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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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FIRST PERSON | Managing Hypergrowth

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.



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.




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



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:




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.



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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