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hbr.org | April 2008 | Harvard Business Review 121
Managing HypergrowthEarly in their lives most markets go through a short period of dizzying growth that defi nes the competitive landscape. Heed the advice of a person who has survived the ride: If you don’t make the right moves then, you won’t get a second chance.
by Alexander V. Izosimov
FIRST PERSON
THE PROSPECTUS FOR VIMPELCOM’S IPO on the New York
Stock Exchange in 1996 forecast that more than one
in 10 Russians would own a mobile phone in 2006 – in
marketingspeak, a penetration rate of 14%. Today that
rate is over 120%, meaning that on average, Russians own 1.2
mobile phones – a number that explains why our market capi-
talization went from $607 million to $16 billion during the same
10 years, and by the end of 2007 exceeded $40 billion.
That is what I call hypergrowth: the steep part of the S-curve
that most young markets and industries experience at some
point, where the winners get sorted from the losers. What makes
VimpelCom’s experience unusual, I believe, is that we entered
our industry’s hypergrowth phase as a relatively large company,
Bre
tt R
yder
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122 Harvard Business Review | April 2008 | hbr.org
not as an entrepreneurial start-up; after
all, we had already obtained our NYSE
listing.
In fact, our market didn’t enter hyper-
growth until about 2003, when the Rus-
sian market penetration rate reached
20%. After that, it took just 10 quarters
to get to 80%. Imagine: In two and a
half years the country went from just
one in fi ve Russians owning a mobile
phone to four in fi ve owning one. There
seems to be a pattern to this. As we’ve
expanded outside the Russian mar-
ket into other former Soviet republics,
we’ve found that mobile telephony
markets consistently grow from 20%
penetration to 80% in less than three
years. That’s the fi rst lesson we learned
about hypergrowth: It’s over almost
before you know it.
The second lesson is that it’s an expe-
rience that either kills your company or
makes it much stronger. When I joined
VimpelCom as CEO, in 2003, every
meeting was a crisis meeting and ev-
ery decision was made in panic mode.
We were short on people, on network
capacity, on IT capacity; advertising
campaigns were being shot in just three
days, less than a week before a launch.
Entrepreneurial companies can often
come through this phase unscathed,
because their organizations are still
relatively fl exible and can be changed
quickly by a founder’s intervention. An
established company, in contrast, may
well be disadvantaged not only by its
previous technological and manufac-
turing decisions but also by inappro-
priate organizational legacies that
take a long time to fi x – if they can be
fi xed at all – because of internal politics
and competing interest groups. When
you stop to fi x your problems, events
quickly leave you behind. So if you are
to survive hypergrowth as a midsize or
large company, you had better have the
foresight – or the good luck – to estab-
lish the right kinds of organizational
structures and practices.
We survived, thanks to a combina-
tion of luck and strict adherence to a
few management basics. My purpose
in writing this article is to help other
companies that are approaching the
threshold of hypergrowth in their mar-
kets and industries to better position
themselves for the ride. With the ben-
efi t of hindsight from our experience
in Russia and adjacent markets, we’ve
been able to identify the organization,
practices, and processes that these com-
panies should adopt if they’re to emerge
as leaders at the top of the S-curve.
Rule #1 Sell First and Ask Questions LaterIn most cases market share is deter-
mined during an industry’s hyper-
growth phase. Once growth has slowed
and the leaders have emerged, shares
don’t change dramatically. Any re-
search report on any European mobile
phone market you care to look at – the
UK, Germany, France – will tell you
that shares all stabilized once the pen-
etration rate reached 70%–80%, which
is when a market starts to emerge from
its hypergrowth phase.
This means that for companies enter-
ing hypergrowth, strategy begins with
sales. You have to focus on capturing
as much of the market as possible. To
do this, you don’t need an ideal busi-
ness model; you simply need one that
is good enough to attract paying cus-
tomers and operates with a few easily
understood metrics. There’s not much
point in spending time to create a per-
fect product-service mix and a fi nely
tuned business model bristling with
performance criteria if in the mean-
time your competitor takes all the cus-
tomers. In any event, you won’t have
a lot of data on costs right away – so
you can’t do much to fi x your business
model in the fi rst year of hypergrowth
even if you want to.
In line with this approach, we chose
just one simple metric for goal setting
and performance measurement: num-
bers of subscribers. These are easy to
understand, to align compensation
with, and to celebrate when they’re
achieved. We did expect managers to
respect costs, and we asked them to
limit growth in general and adminis-
trative expenses to 50%–75% of revenue,
but we didn’t enforce the guidelines
strongly. The focus had to stay on cus-
tomer acquisition.
The big challenge with this strategy
is making sure that you can actually de-
liver products and services to your new
customers. We quickly found, for ex-
ample, that trying to centrally manage
construction projects slowed progress,
which we simply couldn’t afford, so we
pushed responsibility out to our local
partners. That meant we had little con-
trol over the projects, and inevitably our
Hypergrowth is the steep part of the S-curve in a growing market or industry, where the leaders emerge from the pack. Established companies, which often labor under inappropriate but en-trenched structures and practices, may struggle to survive the ride.
Market share is determined during hypergrowth, so companies must make sales their top priority. Later they can focus on effi ciency and the business model and pay more attention to costs. Innovation, too, should be put on hold until the systems and solutions critical to a hypergrowing customer base have been put in place.
Standardized processes and centralized accounting and control will enable a business to hit the ground running in new corners of the market. Decision rights should be pushed out to the front line, which both saves time and puts decisions in the hands of more-decisive people. Finally, managers should foster a can-do, communication-friendly cul-ture in which employees are not afraid of failure.
Article at a Glance
Alexander V. Izosimov is the CEO of
VimpelCom, a leading provider of mobile
telephony in the Russian Federation and
other former Soviet republics and the fi rst
Russian company to be listed on the New
York Stock Exchange. The company’s head-
quarters is in Moscow.
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hbr.org | April 2008 | Harvard Business Review 123
inventory and construction reached as-
tronomical levels. But we fi gured that
at this point on the S-curve we had
little choice but to throw cash at the
problem and trust our partners not to
take advantage of the situation. Mostly
they didn’t. It was a risk, of course, but
if you don’t take risks, you’ll never do
any business.
Once your managers are deliver-
ing good sales numbers and you’re on
track to own a lion’s share of the mar-
ket by the time hypergrowth ends (it
takes about seven or eight quarters in
our business to fi gure out where you
stand), you can start preparing for post-
hypergrowth competition by getting
people to think about effi ciency and
the business model. Again, I believe in
keeping the goals simple; therefore,
in 2004 we emphasized another metric,
EBITDA, to complement the subscriber
numbers. By this time we were also be-
ginning to get a sense of our costs, so
managers could start basing decisions
about them on some data, and it became
reasonable to hold those managers ac-
countable for their decisions. EBITDA
proved quite effective at getting people
to pay more attention to costs as all the
new customers started to come online.
At the end of 2005 we introduced
one more correction and shifted our
defi nition of growth from subscriber
numbers to revenue. That’s because in
the future our survival will depend less
on how good we are at getting people
to buy their fi rst mobile phone from
us and more on how good we are at re-
taining customers, getting more value
out of them, and attracting them from
other mobile phone companies. We’re
focusing, therefore, on how to stimu-
late usage without cutting prices and
how to retain customers with loyalty
programs.
More recently, as the market has ma-
tured, we’ve added one more metric: re-
turn on assets. Now that we’re placing
strategic emphasis on maximizing our
assets, we’re trying to reduce our work-
ing capital requirements, primarily by
being more disciplined about choosing
contractors, managing ordering pro-
cesses, and enforcing lead times. Hav-
ing won the business, we’re following
up by improving the model.
We haven’t abandoned the search
for growth; we’re just not expecting
that the Russian market will always
deliver that growth, and we’re tailor-
ing our strategy accordingly. So in mar-
kets where penetration has yet to hit
20%, such as Tajikistan, Uzbekistan, and
Vietnam, we’ll once again be aiming for
sales fi rst.
Rule #2 Don’t Try Too Hard to InnovateEstablished companies, especially in
sectors like telecommunications and
computing, fall into the trap of looking
too far ahead in technological terms. In
our line of business some new killer app
is always emerging. Yesterday everyone
was talking about Wimax (worldwide
interoperability for microwave access).
The day before, all the talk at telecom
conferences was about the “triple play”
of offering combined voice, data, and
video services. Before that it was the
“convergence” of fi xed and mobile tech-
nologies and services.
Of course, it’s important that com-
panies have an understanding of the
technological trends in their businesses,
but the ones that emerge from hyper-
growth as leaders don’t usually spend
a lot of time dwelling on the strategic
implications of future technology. They
have to deal with the current killer app
and the market’s appetite for it. Future
apps are usually fi ve years off anyway,
and the certain opportunities you’d be
missing today far outweigh any you
might be creating for tomorrow by di-
verting resources to blue-sky projects.
At VimpelCom we deliberately decided
not to be at the bleeding edge of our in-
dustry’s technology, which has allowed
us to focus on the systems and solutions
most critical to our hypergrowing cus-
tomer bases.
There’s not much point in creating a fi nely tuned business model bristling with performance criteria if in the meantime your competitor takes all the customers.
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FIRST PERSON | Managing Hypergrowth
124 Harvard Business Review | April 2008 | hbr.org
We’ve benefited from operating
in markets that are technologically
somewhat behind Western Europe, the
United States, and the even more so-
phisticated markets of Japan and Korea.
It’s like having a crystal ball: You can
look at a technology and how people
are using it, and then work out whether
and how to apply it in your own mar-
ket instead of going in blind, which is
more or less what U.S. and European
mobile phone companies have to do.
Push-to-talk is a case in point. Back in
2002 it was the hottest functionality
in the U.S. Basically, it allows the mo-
bile phone user to connect immediately
to one person or several simultaneously
by simply pressing a button on the
handset. It works like a walkie-talkie or
a portable radio but without geographi-
cal constraints.
In Russia we couldn’t deploy this
new service right away, and that gave
us the luxury of thinking about it a bit.
We concluded that it probably wouldn’t
work in Russia, because Russians hadn’t
grown up playing with walkie-talkies
the way Americans had. It would take
a lot to persuade them to start using
push-to-talk. Changing people’s be-
havior is far more challenging than
understanding new technologies and
incorporating them into your devices
and networks. So we tried push-to-talk
only in one small region, and our ex-
perience there justifi ed our decision
not to rush ahead with this supposed
killer app, which could very easily have
distracted us from the main event:
booming sales for plain vanilla mobile
phones.
Rule #3 Organize Like McDonald’sA large measure of credit for our success
should be given to my predecessor as
CEO, Jo Lunder, who made a very smart
decision to standardize technologies,
organizational structures, and business
processes across all the company’s oper-
ations. His decision was in response to
the competitive environment he faced,
and that situation illustrates how it can
often turn out to be a blessing not to be
your industry’s leader.
When Jo was named CEO, in April
2001, the incumbent market leader had
a healthy cash fl ow and was acquiring
regional operations outside Moscow to
build market share in what even then
was a fast-growing market. Vimpel-
Com’s cash fl ow was smaller, mean-
ing we could never outbid our main
competitor. We had no choice but to
grow organically, and if the company
was to cope with the growth rates of
the time, Jo realized, it would have to
create a very predictable and scalable
organization – in other words, become
the telecom McDonald’s. Today, if you
go into an offi ce in, say, Sakhalin, it will
look exactly like our other offi ces. All
the processes will be the same. To many
readers this may seem unremarkable,
but you have to remember the context:
This was Russia in early 2001, and no
one in our supposedly high-tech busi-
ness had tried the McDonald’s formula
before.
A good example of a standardized
process is the monthly business re-
view, which takes place at headquar-
ters and in every regional unit. We use
this meeting to talk through our key
performance indicators and drivers;
participants not only look at the same
kind of data but also follow a consistent
format. That speeds up discussion and
provides a common glue. If a manager
is transferred from one unit to another,
she’ll fi nd the same monthly meeting in
her new job. Having common systems
and processes allows people to hit the
ground running. To support all these
reviews, we’ve just fi nished implement-
ing a centralized accounting and con-
trol system, based on Oracle’s ERP, that
allows us to meet both Russian and
GAAP standards in our tax accounting
and management reports. It’s already
making a difference. In a business like
ours there’s a lot of real-time data. To
compete effectively you absolutely
have to be able to analyze those data
quickly so that you can act on what
you learn.
When hypergrowth took off in 2003,
the advantages of the VimpelCom orga-
nizational formula became readily ap-
parent. The mobile market leader had
agglomerated a ragbag of businesses
with separate networks, processes, bill-
ing systems, and so forth, consolidated
only at the fi nancial level. Effectively,
the company was numerous different
companies, each with its own manage-
ment jealously guarding decision rights
and proprietary systems. VimpelCom, in
contrast, had a standard set of technolo-
gies, not to mention shared systems and
clearly understood decision processes.
So although we were nominally smaller
than our leading competitor, from an
organizational perspective we were
much larger, because the competitor
wasn’t a unifi ed whole.
When you think about it, our “be
the telecom McDonald’s” strategy
is the only sensible one to have in
hypergrowth. Growing by acquiring
businesses may be a smart way to
add market share in a stable environ-
ment. But in hypergrowth the market
is changing so fast that by the time
you’ve inked your deal, let alone inte-
grated it, events have probably left you
far behind, and it’s a racing certainty
that someone else has been picking
up all the new customers who went
Five Rules for Hypergrowth Management
1 Focus fi rst on sales
2 Innovate with caution
3 Standardize structures and processes
4 Delegate decisions to fi eld managers
5 Reward action and initiative
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hbr.org | April 2008 | Harvard Business Review 125
begging while you argued about the
numbers and wrangled with bankers
and lawyers. While our competitor was
struggling to put its 400 houses in or-
der, we at VimpelCom were acquiring
new subscribers and providing better
service than they could get anywhere
else, with broad and relatively seam-
less coverage.
We’ve been very careful to maintain
our simplicity and scalability as we’ve
moved into new hypergrowth mar-
kets outside Russia. It hasn’t always
been the cheap solution, I might add.
Back in 2003 and 2004 we had a fun-
damental discussion on our approach
to IT and billing in the new countries.
Some of the people on my team argued
that when moving into these smaller
markets we should use existing local
systems rather than deploy the high-
capacity but relatively expensive sys-
tem we use in Russia. The cheap solu-
tion would be perfectly adequate for
the few hundred thousand subscribers
we would be dealing with at fi rst, and
we could always switch once we got
going. But we decided to deploy the
common system anyway, even if that
involved initially heavier costs, because
it meant that we wouldn’t have to man-
age interfaces between multiple sys-
tems and would therefore be poised to
offer customers a superior solution dur-
ing hypergrowth – and better placed to
grab the largest share of those new cus-
tomers. We’ve stuck to that, and it has
paid off. In our fi rst Commonwealth
of Independent States market – Ka-
zakhstan – we increased our subscriber
base ninefold over three years, driving
our market share from roughly 30% to
about 50%.
We’re now very disciplined about
hypergrowth. When we move into a
new market that’s about to experience
it, we send in a team that puts in place
all the standard components and pro-
cesses of our organization. Once we’ve
got the basic systems in place, though,
we leave the actual work to the people
on the spot – which brings me to my
next rule.
Rule #4 Push Decisions Out to the Front LineFor manufacturing companies in hyper-
growth the organizational challenge is
often simplifi ed by the fact that many of
their functions are centrally controlled.
Manufacturing happens at a few sites,
and although there’s a supply chain to
manage, the bulk of the fi eld people
come from just one function: sales. In
contrast, companies like ours, whose
regional operations are stand-alone,
also require physical infrastructure and
the people to manage it. We have our
Moscow operation, which doubles as
corporate headquarters, and eight dis-
tinct regional businesses, which in turn
control a total of 76 branches outside
Moscow.
In this kind of organization there’s
a great risk of decision paralysis. When
I came here, the most common com-
plaint I heard was that you had to go
to Moscow for a decision on the color
of your toilet paper. What was happen-
ing was that fairly junior executives in
the head offi ce kept decision rights over
some rather narrowly defi ned activities
that were nonetheless common to all
the units in the organization. It some-
times worked the other way as well.
People out in the regional units tended
to refer all disagreements to Moscow
for resolution instead of working them
out themselves. To some extent these
behaviors were hangovers from Soviet
days, but they’ll be familiar to anyone
who has worked in a large, widely dis-
persed organization that lacks a shared
understanding of how things are done.
Decision paralysis is simply not some-
thing you can afford in hypergrowth. So
when I came on board, we immediately
set out to clarify who decided what and
at what level. The biggest task was de-
fi ning the role of central headquarters.
My model here was Mars, the family-
owned U.S. confectionary company,
where I worked before joining Vimpel-
Com. If you ever go to the company’s
headquarters, in McLean, Virginia, you’ll
fi nd a building about the size of one of
our fl oors here with just 50 desks in it,
20 of which are empty most of the time.
That’s how Mars steers a business with
$21 billion in revenue and sales in more
than 100 countries. Its headquarters
sharply focuses on just three functions:
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FIRST PERSON | Managing Hypergrowth
126 Harvard Business Review | April 2008 | hbr.org
setting measurable strategic goals and
making sure people understand them,
approving and monitoring budgets and
capital expenditures, and making key
appointments. Almost all operational
decisions are left to the discretion of
the people who have to deliver the per-
formance. If a regional manager wants
to hire new people, that’s her choice,
provided she meets her targets. Only if
she starts making these kinds of deci-
sions but misses her targets does head-
quarters intervene.
For this approach to work, you have
to make sure that managers don’t try to
rig the system – something we Russians
got very good at during the Soviet era.
At VimpelCom we tried to convince
our people that we really did have high
business standards and values and that
we expected everyone to follow them.
We did that in part by setting an ex-
ample at the top and by exposing and
punishing any dishonesty we uncov-
ered. In the end, though, we had little
choice but to trust our employees to
do the right thing; in a hypergrowth
situation you scarcely want to spend
a lot of time playing policeman. And
you know what? It worked. In the main
our people have stuck to the high stan-
dards we told them we expected. I think
that most Russians want to put the cor-
ruption of the past behind them and
will not bite the hand that offers that
opportunity.
Pushing decision rights out to the
front line has not only saved time previ-
ously taken to refer decisions; it has also
put them in the hands of more-decisive
people. In my experience, most fi eld
managers are looking for opportunities
to prove themselves. It’s their reports
who dither. Of course, we’re still not
as fast at execution as I’d like – we still
need to reduce times to market – but
this delegation of decision making was
a very big fi rst step. People in the com-
pany believe in themselves a lot more,
which triggers more entrepreneurial
behavior. It’s starting to show up in the
quality of candidates coming to us for
jobs as well. They want to work here
because they know that they can get
things done.
Rule #5 Foster a Can-Do CultureAs you drive decision rights out to the
front line, you also have to work on
creating a can-do culture. In this re-
spect Mars was an excellent school for
me, because it’s a very action-oriented
company. You decide and you do. If
what you decide doesn’t work, you
abandon it and try something else. Fail-
ure isn’t punished at Mars as long as
you show you can move on and get it
right the second or third time. That is
just the kind of culture you want in
hypergrowth.
For it to take hold, however, you
need to make sure people commu-
nicate. When I got here, I found that
employees were very much trapped in
their organizational silos. For example,
our client-support call centers had no
information on launches and could
not, therefore, provide support for new
products; engineers might start imple-
menting upgrades without coordinat-
ing with operations, which would bring
the whole network down for hours; and
so on. Furthermore, with service dete-
riorating, people were wasting a lot of
time pointing fi ngers.
For the past four years or so we’ve
been working to break down these or-
ganizational and functional barriers.
We started by introducing a practice
of semiannual all-hands management
meetings (about 200 to 300 partici-
pants) focused on highlighting exist-
ing problems (including those in the
sphere of communication), finding
possible solutions, and elaborating
action plans. Then, to improve the
information-sharing process and to
make the information consistent across
units, we started to broadcast the re-
sults of the monthly reviews through-
out the company. More recently we
launched an intranet service that pro-
vides employees with comprehensive
information about the company’s busi-
ness, strategy, goals, and key projects.
We’ve consciously striven to build cross-
functional projects into our business
processes at all management levels and
to encourage our employees to take an
active part in project teams and work-
ing groups. The latest step in creating a
communication-friendly environment
has been the transformation of our
work space into an open-plan design – a
goal I had in mind from day one.
The other requirement of a can-do
culture is that people not be afraid of
failure. That was and remains a big
problem. Russian workers don’t like to
be seen to fail. It’s one of the reasons,
in fact, why they have a tendency to re-
fer important decisions to other people.
They’re worried about what will hap-
pen to them if they make the wrong
decision. Of course, the people they re-
fer the decision to have the very same
concerns.
There’s no silver bullet for changing
this sort of culture. You just have to
keep on emphasizing in all your com-
munications how much you value the
skills and decision-making abilities of
your people. The key is to turn their at-
tention away from failure, which they
fear, and direct it toward success and
opportunity, which naturally they crave.
In other words, don’t spend time reas-
suring them that they won’t be pun-
ished; that might send the wrong signal.
Instead present them with models of
what you’d like them to do. The best
Reassuring people that they won’t be punished for failure might send the wrong signal. Instead present them with models of what you’d like them to do.
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hbr.org | April 2008 | Harvard Business Review 127
way to do this is to publicly celebrate
and reward employees for the kinds of
actions and successes you feel exem-
plify the culture you’re striving for.
In 2004 we launched a program we
call “Innovative Ideas in Practice.” The
aim was to motivate people to go be-
yond their functionality – to feel like
part of the company and to work to im-
prove it by implementing new ideas. In
this program we bestow badges of honor
(“leader,” “achiever of the year,” “star of
the team”) on the best employees every
year. This year we introduced a simi-
lar program focused on speeding up all
the processes in the company, from ap-
proving and signing documents to pro-
curement and network rollout. People
from different functions, geographical
locations, and positions are engaged
in the development of cross-functional
projects within the framework of the
program. Winners are those who have
made decisions that had a big impact
on speeding up a project or delivering
greater value to a customer. At our an-
nual offi ce parties we present them
with success certifi cates. Most impor-
tant, we explicitly take these successes
into account in promotion decisions,
so people see that winning certifi cates
helps their careers.
• • •
I’ve always been a fan of speed sports:
Formula One racing, downhill skiing,
surfi ng, and so forth. And I think that
managing a company in hypergrowth
is very much like playing one of these
sports. When you’re learning to drive
a race car or surf a wave, you’re taught
not to fi ght the momentum but to ride
with it. Mentally that means being
both focused and relaxed – focused
to the extent that you’re paying atten-
tion only to the driving, but relaxed
about how the ride is going. It was
the same at VimpelCom during that
hypergrowth ride. Rather than trying
to predict and control our growth, I
tried to let the company’s people loose
to ride the growth as best they could.
At the end of the day, I think my big-
gest contribution was actually not
doing too much, showing the people
that I trusted them to make the right
choices and letting them run with
those. Of course, I exercised some judg-
ment and control over the goals we set,
but I did resist the manager’s instinct
for microcontrol in high-stakes situa-
tions. There was, after all, no way that
I could carry the entire organization
on my shoulders. At the end of the
day, it worked. Sure, we all made some
mistakes, but VimpelCom came out of
hypergrowth a winner.
Reprint R0804J
To order, see page 139.
“I thought I made it clear that I don’t want to be bothered when I’m blogging.”Mik
e S
hapi
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