Leadership Infrastructure – A Prerequisite To Mightiness

The following is a guest piece by Robert Sher.

As a society, our physical infrastructure consists of the structures that support us: roads, bridges, water pipes and pumps, sewers and generators, cellular towers, and the acres of servers and miles of wires that give us the Internet. These structures sustain us, delivering what we need to survive and thrive. They are interconnected. They are necessary. Without them, we’re back in the seventeenth century. We’re craftspeople and farmers.

In business, leadership infrastructure is the sum total of all the management systems, processes, leadership teams, skill sets, and disciplines that enable companies to grow from small operations into midsized or large firms.

Leadership infrastructure is every bit as real as roads and bridges, electrical grids, and the Internet. Without them, we’re Mom and Pop, and that’s all we ever will be, no matter how much cash flow we generate.

Without leadership infrastructure, growing companies can be victimized by their own success. When they get the growth they so desperately seek, they just as quickly outgrow their leadership infrastructure. That will make the business chaotic and inefficient.

Unfortunately, business schools don’t teach classes in building leadership infrastructure, and it is not a natural skill for most executives. Many midsized company leaders equate it with big-company bureaucracy. That’s wrong. To grow from small to big, you must build a leadership infrastructure.

How do you do that? Leadership infrastructure includes these four elements:

1. Quality leadership with deep experience. It includes the board of directors, the management team, subject matter experts, and consultants.

2. Planning and governance processes that ensure leaders of the company stay on track, executing a thoughtful strategy. This includes forecasting, budgeting, and performance management systems.

3. Information gathering and analytics acumen that looks externally at markets, competition, and the company’s reputation, and internally at the organization’s culture, teams, and performance levels.

4. An effective communications rhythm among leaders, between management and employees, and out to customers and partners.

I’m not suggesting that every company should invest in building out its leadership infrastructure. Small companies that stay small never need much leadership infrastructure. Midsized companies that are not trying to grow quickly (and that are running profitably) probably have the leadership infrastructure they require.

But midsized companies with high growth rates, or high growth aspirations, will be pummeled and their growth stifled if they don’t strengthen their leadership infrastructure as their business grows.

The Midsize Quandary
One reason building a leadership infrastructure is difficult for the leaders of midsized companies is because it’s probably the first time they’ve needed it. At start-ups and small firms, leaders handle most of the detail work personally; they don’t have big teams. Even the CEO is at ground level, kicking the copier when it gets stuck, making sales calls.

Eventually, if things go well, the CEO will acquire a merry band of (generally) young and (usually) cheap helpers. But he will still have to tell them what to do and how to do it. Survival is the prime directive for a start-up; there’s no budget for overhead or time to think of the long term. At the beginning, the business has to stay lean, with little leadership infrastructure.

Big firms already have combined a strategic, visionary C-suite with a cadre of solid, experienced middle managers who make sure the work gets done. They already possess trained workers who follow defined processes with clear instructions. Big firms are rich in leadership infrastructure.

The myriad of business books aimed at big companies assume that a significant leadership infrastructure is already in place. Their focus is on managing, leveraging, and improving it. But those books won’t help midsized firms build their leadership infrastructure from scratch, with very little time and few resources.

Thus, midsized firms must design and build their own leadership infrastructure. But that’s not easy. There’s no one-size-fits-all infrastructure out there, no template. The requirements of a $10 million business are quite different from those of a $75 million or $250 million business. Even leaders who come from big companies are not always successful building a leadership infrastructure in midsized companies. They tend to overinvest, making it overly bureaucratic. Then it hinders growth instead of supporting it.

Midsized company leaders should look at their company’s needs for leadership infrastructure holistically to try to picture what the company will need in one or two years. They should assess past performance to guide them, and tackle the work in phases.

If your leadership infrastructure building goes well, you should see the six following changes as your company grows to the next level:

1. The CEO will become less of a doer and innovator and more of a leader of leaders.

2. The top team’s role will change from helping the CEO to leading the business themselves.

3. Midlevel managers will take responsibility for operations, allowing the C-suite to concentrate on long-term strategies.

4. Urgent problems will pop up less often, as their impact will be mitigated by planning and processes.

5. Heroic individual feats of work will no longer be seen (nor will they be necessary) because there will be disciplined teams to handle problems as they emerge.

6. Growth won’t depend on opportunities suddenly appearing. It will come by staking out strategic customers and acquisitions.

Sound good? It is good.

Leadership Infrastructure in Action
Pelican Products is a manufacturer of high-performance protective cases and flashlights. For twenty-eight years, the Torrance, California, company expanded through organic growth. But in October 2004, private equity firm Behrman Capital bought out the founder for $200 million.

At the time, Pelican had five hundred employees and was generating approximately $100 million in revenues. In August 2006, Lyndon Faulkner came on board to lead the company. Faulkner had been a serial CEO, most recently as general manager of Microsoft’s Americas Operations Group.

In September 2008, just as Lehman Brothers filed for bankruptcy and the country teetered at the edge of the abyss that was the Great Recession, Faulkner was negotiating to buy Pelican’s arch-competitor, Hardigg Industries, of South Deerfield, Massachusetts, the world’s leading manufacturer of high-tech protective cases.

“By then, Pelican had advanced significantly from being a totally entrepreneur-run company to being a more delegated-style company,” recalls Faulkner. “We were doing a lot of planning first and execution second, as opposed to the daily execution of a series of tasks.

The day-to-day execution style had delivered excellent results in product development over the years, but we had begun to bring strategy to bear in the company. Everybody knew their roles and responsibilities. Many people had been empowered to do more during this period of time than ever before. That, in turn, allowed us to drive growth.”

When the $200 million deal to buy Hardigg was announced in January 2009, Pelican suddenly had 1,300 employees and revenues approaching $300 million.

While Hardigg had been successful, it had always been run informally, with little emphasis on planning, project management, and the tight accountability (what I’m calling leadership infrastructure) required of firms that choose to grow aggressively.

“We discovered in the acquisition of Hardigg that they were in the place where Pelican was three years before,” Faulkner says. “Hardigg was still a very execution-focused company, not a big analysis company. They made great products and brought them to market. It was what they had decided to do every day and they did it well.”

“We went in and, with a clean piece of paper, built a plan around merging the two businesses. A secondary plan was crafted to bring Hardigg’s planning and project management acumen up to the place where Pelican was, but in a much shorter time frame.”

In short, as its new CEO Faulkner had grown leadership infrastructure in Pelican, then installed it at Hardigg after the acquisition. Hardigg was now part of a much bigger business and it could no longer simply execute on good ideas; its leadership had to adopt strategy, planning, and governance. And it did. That’s mighty.

Robert Sher is the founder of CEO to CEO and the author of “Mighty Midsized Companies: How Leaders Overcome 7 Silent Growth Killers”. Sher has worked with executive teams at more than 80 companies to improve the leadership infrastructure of midsized organizations. He is also a regular contributor to Forbes.

Adapted with permission from “Mighty Midsized Companies: How Leaders Overcome 7 Silent Growth Killers” by Robert Sher (Bibliomotion, September 2014).