put it on the table; the more diverse the team the more they circulate the common knowledge.

How important is it for start-ups to learn how to scale?

Founders have to be clear early on which route they want to take when they grow their ventures: Do I want to go the IPO (initial public offering) route or do I want my company to be bought by a larger venture? If you have decided you want to be bought by a larger venture, the emphasis is on building a product. But if you want to go the IPO route, you have to build a great company.

Why is it so difficult for start-ups to scale?

The magic of scaling is that you have to drop the tools that made you successful in the past. You have to question the very things that made you successful in the past and drop them. What got you from 0 to 100 will not work if you want to go from 100 to 500. This becomes the bottleneck for a lot of founders. You have to reimagine the whole organizational structure as you scale.

One of the things with start-ups is that they don’t know when to use the brakes. If you look at racing car drivers, they are actually using their brakes in a clever way to take turns even faster.

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